Why Stocks Aren’t Sweating the US-Canada Tariff Turnaround

Heading into the weekend, one would be forgiven for thinking the only thing turning heads at vast speed in our nation’s capital would be IndyCars racing around the National Mall for three hours Sunday.^[i] But the White House’s trade talks with Canada rivaled them for fast turns, veering from midweek reports of a “deal” to new tit-for-tat escalation Saturday. Headlines warn both sides will feel an economic pinch, with Canada bearing the brunt of it. Now, we think tariffs are economically negative—especially for the imposing nation. But given these tariffs’ bark remains far bigger than their bite, we think this is a stretch. Stocks long since moved on from tariff whiplash, and we think their calm hints at economies’ underappreciated resilience.

Last week, things seemed to be looking up between Canadian Prime Minister Mark Carney and US President Donald Trump. Late Tuesday, Trump announced a three-day pause to the additional 50% tariffs set to take effect on certain Canadian goods early Wednesday, saying he and Carney were close to a deal. But talks collapsed late Friday, causing the paused tariffs to kick in Saturday morning. Carney responded with “dollar-for-dollar” retaliatory tariffs that will take effect September 8, and Trump upped the ante by threatening to raise tariffs on Canadian autos and parts from 25% to 50%, effective New Year’s Day 2027.

Set aside the bombast on both sides, and this is still pretty small potatoes. Consider the tariffs taking effect Saturday. The 50% rate is annoyingly high, it has no US-Mexico-Canada Agreement (USMCA) exemptions and it will pinch Americans buying all those Canadian hockey sticks, fishing rods, clothes and the rest. But stocks and GDP deal with the big picture. And fact is, the tariff applies to only $20 billion worth of Canadian goods, which is just 5.2% of the US’s Canadian imports in 2025.^[ii] Canadian vehicles made up just 5.4% of US sales last year.^[iii] If these tariffs stick, they would barely move the US’s total average tariff rate. Most trade with Canada would still be tariff-free under USMCA. More tariffs are a headache for US consumers and businesses, but they are a headache society learned to live with. The US economy and stocks already adapted.

So did Canada’s economy. But headlines warn tariffs will hit it harder all the same, on the presumption that “dollar-for-dollar” tariffs will affect a larger share of Canada’s imports given its smaller economy. Canada is also clawing back from a short, shallow GDP contraction some called a “technical recession” since GDP fell (barely) for two straight quarters. Conventional wisdom blamed this downturn on last year’s tariffs. More tariff pain, supposedly, will disrupt this recovery by raising costs for consumers and hurting Canadian businesses exporting to the US.

Yet here, too, the new tariffs look too small to have such a broad effect. Based on Carney’s description thus far, Canada’s new tariffs will apply to just 7.7% of its US imports.^[iv] That isn’t broad enough to hollow out Canadian manufacturing. Rather, the adjustments businesses made last year to live with tariffs probably help them weather this latest tempest. Some warn logistics firms will face hardship, but Canada’s transportation and warehousing sector grew throughout GDP’s Q4 2025 and Q1 2026 decline. Meanwhile, most of Canada’s GDP comes from services, where tariffs don’t apply. The potential for positive surprise looks high.

But like we said earlier, this all presumes tariffs stick. They may not. This looks like a classic case of both sides walking away from the table in hopes of getting a better deal later, after they flex a bit. Carney has said he is willing to return. The Trump administration’s New Year’s deadline for auto tariffs seemingly leaves plenty of negotiation wiggle room. And, in all likelihood, there will be legal challenges to Trump’s maneuvers, which rely on untested authority in the 1930 Tariff Act.

So does the history between Trump and Carney. Talks between them have been on-again, off-again since Carney took office in March 2025. His poll ratings improved as he played hardball, so he played a lot of hardball. Stocks are very used to all the ups and downs and starts and stops, and they don’t seem bothered. Canadian stocks are outperforming US and world stocks year to date, up 16.1%.^[v] It looks to us like they are already saying this trade spat isn’t a Canadian economic killer. Trust the market.