12.07.2018. BRUSSELS, BELGIUM. Press conference of Donald Trump, President of United States of America, during NATO (North Atlantic Treaty Organization) SUMMIT 2018. "

25% Tariffs

Byadmin

I am not a stock trader. I do not trade in and out of stocks based on short-term news events. My time horizon is 20 years.

I have to repeat that to myself like a mantra: I am not a stock trader. I am not a stock trader.

Future President of the United States, Donald J. Trump, tweeted overnight about imposing 25% tariffs on Canada and Mexico for ALL products imported into the United States. He’s also adding 10% to the existing China tariff.

This is obviously negative for Canada. But in what ways is it harmful?

  • It should negatively impact the value of the Canadian dollar
  • It should negatively impact companies that export to the United States (lumber, steel, cars, oil)
  • Lower the GDP of the country
  • It’s a distraction for our politicians, working on trade issues instead of domestic issues
  • This makes it more difficult (or less likely) for the Bank of Canada to cut interest rates

I did a quick check of my portfolio this morning, and I seem to be:

  • 52.5% invested broadly in the US stock market—either index funds, high-yield funds, niche funds, or individual US stocks. I am only counting funds whose underlying assets are valued in US$.
  • 5.5% is invested in HYLD, a US index fund that is hedged to the value of the CDN$.
  • 22% is invested in interest-rate-sensitive products like Preferred shares and money market funds.
  • 20% is invested in foreign markets like the Middle East, Europe, and India.

I also have some cash, which is not included in the above.

Now, it’s hard to estimate the impact of these tariffs with precision. If the Canadian economy is hurt, it will hurt all industries, not just exporters. But we can at least try to avoid the path of direct hits.

My HYLD position (5.5%) is hedged to the Canadian dollar. This will be impacted if the Canadian dollar continues to go down against the US$. But luckily, it’s a relatively small position.

My CAD$ cash position is, of course, at risk from inflation. But it also provides protection such that I don’t have to sell any stocks for a few years to meet any Canadian Dollar expenses that could pop up such as taxes.

All in all, I’m pretty happy with my setup and feel somewhat protected against these tariffs.

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