Tariffs, we simply won't get along with you around...
As of March 4 2025, Donald Trump, not the senate, not the house; Donald Trump, has imposed by executive order, a 25% tariff on all good imported into America from Canada and Mexico, and an additional 10% on goods imported from china, on top of an existing 10% tariff.
One important caveat being that Canadian crude being pumped into America will be set at a 10% tariff.
This unsurprising move, which has been telegraphed for over two years now, has put markets into a nose dive the last four or five business days. We all knew this was coming, apparently too many of us didn’t think he would follow through.
I want to briefly talk about why that might be, explain tariffs and discuss why we aren’t panicking. We remain 🙂 and frankly, if you’re able to, please do buy this dip.
During his first run, Trump balked a number of times at threats of tariffs, and or imposed tariffs at lower rates than he threatened; all which led to the re-negotiation of NAFTA. His wish was to sign a new trade agreement with Canada and Mexico, one he deeply regrets and spends quite a bit of time trying to blame others, for the agreement he negotiated and signed off on.
And I quote: “I lay awake at night thinking how bad this agreement is… who would sign such a thing?”
Sir, you did.
I believe that Mr Trump is simply attempting to apply force to the trade agreements he signed off on, so he can negotiate new agreements. I also believe that by and large the public simply can’t wrap their heads around how goofy that is, and didn’t want to accept that, thus the instability in the markets.
That instability will be exacerbated by an incredible amount of factors, DOGE, the newly created US Crypto Reserve and Ukraine will factor in here, along with a huge amount of other policies and actions that, whether they are legal or not, will have an effect on the markets in the short term.
The entire point of the actions being taken in such bulk, is to overwhelm you.
I want to enhance your calm…
In order to remain 🙂, we must focus on one or two items at a time and stay on target.
With that in mind, What is a tariff?
A tariff is a simple tax on internationally imported goods and services. The point of the tariff is to attempt to have that good or service generated locally and or wean the local economy off the foreign product.
Ok, off to a good start, that makes sense.
Who pays the tariff?
When the good or service is imported, the importer pays the tax.
Ok, so that isn’t so bad, what is the problem with that?
Consider this; most companies importing goods and services have shareholders who demand profits and in some cases, dividends. If a tax creates a scenario where profits are reduced, then the shareholder will demand that cost be passed onto the consumer or they will cease financial support of the company and sell the stock.
You will pay the tax, and likely be gouged in the process, not only on existing stock, that has already been imported tariff free, but then even more so on imported goods and services that have been taxed through tariffs, as the shareholder demands more profits and or a higher dividend.
Which the shareholder is wont to do.
Excerpt from a Verge article (updated March 4 2025):
“In 2018, Trump imposed steep tariffs on imported washing machines as he vowed to put American businesses first, a move celebrated by companies like Whirlpool. But researchers at the Federal Reserve and the University of Chicago found something interesting: not only did the price of washing machines go up but also the price of dryers. All in all, the tariffs cost consumers around $1.5 billion a year, while the revenue from the tariffs the US collected was just $82 million. Washing machines went up by around $86 and dryers went up by $92, the researchers found, even though dryers were not subject to tariffs.”
Whirlpool gouged consumers to pay the import tax, cover their loss and increase their profit. The market paid this price, and thus the market was right to raise the cost of their goods. That is how our economy works.
So, now you know how tariffs work and who ultimately pays them, but does this have the effect of bringing commerce, manufacturing and jobs, as promised by Mr Trump over and over again on the campaign trail leading up to the 2016 and 2024 elections?
A little light reading: Smoot Hawley Tariff Act
No, not really. First off the tariffs are mostly imposed on manufactured goods, and most manufacturing jobs are now automated, so the workforce is not inundated with new opportunity.
TSMC, a chip manufacturing company announced last year that they would spend $100,000,000,000 building a new manufacturing facility for Apple and other company’s in America. One can easily argue that the CHIP’s act, a bipartisan bill signed off on in August of 2022 is the reason ANY new facilities were and are being announced. But Trump took credit for it anyways.
Which is fine.
There have been numerous delays, due to labour shortages, which will be heightened due to a lack of cheap labour due to fears of deportation, but that again is a distraction.
Once a project is built, where are the jobs when machines are doing the work?
Tariffs may have the secondary or tertiary effect of creating jobs and new commerce, but this remains to be seen.
Tariffs are also used to help change consumer and industrial habits. For example: if a consumer is unwilling to buy a BMW because the tariff has put the cost out of reach, they may settle for some other American product.
Seems reasonable, but what if the product sucks?
The consumer will be less likely to buy.
