FidelityNow: Portfolio update: Canadian industries and tariffs

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What's affecting Canada with tariffs, is changing by the day.

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Where we stand today is that, number one, there are tariffs on many

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goods that are not USMCA compliant.

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That leaves about actually, only about 5% or 10%

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of our goods selling to the U.S. is actually affected by these tariffs we hear

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about, because the rest is USMCA compliant and 0% tariffs.

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The second is also sectorial tariffs, or essentially section

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232, which is affecting Canada.

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That is also obviously a focus in effecting aluminum, steel,

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and autos, and then lastly is the USMCA agreement themselves.

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So you can see where the Canadian government is looking at many different

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levels here to solve this.

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And how they wanna solve it, of course in the short term, is potentially lower

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the sectorial tariffs, lower tariffs outside of USMCA, but

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they also are probably discussing the USMCA, which could be

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ended with a six month notice, and the U.S.

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administration has publicly said they will look into it next summer.

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So that is probably the bigger issue here for Canada, less on the

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actual current concerns of tariffs.

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They're all a concern, but if that USMCA gets

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re-negotiated, maybe we don't have 0% tariffs and we have higher tariffs.

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So it's something the Canadian government obviously has to negotiate properly

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to make sure we're okay with.

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Which sectors could be affected most in the recent tariff announcement?

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As mentioned, some of the more sensitive ones would be the ones that have

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effect right now with section 232, which would be

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autos, steel, aluminum, and lumber have been recently affected as

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well. These sectors here are a key part

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of jobs, and that is the tough thing with here in negotiating with the U.S.

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The U.S. has brought up many times before, there's certain sectors they would

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like to see jobs come back to the U.S., and many of these sectors

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are the sectors they mentioned, but of course, they're jobs for us as well.

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And yes, thankfully, the Canadian government is speaking about helping these

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industries in providing short-term benefits, but longer term, we

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need to find a better solution because again, for Canada, we needed to have

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proper trade with our partners,

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and these tariffs can be very punitive.

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So the sectors overall are that first level of concern.

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The second level, though, is the USMCA.

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We have to watch that all sectors could be affected to some degree

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if they're selling goods to the U.S.

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That is more of a view going forward, but I'm sure it's a concern

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for the Canadian government and all of us as Canadians to make sure the USMCA

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is properly negotiated.

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And the assumption that we'll have 0% tariffs may be a lower

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probability right now when you see almost every other major country paying at

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least 10% tariffs, and of course varying degrees above that.

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At a high level, what might be impacting the portfolio?

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Luckily, working at Fidelity, we have the competitive advantage of our team

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here. We were doing a lot of work even before the U.S. election to see what

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scenarios could happen, depending on who would win the U.S. government.

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And so, running those scenarios, we did, number one, a lot sensitivity

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analysis to say, where are the upside, downside,

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what are the possible scenarios?

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Number two, we were analytical, not emotional.

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You do not get emotional with politics.

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And number three is, we're just trying to be very

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pragmatic. The situation can change daily, so you have

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to be able to adjust and react.

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So we've limited certain parts that we call the blue part of the flame.

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And the blue of the the flame is the hottest part of flame.

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And so again, going back to U.S. administration, what areas were they talking

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about even before the election was one, about jobs and sensitivities,

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and it would be involving steel, aluminum, dairy.

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Any manufacturing jobs are a big thing and focus for U.S. administration to bring

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back to the U.S., so those are areas where we adjust in the portfolio

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and try to limit exposures if we can.

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But also to remind the audience, there's lots of great companies that sell

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globally, not just the U.S., they also sell the U.S. but they may sell software,

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they might sell services.

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And there's many great companies sell within Canada as well.

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So it's the actual portfolio itself can be adjusted

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while still giving a large impact to the Canadian market.

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And again, it goes back to where we're just leaning on this very variable

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environment, is our competitive advantage of the size and quality of our

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investment team. Again, 400 investment professionals working on your behalf.

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I hope you have a great day. I appreciate your time.