The Canada vs. U.S. trade war is now underway, with a sweeping 25% tariff on Canadian exports in place (10% on Canadian energy) and a retaliatory tariff applied to $30B of American goods, set to increase to $155B in three weeks time.

The most important variable now becomes the duration of the dispute, and how the impact is magnified as time goes on. We dug through historical precedents, combed through hundreds of transcripts, and analyzed market returns to give you a framework for thinking about the challenging road ahead.

You are here: volatility & uncertainty

In this phase there’s a lot of headline risk, but very little economic impact. Uncertainty and volatility rise as everyone scrambles for answers, and there’s not a unified message from country/provincial leadership on the path forward.

This uncertainty has been visible at the corporate level this earnings season, with a number of downward revisions to guidance and some companies pulling guidance altogether.

It’s also evidenced by U.S. trade data, which shows U.S. companies are pulling forward imports as they brace for impact, the same way they did in 2018.

Markets have begun pricing outcomes, resulting in heavy trading and volatility, a tailwind to the trading-linked segments of both the banks and exchange operators like TMX Group (X).

If the dispute is resolved in this phase, the fundamental impact to Canadian companies should be negligible, creating some attractive opportunities in names that sold off.

In our research on steel & aluminum tariffs we published in January, we highlighted which parts of the value chain had exposure and which were insulated. The exposed names we highlighted could outperform from here, in the event of a resolution.

Phase 2: adjustment & strategy shifts

Phase 2 is where governments, companies, and markets collectively say “this is real”. We’re getting closer to this phase, but not there yet in our view.

At the economic level, we’d start seeing tangible impacts of the trade tax imposed by both countries. Exports would fall, as they did during the 2018 steel & aluminum tariffs from Trump’s first campaign.

Cost inflation would likely begin hitting consumers and weighing on corporate earnings, resulting in layoffs across exposed sectors.

We published research a month ago highlighting that 2.4M workers in Canada are tied to U.S. exports, meaning for every 5% of these employees laid off, unemployment would climb by ~0.5%.

Policy measures would likely be formalized during this stage to mitigate the economic fallout from the dispute.

Such measures would likely include further rate cuts and fiscal stimulus, with some analysts estimating in aggregate (provincial and federal), Canada has ~$200B of firepower it could use if necessary.

In markets, we’d expect less volatility than in phase 1, though we’d favour duration exposure through phase 2, as we highlighted in our research from earlier this week.

Phase 3: resolution or entrenchment

If we make it to this phase (hopefully not), our guess is that the USMCA renegotiation is the fork in the road moment. It’s slated for a 2026 review but could come sooner, if the Trump administration continues to apply pressure.

If all parties reach an agreement and de-escalate, markets would rally as risk appetite returns, supply chains gradually improve, and governments reduce their stimulative efforts.

If not, the economic fallout would continue, with the BoC predicting a prolonged trade war could permanently reduce GDP by up to ~3%. The fabric of global trade would be altered, as Canada seeks to diversify away from the U.S. and reignite interprovincial trade, a topic that we dug into a month ago.

In this scenario, trade-exposed equities could face long lasting valuation impairments, and broad markets would have to deal with the largest trade shock since the Smoot-Hawley Tariff Act from nearly a century ago.