What if the alternative is also hit by tariffs because so few items of the associated product, like say a Ford, are manufactured elsewhere?
Short read: Americas most popular cars are made in Canada and Mexico.
The consumer will save their money and or wait until prices fall.
OR
The consumer will be too preoccupied with status, that they will buy the more expensive product anyways; we are talking about Americans, after all.
Either way, the tariff is less effective than it is being sold to the voter/taxpayer/consumer as.
What you really want to know, and what I will finish off with, is how will Canada be affected by the new tariffs?
Well, we don’t know. But I will posit this to you:
Never mind the oil, steel, aluminum, or cars and lumber— those big things we talk about. Just put those to the side for a minute.
Fertilizer.
Potash to be specific.
There is now a 25% tariff on potash. A simple fertilizer that Saskatchewan happens to have in abundance, and is the only reliable supply of the product on this side of the ocean. Those pesky Rusky’s have a large deposit of potash, but good luck getting it out of Russia.
American farmers are going to go bankrupt this season, because their supply of fertilizer just got a lot more expensive, on top of the increases to prices over the last decade, they’ll now pay the 25% tariff PLUS whatever the supplier decides to gouge them on, to keep their shareholders from pulling out.
They have no choice but to buy. And Nutrien will cash in. Nutrien is Canada’s largest potash exporter. I would urge you too look at their stock over the last five years. They made the most money when people could least afford their product. It might not seem like it today, but a Canadian company will profit from this. 90% of Americas potash comes from Saskatchewan.
This will be the same from many Canadian companies, for the time being.
As an aside, an absolutely massive amount of American farmland is owned by Canadians and or Canadian owned corporations. Many people in America fear the Chinese ownership of farmland, but their stake barely computes to the amount of land owned by Canadian backers.
How long does a tariff on potash last, when people begin to starve? Or being less dramatic, when farmers are losing their farms, because they can’t afford inputs and are unable to sell their product to the international market?
How long do tariffs last when the lobbyists are being inundated with complaints from their partners, and pass those along to elected officials with threats of their meal tickets being slashed or torn up?
Now expand that to the 60% of all aluminum that America imports globally, which is from Canada.
30% of their lumber…
23% of their steel…
60% OF ALL THEIR IMPORTED OIL COMES FROM CANADA… Trump wants Keystone XL, he doesn’t get it if Canada shuts the tap off and starves the country. The Saudis might get on the horn, but I doubt it.
I can’t tell you if these tariffs will last. I can tell you that America, specifically the American consumer, which is the second largest economy on earth, is going to take the hit here. Both Canada and Mexico have done a great job of working to secure larger and more prosperous trade agreements outside of North America over the last decade to reduce our reliance on American exports.
America has not done the same. They will rely on what they can get from us, from Mexico, from China for years to come still. The cheapest way for America to build and grow is by importing Canadian goods, we’re right here and have an abundance of everything but cheap labour (we import and keep that for ourselves).
I would suggest to you, what I (we) have been suggesting to you over the last number of months and through our updates remains out message. Stay calm, cool cucumbers.
Economically, Canada is in a good place. Overall, our economy is robust and agile. America has a pretty deep trade deficit with Canada, that results in a debt to Canada over time. While I would suggest we don’t hold the cards, and if I may be a little dramatic, we are David to America’s Goliath, so we have learned very well how to strategize and act on threats like this.
While I understand saying this in Alberta, perhaps isn’t wise; this federal government has done a good job of strengthening our international ties as well as our local economy. We are in fact, as a country, looked at incredibly favourably by the international community, from nearly every aspect of our economy and culture.
As of today, Danielle Smith will sign off and join the Federal Action plan. This is according to her social media. That is no small deal. Fire and water agreeing to be cool with each other, essentially.
I would also suggest, that if from coast to coast, we could figure out how to get our products, goods and services, out of the country east to west, and not just west and south, we would be that much more strong.
There is no better way to unify Canadians from coast to coast, than to freely move steaks, beer and oil across provincial borders, IMO.
As far as tariffs go, and the recent pullback in the markets; this will pass.
We expect to have a positive year within the portfolio, but it is going to be volatile. Just as the last number of years have been. Last August saw a 30% pullback from the highs we saw in July. In 2023, we saw multiple times the markets took profits and then give them back. 2025 will be no different.
The best thing we can do now, is as always; collect information and rationally act on what we learn.
Please reach out to us if you have questions or concerns. We are here. We want to help you achieve 🙂 during these, shall we say, far too interesting times.
thank you for reading.
Darris Cameron,
CEO,
Financial Value Inc.