The recent re-election of Donald Trump as the President of the United States has sparked a wave of discussions and speculations about the future of economic policies and their impact on both the US and global markets.

For Canadian investors, this outcome could signal both opportunities and challenges across various sectors. Whether it's the potential for increased market volatility, shifts in currency values, or changes in cross-border trade dynamics, understanding how Trump's re-election may influence Canadian markets requires a careful and detailed examination.

Let’s analyze and explore the possible market reactions to Trump’s victory focusing on the direct and indirect implications for Canadian investors, the winners of the so-called “Trump trade,” and the key factors to watch moving forward.

Winners and Losers of the "Trump Trade"

The so-called “Trump trade” refers to the investment strategies and sectors that have benefitted from Trump’s economic policies. With his re-election, US Equity markets surged to new highs. Let’s analyze the sectors facing tailwinds and the ones facing headwinds.

Winners:

1. Energy Companies: As mentioned, the energy sector stands to gain from Trump’s continued support for fossil fuel production and deregulation. Canadian energy firms with ties to the US market, especially in oil and natural gas, may see greater demand for exports.
2. Financial Institutions: The financial sector, especially banks, benefited from Trump’s tax cuts and deregulation efforts. Canadian financials with significant US operations could continue to see favorable conditions under a Trump administration.
3. Defense Contractors: Increased defense spending under Trump’s administration is likely to benefit companies in the aerospace and defense sectors, including those with Canadian partnerships.

Losers:

1. Trade-Dependent Sectors: The agricultural and manufacturing sectors—particularly those reliant on smooth cross-border trade—could suffer if Trump’s administration reintroduces tariffs or renegotiates trade agreements. For Canadian businesses that rely heavily on the US as an export market, trade disruptions could pose risks to growth.

Economic Policies Under Trump

Donald Trump’s presidency has been marked by a series of aggressive economic policies, most notably his stance on trade and taxation. With another term secured, we can expect a continuation and possibly an intensification of these policies.

1. Trade Policies: Trump’s administration has been known for its protectionist trade policies, including imposing tariffs on Chinese goods. This approach is likely to persist, potentially leading to further trade tensions and impacting global supply chains. For Canadian businesses, this could mean navigating a more complex trade environment, especially for those reliant on US-China trade dynamics.
2. Tax Policies: Another key aspect of Trump’s economic strategy has been tax cuts aimed at stimulating domestic investment and economic growth. Trump is expected to renew the personal tax cuts introduced in January 2018, which are set to expire in 2025. Additionally, there may be further corporate tax cuts. While these policies have been beneficial for some sectors, they have also contributed to increasing the national debt and add to inflation pressures. The continuation of such tax policies could lead to short-term economic boosts but may pose long-term fiscal budget challenges.

Impact on Canadian Markets

The re-election of Trump carries mixed implications for Canadian markets. Here are some potential effects:

1. Manufacturing and Export Sectors: Canadian manufacturers and exporters might face challenges due to the ongoing trade tensions and tariffs. Companies that are heavily integrated into the US supply chain or those exporting to China could experience disruptions and increased costs.
2. Energy Sector: On the other hand, Trump’s policies could benefit the Canadian energy sector. His administration’s support for fossil fuels, pipeline expansion and general deregulation efforts might create opportunities for Canadian energy companies, particularly those involved in oil and gas.

Implications for Canadian Investors

Trump’s re-election is expected to usher in familiar economic policies that characterized his first term, with some potential refinements and new priorities. For Canadian investors, the broad implications will be felt across currency markets, interest rates, trade relations, and specific industry sectors. Below, we examine the potential pros and cons for Canadian investors.

1. Currency and Exchange Rates: USD/CAD Dynamics

Trump’s policies will lead to greater inflationary pressures—via tax cuts, increased government spending, or deregulation—the resulting shift in US monetary policy could impact the CAD negatively. A tightening of interest rates in the US could put further pressure on the Canadian dollar, especially if the Bank of Canada does not follow suit.

2. Interest Rates and Monetary Policy

A possible rise in US inflation due to tax cuts or government spending initiatives might force the Federal Reserve to tighten monetary policy. This could lead to higher interest rates in both the US and Canada. Higher rates would likely increase the cost of capital for Canadian businesses, particularly in interest-sensitive industries, and could depress consumer spending and borrowing. Additionally, higher rates in the US could draw capital away from Canada, creating further challenges for the Canadian dollar.

3. Trade Relations and NAFTA/USMCA

Trump was at the helm when USMCA (formerly NAFTA) was renegotiated. If he continues with the current agreement, Canadian businesses may benefit from more stable terms of trade with the US, avoiding the disruptions that characterized the trade talks of the previous years.

However, Trump’s “America First” approach may continue to drive protectionist rhetoric, especially in areas like steel, aluminum, and other critical industries. A re-escalation of tariffs or the renegotiation of key agreements could disrupt trade flows, particularly for Canadian exporters. Sectors that rely heavily on cross-border supply chains—such as automotive manufacturing and agriculture—could see challenges if new trade barriers are imposed. Moreover, Trump's more nationalistic stance on trade with China and other global partners could create ripple effects in global markets, impacting Canadian businesses with international operations.

4. Sector-Specific Impacts

1. Energy Sector
   Trump’s re-election would likely mean a continuation of pro-fossil fuel policies, such as deregulation in the energy sector, expanded oil and gas production, and more favorable policies for pipelines and fossil fuel exports. For Canadian energy companies, particularly those in the oil sands and natural gas sectors, this could represent an opportunity for stronger demand, greater access to US markets, and less regulatory burden. However, the environmental implications of Trump’s energy policies may attract increased scrutiny from global investors and governments, especially in Europe. Additionally, while Trump’s policies favor fossil fuels in the short term, the long-term global shift toward renewable energy sources may present structural headwinds for the industry.
2. Technology Sector
   Previously, Trump had an inconsistent approach to regulations for companies in the Technology sector. On one hand, tech companies have benefited in certain areas, such as antitrust laws. A second term could continue these trends, potentially boosting US-based tech giants and their Canadian counterparts with significant exposure to the US market, such as Shopify. If regulatory burdens remain light, Canadian tech companies could see a more favorable environment for expansion, particularly in sectors like e-commerce, artificial intelligence, and cloud computing. On the other hand, his first term saw tensions with Silicon Valley over issues like user data and privacy, which could resurface. If Trump's administration continues to take a hard stance on issues like data sovereignty, or tariffs on digital goods, Canadian tech firms with large US operations or dependencies may face added challenges, particularly in areas like cross-border data flows.
3. Financials Sector
   Trump’s policies, including tax cuts and financial deregulation, were generally favorable for US banks and financial institutions. Canadian banks with a significant presence in the US could benefit from a continuation of these policies, as a more relaxed regulatory environment could improve profitability. Moreover, potential tax cuts could boost the bottom lines of Canadian financial institutions with US exposure.

Conclusion

Trump’s victory in the 2024 election presents a landscape for Canadian investors with both risks and opportunities. While certain sectors are poised to benefit from a continuation of his policies, others may face significant challenges. For Canadian investors, understanding the broader implications of Trump’s re-election on currency fluctuations, interest rates, trade relations, and sector-specific dynamics will be critical in navigating this evolving market environment. As always, getting the right advice for your own particular situation, diversifying and structuring your investments according to your financial plan and focusing on long-term growth and objectives are always the best way to shape your path forward.