Trade relations worsened following the breakdown in the Canada and U.S. trade negotiations over the weekend. Before that, the two countries spent over two weeks on trade talks.
Without an agreement, the U.S imposed a 50% duty on Canadian imports. Canada responded by imposing a dollar-for-dollar reciprocal tariff on U.S. goods.
Canada’s Prime Minister said that the U.S. made last-minute changes to the proposal characterized as unfair, uneconomic, and unreliable for any deal. To offset the impact of the tariffs, the Canadian government will support Canadian workers and businesses.
Expect commodity producers to get a lift. High tariffs will limit the supply of lumber and milk. Commodity stocks like BHP (BHP), Rio Tinto (RIO), and Freeport-McMoRan (FCX) might continue to perform well.
Energy firms like Cenovus (CVE), Canadian Natural Resources (CNQ), Suncor (SU), and Enbridge (ENB) might perform well.
If the Countries Had a Deal
Late last week, when it looked like the two countries had a deal, Canada looked ready to end the boycott of wine and spirits. Expect the boycott to now continue. Additionally, the U.S. imposed new duties on Canadian spirits exported to the U.S.
Investors should avoid Constellation Brands (STZ), Brown-Forman (BF-A), and Molson Coors (TAP). The trend of consumers cutting back on drinking alcohol is a long-term headwind that those companies face.
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