‘Financing an enemy’

The big Chrysler plant in Brampton has gone idle. A $1.3-billion retooling for a sexy new electric Jeep, slated for production in a few months, is on pause. Over a thousand workers sent home.

The company, Stellantis, blames the ‘current ‘dynamic environment’ in Canada. Production of the car will still carry on in Italy. The union is troubled, of course. It blames Trump. He wants auto tariffs, has declared new taxes coming on the steel and aluminum used to make vehicles, and is still threatening a 25% levy on all Canadian-sourced stuff. Including Jeeps.

Especially electric ones. One of Trump’s first acts was to scrap Joe Biden’s guideline that half all new cars sold in America by 2030 be electric. (Canada sends 90% of its auto production to that market.)

“We will revoke the electric vehicle mandate, saving our auto industry and keeping my sacred pledge to our great American auto workers,” Trump vowed as he was inaugurated. “In other words, you’ll be able to buy the car of your choice.” So, the EV stimulus ended. And soon Tesla sales also started to slide.

Whether you love electric cars or not (I don’t), policies are policies. Big companies which need to spend billions and take years to plan can’t pivot with every executive order flying out of the Oval Office. So the guys in Brampton are idle. And everyone thinks things may get a whole lot worse in March.

Yes, we won the hockey game. Of course. It was fate. But many Canadians seriously wonder now what they should be doing as we enter a new, more uncertain, age of capricious governance.

Like, what about an American ETF holding the S&P 500? Dump it? Hold it? Trade it for maple?

“Recent geo-political instability has me feeling uncertain about the future,” Erik tells me.

“Given the current trade war and assault on our sovereignty, how does a Canadian investor morally continue to invest in the US market? I appreciate the historical wisdom of “don’t bet against America”, but it feels like we’re witnessing the end of an era. What happens to Canadian investor wealth if the US decides to cancel the US-Can tax treaty or worse?

“I’m not an emotional investor, but financing an enemy who is actively attacking our sovereignty feels morally wrong.  Canada doesn’t feel like a safe investment given our dependency on the elephant next door. Should we just sit tight, ignore the perceived downfall of American institutional stability and hope that capitalist motivations will continue to push the S&P higher?  As a foreign investor, what’s the end game strategy when facing an isolationist America with its sights on our country? I’d love to calm my financial nerves in the face of a threat to our sovereignty.”

This blog has long suggested – like my portfolio manager colleagues – that your long-term interests are best served by being diversified, which includes America. Current weightings for the 60% of our model portfolio that’s made up of equities is roughly equal for Canada and the US (21%) and the remainder international, including emerging markets. A portion of the US stuff is hedged, and overall about a quarter of the portfolio is denominated in American dollars.

Why?

Simple. The American economy dominates the world. The US dollar is the global reserve currency. Neither of those things will change for a long, long time. It has always been wise to hedge against the fluctuating value of the Canadian dollar, and to maintain the bulk of growth assets outside of this country given the fact Canada accounts for less than 5% of global markets. Too many people have succumbed to familiarity and home country bias over the years, leading to volatility and under-performance.

So what now, in the age of Tariff Man?

There’s a reason equity markets have been at, or near, record high levels since he was elected. Trump will cut corporate and personal taxes in the US, chainsaw the cost of government, reduce regulations, oversight, consumer protection, foreign aid, environmental safeguards and social benefits, and adopt a pro-business America First agenda, oligarch-friendly. It’s already happening. His wall of tariffs – now in place or coming – will usher in a new day of protectionism aimed at boosting US investments and jobs.

Look at Stallantis. Why retool a plant in Brampton to sell cars into the States when a new tariff might make them unsaleable? Why not just move the line south of the 49th parallel? It’s what Trump wants, and why tariffs exist. Nothing to do with migrants. No connection to fentanyl. There never was.

So, the S&P and the American GDP will probably continue to swell. US corporate profits are expected to jump by double-digits this year. Inflation will rekindle. Interest rate cuts end. And Trump will continue to refashion the world, to the delight of those on the far right and his dictatorial buddies.

Erik, it comes down to this.

Will dumping your US investments hurt Trump? No.

Will not having exposure to the dominant economy hurt you? Yes.

Will cashing out of the US punish that country? No.

Will loading up on more maple increase risk? Yes.

How can you best look after your family? Stay the course. Is that the highest goal? Yes.

Trump will pass. We will get through this. Good people will prevail. Be one of them.

About the picture: “Hi Garth, here’s a pic of my pooch Marlo,” writes John. “I read your blog almost daily to him and he’s diversified his treat-portfolio as a result. Thanks for everything you do, you have made a paws-itive difference in our lives…”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.