
This week has truly been one for the history books. President Trump started his long-threatened tariff war on Tuesday, implementing 25% across-the-board tariffs on all goods coming from Canada and Mexico.
Those countries responded by slapping retaliatory tariffs on US goods, promising to bring all 3 countries into recession while spiking inflation, a miserable combination known as “Stagflation” that we haven’t seen since the Great Depression of 1929.
Canadian Prime Minister Justin Trudeau said his country would plaster tariffs on over $100 billion (U.S. dollars) of American goods over the course of 21 days.
“Today the United States launched a trade war against Canada, their closest partner and ally, their closest friend. At the same time, they are talking about working positively with Russia, appeasing Vladimir Putin, a lying, murderous dictator. Make that make sense,” Trudeau said.
Trump’s trade war draws swift retaliation with new tariffs from Mexico, Canada and China, AP
This trade war isn’t just a terrible idea because Canada, Mexico and the US have historically been allies. It’s not even just a terrible idea because we have a free trade agreement between all 3 countries that Trump himself negotiated during his first term. This trade war is a terrible idea because all 3 of our economies are so tightly integrated that you can’t damage one economy without damaging all 3.
Which is why a day after firing the first shot in this trade war, Trump was forced to delay them on the auto industry, granting a 30-day reprieve to cars. Then the tariff on Canadian potash, which is a critical fertilizer that the US agricultural industry is dependent on, was reduced to 10%. And then the entire tariff increase was scrapped altogether on Thursday for another 30 days.
President Donald Trump on Thursday postponed 25% tariffs on many imports from Mexico and some imports from Canada for a month amid widespread fears of the economic fallout from a broader trade war.
Trump changes course and delays some tariffs on Mexico and Canada, AP
All this has predictably caused stock market chaos as traders struggled to parse the head-spinning whiplash of this White House’s constantly changing and contradictory actions.
The rocky week on Wall Street continued on Thursday as investors grappled with further uncertainty from President Donald Trump’s tariffs.
US stocks opened sharply lower but fluctuated on the mixed messaging coming from the White House. All three major indexes closed lower, despite Trump announcing a nearly one-month tariff delay on all products from Mexico and Canada that are covered by the USMCA free trade treaty.
US stocks slide and Nasdaq enters correction as chaos over Trump’s tariffs intensifies, CNN
And while the stock market is one indicator of economic health, a far more alarming indicator is flashing red, which is US consumer confidence.
The latest evidence comes from The Conference Board’s Consumer Confidence Index for February, released Tuesday morning. The index fell to 98.3, falling for the third-straight month and marking the largest monthly decline since August 2021, as expectations for inflation in the year ahead climbed. That coincides with the trends reflected in the University of Michigan’s consumer survey for February.
Consumer confidence registers biggest monthly decline since August 2021 as inflation fears take hold, CNN
Consumer confidence is a measure of how good consumers feel about the economy, and it’s a critical leading indicator. This is because while the Canadian economy is mostly resource and export-based, most of the US economy is consumption based. US consumers buy a lot of stuff, and that spending accounts for about 70% of the entire GDP. And if you’re worried about your job, your own personal financial situation, or inflation, you’re more likely to put off big purchases, like a new car or a home renovation.
In this way, consumer expectations of a recession can be a self-fulfilling prophecy. If you think a recession’s coming, you spend less, which causes the exact recession you were afraid of. That’s why the Atlanta Federal Reserve is now predicting Q1 GDP to have swung from a healthy 2-3% growth to a 2-3% GDP contraction in Q1.
Remember that a recession is defined as two consecutive quarters of GDP contraction, so the US economy is already on track towards that first negative quarter. If President Trump’s policies don’t drastically change over the next few months, the US will enter a recession.
So with all that dizzying stuff happening in the news, how has our portfolio reacted to all this turmoil?
Not surprisingly, all this turmoil has caused the US index to get whacked. The Vanguard Total Market Index ETF that we use, after enjoying a strong start to the year buoyed by optimism over President Trump’s inauguration, has given up all their gains and is now sitting in the red, at -2.23% YTD. The fact that the White House keeps doing this on-again-off-again thing with tariffs is not helping, and promises to keep this trade war uncertainty weighing on markets for the foreseeable future.
But hey, at least it’s not poor old Canada right now. Given the relative size differences between the two countries, this trade war stuff has got to be hurting the Canadian economy way worse, right?
…Huh.
So…the Canadian stock market is…outperforming the US right now? How is that possible?
A little perspective is in order.
Up here in the frigid North, this trade war is all we’re talking about. It’s permeated our national conversation, it’s dominated our news cycle, and it’s infected our politics like no other issue in recent memory. However, this trade war is not the only thing Trump is up to.
We have to remember that for the Americans, this trade war is only one of multiple things Trump is doing that is weighing on their economy. Don’t forget about all the other stuff like…
- Ongoing mass deportations of illegal immigrants, which threaten the entire US food supply chain since undocumented workers power everything from picking produce to stocking shelves. If this continues, food costs will go up, contributing to inflation.
- Elon Musk and his Department of Government Efficiency’s mass-firing of federal workers. Not only does this contribute to unemployment and lower spending, since laid off government workers spend less money, but these cuts threaten critical government programs, like Social Security, which could potentially throw millions of senior citizens into poverty
- Public backlash to companies bending the knee to the Trump administration’s anti-DEI efforts has inspired boycotts inside America, against companies like Target and Amazon. Add these domestic boycotts to the international boycotts from Canadians and Mexicans in response to the trade war, and a lot less money is flowing into American companies’ coffers.
All of this adds up to additional dead weight on the American economy that Canada doesn’t have to deal with, so as infuriating as Trump blowing up our economy may seem, remember that he’s blowing up his own economy way worse.
So that’s how things are going on this side of the pond, which is to say, not great. But that begs the question: How are things going in Europe? Well…
Holy shit.
So apparently, the EAFE index is up a whopping 11.2% YTD!
Well, I guess we know where all the investment dollars that fled the USA and Canada went.
While the USA and Canada have been bludgeoning each other’s economies (again, for no good reason), Europe, Australia, and the Far East have been benefitting from our infighting.
It makes sense. The largest economy in the EAFE index is Japan, and their largest trading partner is China, not the USA. The EAFE index also covers the EU, which has a population and economy roughly equal in size to the USA, yet isn’t engaging in a trade war with its allies, so that starts to look pretty good right about now if you’re an investor.
Capital hates uncertainty, and North America is a hotbed of uncertainty right now.
Add it all up and Europe is kicking our ass. This might be the year that EAFE breaks out in a big way. Perhaps MAGA should change its name to MEGA: Make Europe Great Again.
All together, here’s how our overall portfolio has performed so far this year.
This year has really shown the power of global diversification. The past few years of American outperformance have made people question including international markets at all, if they keep underperforming the S&P 500. Well, now we know why. Because occasionally, America goes off the deep end and destroys their own economy for reasons nobody understands.
If you ignored all the news and simply looked at the performance of a globally diversified portfolio like ours, you might conclude that nothing interesting is happening right now. Of course, we know that the exact opposite is true, so the power of diversification cannot be overstated. Nobody can predict the news, but we do know that calamity rarely hits the entire world at once (COVID-19 being the rare exception).
I don’t know what’s going to happen in the coming months and years. So that’s why the best defence in these uncertain times is to spread our bets across the entire world.
How are your investments holding up? And how are you coping with this firehose of news that’s coming at us from all directions? Let’s hear it in the comments below!

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