The trade war brought on by U.S. President Donald Trump’s tariffs has sent a ripple effect across the globe, leading to economic volatility and a lot of red on markets.
Within the past several months, and especially the last week, stock markets have erased trillions of dollars in value.
Many Canadians may be wondering if they should be hitting the “sell” button before losing more value on their investments, or at the very least are concerned about what the market turmoil means for their families and their livelihoods.
“The current market sell-off is in direct response to erratic trade policies pursued by the Trump Administration over the past few months and especially the press conference last Wednesday,” said Peter Morrow, an economics professor at the University of Toronto.
“An increased probability of recession in the United States might be making investors less optimistic about corporate profits, also pulling down market prices.”
Major stock indexes on Wall Street, including the Dow Jones Industrial Average, the S&P 500, and the NASDAQ, have fallen more than 10 per cent from recent highs, or a market correction.
The NASDAQ has entered a bear market, which is a 20 per cent decline from its peak, and so have many stock markets internationally, including in Hong Kong and Japan.
The so-called “Magnificent Seven” stocks (Microsoft, Meta Platforms, NVIDIA, Apple, Amazon, Tesla and Alphabet) are down closer to 30 per cent from their highs.
Canada’s main stock index, the Toronto Stock Exchange, is also in a market correction down more than 10 per cent from its peak seen in late January, and continues to decline.
“Frankly, it’s an administration in chaos and we’re not even at the first 100 days yet,” said Derek Holt, vice-president and head of capital markets economics at Scotiabank.
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Rob Gillezeau, assistant professor of economic analysis and policy at the University of Toronto, said that “The Trump regime has opted to implement the broadest and most severe tariffs in over a century, which will cause dramatic economic harm to the United States and countries around the world.”
“It’s as if they looked at the factors that drove the Great Depression and decided it would be a wise idea to implement them today,” he added.
Last week, Trump announced “reciprocal” global tariffs starting with a 10 per cent baseline tariff on U.S. imports from almost all countries, with many seeing much higher duties.
Trump’s plans have escalated tensions even further with China and the European Union, among others.
Global uncertainty about how businesses, both big and small, will be able to adapt has led to widespread volatility.
The free flow of goods across borders benefits international companies and their shareholders. When companies perform well or investors see strong potential, their stock price goes up or the company might choose to issue or increase dividends. In many cases, these can impact people’s savings and retirement savings, whether through investments they’ve made as individuals or through pension plans through their employer.
Big companies that report quarterly earnings and issue forward guidance such as forecasts are painting dim outlooks, including Nike, which lowered its revenue forecast citing tariff uncertainty among other headwinds.
There is also the issue of the labour market as companies adapt to an economic slowdown with job losses, something already becoming reality.
The latest employment report from Statistics Canada for the month of March showed a loss of 33,000 jobs, while unemployment started ticking up.
Another pulse on the Canadian economy shows businesses are feeling less optimistic about the potential for growth amid the trade war, including for potential new hires.
The Bank of Canada’s business outlook survey for the first quarter describes a deteriorating sentiment where business owners are preparing for challenges that tariffs could bring.
The interest rate landscape has also changed as central banks, including the U.S. Federal Reserve and the Bank Of Canada, reassess whether or not to continue lowering borrowing costs.
Industry experts have widely forecast that tariffs will ultimately put upward pressure on inflation, which could lead to higher interest rates.
Although Trump may want rates to come down to give the economy some wiggle room, it may not be so easy, Holt says.
“There are also massive moral hazard issues for the Fed to bail out U.S. policy ineptitude; doing so could only embolden Trump’s severely misguided trade policies,” he said.
Amid pressure from experts painting a dim outlook, Trump seems to be digging in his heels.
Speaking to reporters aboard Air Force One late Sunday, the U.S. president said he didn’t want global markets to fall, but also that he wasn’t concerned about the massive sell-offs, adding, “sometimes you have to take medicine to fix something.”
Although the inclination may be to join in the selling frenzy, it’s important to see investing as a marathon and not a sprint. Advisors, for the most part, recommend riding out the storm.
“Given the shorter term nature of U.S. politics, with midterms in two years, I would advise against overreacting to the current U.S. administration’s day-to-day decisions,” said Adam Rafelman, investment advisor at Richardson Wealth Management.
“Short-term volatility, whatever the cause, is a normal part of investing and while it’s definitely unpleasant I don’t think it changes the long-term outlook.”
