Insights and Market Perspectives
Author: The editor’s desk
February 3, 2025Members of AGF’s investment management team provide “rolling” commentary on the potential implications of a brewing conflict between the United States and many of its global trading partners following the former’s decision to slap tariffs on Canada, Mexico and China this past weekend.(Updated at 3:59 pm EST)On MaterialsLumber: There is already an anti-dumping duty on Canadian lumber going into the U.S. Adding another 25% tariff makes Canadian lumber uneconomic at current levels. The U.S. produces enough lumber to supply approximately two thirds of their demand, but the remaining one third comes from Canada. There is potential for lumber prices to go up.
Mining: We expect the impact of tariffs is likely to be little. In a global economy, raw product from Canada and Mexico could theoretically be sold elsewhere geographically with material from another country being sold to the U.S. Mining is not an industry which can suddenly ramp up production, so for metals like copper, the U.S. will remain reliant on global copper supply.
Steel and aluminum: There is a lot of steel and aluminum which crosses the Canada/U.S. border in both directions. There are several U.S. companies with operations in both Canada and the U.S, so tariffs could impact their profitability. Producers which have 100% of production in the U.S. would benefit from tariffs.
Packaging: Increased lumber costs would also increase pulp costs, so inputs would increase. If tariffs are put in place, one must wonder about price inflation on food and consumer good, squeezing already stretched finances, and therefore leading to a lower spending environment. Lower consumption of consumer goods would potentially lead to lower packaging demand.
Cement/Concrete: We don’t expect major impacts. Generally speaking, these products tend to be locally produced and don’t travel long distances, so very little moves across the Canada/U.S. border. There is movement of cement across the Mexico/U.S. border, so there may be some Mexican companies who would be affected by tariffs if they are, in fact, enacted a month from now.
Chemicals: The chemicals space is generally reliant on oil and a tariff war could increase oil pricing. Similar to packaging, inflation could lead to lower consumer consumption, and could therefore impact demand for goods which are chemicals-based.
John Kratochwil, Senior Analyst, AGF Investments(Updated at 2:55 pm EST) On the Canadian DollarCanadian dollar weakness is likely to continue if the hardline stance on tariffs continues. Our long-standing views on this are that the U.S. dollar versus the Canadian dollar could see at least $1.50, but there could be potential upside to this figure.
If Canada can achieve a tariff pause as Mexico did earlier today, this could help stabilize the Canadian dollar, and we perhaps could see some modest appreciation.
There is a possible risk that the Ban
