The trade war has been postponed but the uncertainty still hangs over the Canadian economy like a damp fog.
President Donald Trump pulled back from the edge on Feb. 1, just hours before Canadian exports to the U.S. were to be hit with a crushing 25-per-cent surcharge.
If it had gone forward, it would have been as ruinous as the Smoot-Hawley Act of 1930, which was a key contributor to prolonging the Great Depression.
What The Wall Street Journal calls “the dumbest trade war in history” could still happen if Mr. Trump decides he isn’t satisfied with Canada’s efforts to tighten border security – assuming that’s his real objective, which most people, including Prime Minister Justin Trudeau, seriously doubt.
In the meantime, he continues to shake up investors by announcing policy shifts that no one saw coming. The first was his controversial plan to resettle two million Palestinians who call Gaza home and rebuild the land in his own image – “the Riviera of the Middle East” as he calls it. Arab nations have unanimously rejected the idea, but Mr. Trump seems to be serious. He certainly would get support from Israel, which would be overjoyed to have the U.S. military take over responsibility for maintaining order in Gaza.
That was followed with his seemingly off-the-cuff Sunday announcement to reporters on Air Force One of 25-per-cent tariffs on all steel and aluminum U.S. imports. It was a clear indication that tariffs will play a central role in Washington’s foreign and economic policy for at least the next four years. Mr. Trump sees them not just as a negotiating tactic but as leverage to extract a wide range of concessions, not just from Canada but from all his trading partners.
It’s also worth noting that the trade decrees Mr. Trump signed on Feb. 1 allow him to increase the tariff rates if the targeted countries retaliate. Canada and Mexico have already announced they will do exactly that if the tariffs are imposed after March 4. Mr. Trump’s personality suggests he would double-down in that circumstance. The 25-per-cent rate may be nothing more than an opening bid.
So, what can you do to Trump-proof your portfolio? First, buy gold. The precious metal touched a record high last week and I expect it to pass the US$3,000-per-ounce level within a month. It is proving to be the best hedge for protecting your assets from the turbulence of the U.S. administration. Central banks have been major buyers, seeking to reduce their exposure to Mr. Trump’s policies. There has also been a lot of institutional buying. The TSX Global Gold Index has gained 20.5 per cent so far this year.
Some of our recommended mining stocks have done well. Franco-Nevada (FNV-T), one of our long-time favourites, is up 19.5 per cent (to Feb. 7) despite seeing a revenue drop because of the closure of the Cobre Panama mine, in which it has a royalty stake. Pan American Silver (PAAS-T) is ahead 20.6 per cent this year. Agnico Eagle Mines (AEM-T) is up 24.9 per cent. Equinox Gold (EQX-T) has gained more than 30 per cent.
But a word of caution. Not all gold stocks are posting big gains. For example, Barrick Gold (ABX-T) is up only 9.2 per cent this year after the company shut down its operations in Mali following a conflict with the government.
If you don’t want to invest in individual stocks, there are plenty of mutual funds and ETFs from which to choose. The iShares S&P/TSX Global Gold Index ETF (XGD-T), which holds mining stocks, is up 21 per cent this year. If you prefer to invest in the physical metal, the iShares Gold Bullion ETF (CGL-T) has gained 8.55 per cent so far in 2025.
I also suggest owning some low-risk U.S. T-bill ETFs. I have mentioned the iShares 0-5 Years TIPS Bond Index ETF (XSTP-T), in the past, but if you haven’t taken a position yet I suggest you take a look. This normally won’t produce great returns (2024 was an exception), but it’s a solid and safe holding. The Canadian dollar version is up 0.64 per cent this year, while its U.S. dollar sibling (XSTP-U-T) is up 1.06 per cent.
Finally, consider buying some low volatility ETFs. They aren’t immune to a falling market but the low beta stocks they own should cushion any downward move. We’ve recommended the BMO Low-Volatility Canadian Equity ETF (ZLB-T), which has only lost money twice in the past 10 years, the worst being a decline of 2.78 per cent in 2018. The 10-year average annual compound rate of return is 8.9 per cent.
If you’re not averse to investing in U.S. stocks, we also like the BMO Low Volatility U.S. Equity Fund (ZLU-T). It’s had only one down year in the past decade (-3.11 per cent in 2023). The 10-year average annual compound rate of return is 10.4 per cent.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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