Opportunities during Economic & Political Uncertainty: Navigating the Fog of the Current Trade War
Spring is upon us and since our last newsletter, much has changed in the world. We have seen a new administration come to power in the United States, we face our own election here in Canada, and around the world, the economic and geopolitical landscape is changing in ways that are reshaping international relations for years, if not decades to come. In Canada, we have found ourselves somewhat backed into a corner, as for decades, we have had an interconnected free trade relationship with the United States and Mexico that was the envy of the world. However, with recent developments, the US has become hostile to both our economy and our sovereignty. This unfortunate development has shaken the Canadian landscape to the core, but in all this uncertainty, there is opportunity.
When examining the landscape in front of us, I can’t help but think of the Chinese proverb of “Crisis = Danger + Opportunity”, and in this current moment, there is a clear danger to our economy, but we must focus on the opportunities this provides us as accepting defeat is not an option. As of 2022, approximately 75% of our exports went to the United States, and contained in this figure is our oil exports, of which approximately 97% go to the United States. The danger here with US import tariffs is that US buyers will reduce foreign purchases in favour of domestic products wherever possible as they do not want to pay the tax, which in turn would leave us with a surplus of goods, creating an oversupply. This leads to a myriad of other potential economic problems ranging from mass industrial layoffs, economic recession, reduced economic bargaining power, and a likely return to inflationary times with retaliatory tariffs to name a few.
The opportunity here should not be lost on us. Canada has the unique opportunity to retool its economy, breaking down interprovincial trade barriers, making it easier to trade amongst ourselves, but also the opportunity to build new trade relations and agreements with foreign nations outside North America. One significant opportunity is the chance to become closer with the European Union as they seek to reduce dependence on Russian oil and gas imports. National pipeline projects allowing for Canadian oil and gas to move from coast to coast would allow for the selling of products to both Europe and Asia. We can also forge relations with the Pacific Alliance and ASEAN Free Trade Area of Southeast Asia. Currently, oil and gas shipped from the Gulf coast takes approximately 20 days to reach Asia, or depending on if alternative routes are needed, up to 38 days, whereas from Canada it takes on average 10 days, and for Europe, 6-8 days. This would reduce economic dependence on the Americans buying our oil and gas, a major part of our exports, meaning that perhaps the old adage of when America sneezes, Canada catches a cold could be a thing of the past. It could also serve to boost our economic prowess on the world stage as a reliable provider of energy products. The EU finalized a free trade agreement in December with Latin America’s Mercosur trade bloc and Canada has been in negotiations since 2017. It may be time to revisit these in earnest as the GDP of this South American region is $2.5 trillion USD with 295 million people (2020).
Canada has long been a laggard of economic productivity and growth relative to the US as we simply do not have the same industries, but by becoming more competitive, retooling ourselves, and building upon the industries we do have, we can forge a new path forward and with investment in ourselves, using this crisis to take advantage of future growth. For our part, we are actively exploring industries that would benefit from increased trade with European, Asian, and South American partners. We also continue to explore new investment opportunities in foreign markets, and you may recall from past newsletters I have written about home country/region bias and the need for global diversification (Global Diversification & Your Portfolio – January 2022). You never want to have all your eggs in one geographic or sectoral basket, especially since Canada only accounts for ~2.7% of the global market capitalization. With US hostility, some of these opportunities that have materialized include European Defense contractors as the EU seeks to rearm in the face of Russian aggression and potential US withdrawal from the continent. Medical companies in Scandinavia that continue to produce groundbreaking pharmaceuticals, and in Southeast Asia, tech companies benefitting from the continued development of AI, and the need for ever increasingly complex hardware rather than software. With regards to technology developments, we also see opportunity in data infrastructure as we do not know who will win the AI development race, but we do know that whoever wins will need state of the art data centres, power supplies, cooling systems, and processing power to function. Integrating these opportunities into your investment portfolio has the potential to not only broaden your geographic reach and avoid the home country/region bias, thus reducing country-based volatility, but also enter exciting markets with untapped opportunity in both the public and private space.
I recognize the uncertainty and anxiety many are feeling these days. 2025 has brought increased volatility, and it has brought heightened fear as is seen in the volatility index which remains elevated. However, these are the times to remain focused on the long-term framework of investing, and to be greedy when others are fearful. With the fear in the markets, there are plenty of opportunities to buy into great businesses at reduced prices and prepare for the other side of this trade war that has been waged against Canada, Mexico, and the EU among others. With equity prices proverbially on sale, this is the time be adding money to investments wherever possible, and this includes the United States. Recall that US companies are not representative of the US administration, and we maintain a number of names in the USA that we wish to maintain our hold on as they are global in nature, have proven business models, and a historical track record of success, including throughout economic uncertainty.
As your partner and guide in wealth creation, I and my resource partners are here to navigate the fog of the trade war, cut through the uncertainty, and identify the opportunities that are in your best interest to protect your capital in the present while also preparing for future growth and opportunity. We cannot control the actions of world leaders, nor can we control the actions of global markets, but we can control our emotions and response to these factors by being proactive, looking at trends, adjusting forecasts, expectations, and acting accordingly. This too shall pass, and I would like to reiterate that the best time to be buying is when everyone else is selling as this is often when the best opportunities are found, which can position you nicely for the next upwards trend and additional wealth.
Written By: Adam Prittie
Sources:
Canada to Asia shipping: https://natural-resources.canada.ca/energy-sources/fossil-fuels/canada-creating-competitive-environment-liquefied-natural-gas
USA to Asia shipping: https://www.eia.gov/todayinenergy/detail.php?id=26892#:~:text=Transit%20through%20the%20Panama%20Canal,will%20also%20reduce%20transportation%20costs.
Canada Export Data: https://wits.worldbank.org/CountryProfile/en/Country/CAN/Year/LTST/Summarytext#:~:text=Canada%20top%205%20Export%20and,partner%20share%20of%201.17%20percent.
Canada Mercosur Free Trade Agreement
