Portfolio manager says that while tariffs have eased, Trump's trade ambitions persist
US markets breathed a sigh of relief on Monday after Chinese and American officials decided to pause their tit for tat tariff dispute, bringing American tariff rates on Chinese goods down from 145 per cent to 30 per cent, while China lowered its rates from 125 per cent to 10 per cent.
While the agreement signals a softening of US President Donald Trump’s rampaging tariff policy, the deal – which was hashed out in Switzerland over the past weekend – will only last 90 days, meaning a long-term solution between the two global superpowers is still a remote possibility. Trump’s change in tone towards tariffs could give hope for Canada’s own negotiations with the US, though Christine Tan, portfolio manager at SLGI Asset Management Inc. suggests that a Canada-US deal will not be in any short-term forecasts.
Tan cautions that while the 90-day agreement has brought significant relief to US markets, there is little to indicate that the two superpowers will be pushing for further normalization of trade. Tan also points to the larger ideological and economic disagreements between the two countries that have been present long before Trump launched his trade conflict with China in early April. This prolonged battle between the US and China indicates to Tan that while some issues may have been patched up on Monday, the larger points of contention will continue to play out after the 90-day reprise.
“It was a matter of time when tariffs for both sides had to normalize to a level where you could start constructive negotiations,” she said. “From what we have gathered and read from both administrations, there wasn't really any key points of agreements. It almost feels like we've reset back to February or March. There’s relief now that talks can actually begin, but now this is when the heavy lifting begins.”
While newly-elected Prime Minister Mark Carney’s first visit to the White House signalled an easing of tensions between the two countries, Trump remained steadfast in his desire to drag Canadian manufacturing jobs to the US at Canada’s expense. Tan says that given Trump’s long-held love for tariffs and the stated goal of returning manufacturing jobs to the US, there is little chance of a renewed deal between the two nations in the near future.
“He's talked about a lot of different reasons for tariffs and the best way to position it is that in his mind, he loves tariffs. He has said that many times he loves tariffs,” she said. “Since the 1980s he's talked about tariffs as a very important potential tool in reducing trade deficits with the US versus the world, and secondly, for bringing these manufacturing jobs back to the US. So from that perspective, he has been quite consistent in his view of tariffs as having this dual purpose.”
The Canadian and US economy have been highly intertwined for decades, with both geographic and cultural closeness creating the interdependence. Industries like auto manufacturing – where parts often flow over the border a multitude of times before completion – have been deeply threatened by Trump’s tariff policy. Tan says that the integration of the two economies, particularly in the oil sector, has created the trade deficit that Trump has become so fixated over.
“Canada and the US is truly integrated in a lot of different economy sectors. Obviously, auto is the most is the perfect example of highly integrated, so it's complicated. That's why it's going to take time,” she said. “In a way, Canada and the US really needs each other. But it also means that that high level of reliance shows up as a trade deficit, and that's the crux of what this current administration is trying to fix.”
One silver lining in the tariff dispute has been a realization of the need to diversify Canada’s internal and international trading partners, according to Tan. She points to the fact that while Canada’s exports to the US have plummeted recently, there has been a significant increase in its global trade. Tan says that while Trump’s tariff policies have been damaging for countries across the globe, the tariffs do nothing to prevent nations from bypassing the US to trade with each other. So while Tan believes Carney will be pressing for a deal with Trump, the aim of diversified trade partners will remain the same regardless of any future trade negotiations.
“If you look at Canada's trade activity in April, our exports to the US obviously declined dramatically, but our exports to the rest of the world increased a lot,” she said. “So that's another example of how, because this is not a global tariff war where everyone's fighting everyone else, but other countries have the ability to adjust.”
Flocks of investors have moved away from US markets with the view of taking advantage of potential tailwinds in global markets, particularly a European market that has surged after loosening of fiscal constraints in Germany. Tan says that while part of this shift has been due to the Trump effect, there was already a move away from the US due to overvalued Mag 7 stocks before Trump’s election.
The shift away from inherent trust in US markets has been demonstrated by the flight from US bonds, according to Tan. But she also adds that even though investors have grown wary of US bonds due to Trump’s erratic decision making, the historical economic dominance from the US means the reliance on the US financial system will remain into the future.
“There has been a tarnishing of the safety of US assets, and in particular, you've seen that reflected in the US Treasury market,” she said. “The US Treasury market is by far the largest and deepest government bond market. The US Dollar is by far the largest and most liquid currency. So that's not going to diminish anytime soon.”
