Canada’s Battle With Trump Could Boost Its Stocks. Where to Invest Now.

(ILLUSTRATION BY JUSTIN METZ)

Canada plans to reboot its economy to fortify against Trump. Its stocks could emerge stronger.

Michael Gentile is one Canadian who sees President Donald Trump in a positive light.

A mining investor in Montreal, Gentile is part-owner of NorthIsle Copper & Gold, a company developing a mining project on Vancouver Island in British Columbia. NorthIsle now has a willing partner in the B.C. government: Its project is on a priority list that was created partly in response to Trump’s “threats to our sovereignty and economy,” the provincial government says.

“Trump might be the best thing to happen to Canada. Since he put tariffs in place, I’ve seen stuff that I’d hoped for 20 years start to happen,” says Gentile, senior portfolio manager at investment firm Bastion Asset Management. “It’s Canada getting serious about developing its natural resources….He gave us a big kick in the butt.”

Most Canadians aren’t fans of the president, who has taunted them with his desire to subjugate Canada into becoming the 51st state. A majority of Canadians—some 59%—now view the U.S. as the country’s biggest threat, according to Pew opinion polls. Largely due to Trump’s actions, Canada’s economy contracted 1.6% in the second quarter, hit hard by a drop in exports due to the president’s tariffs.

Yet Canada’s government is dropping its earlier sharp-elbowed approach under recently elected Prime Minister Mark Carney, scrapping most retaliatory tariffs and taking a more conciliatory tone. A similar playbook is happening elsewhere as countries hit with tariffs adjust to the reality that the U.S.—once a beacon for global free trade—is erecting a slew of new barriers under Trump. For Canada and many other countries, it’s time for a reboot.

“Our partners have come around to the idea that these guys want tariffs and are willing to be very punitive with those that don’t play ball,” says Philip Luck, director of the economics program at the Center for Strategic and International Studies.

As the battles play out, there’s a compelling argument that Canada’s economy, rich in natural resources, will weather the storm. Huge hurdles remain, and Canada will need to execute on many fronts, including a new trade deal with the U.S. Still, Canada’s stock market is looking attractive as a long-term bet, both on a reboot of Canada’s economy and growth of core industries such as mining and energy, and its financial sector.

“I expect Canada’s market to outperform over the next 12 months,” says David Rosenberg, an economist and head of Rosenberg Research in Toronto. “Canada might not be an artificial-intelligence play,” he adds, but that may appeal to investors looking for “superior market internals and fundamentals.”

Like other countries in Trump’s crosshairs, Canada is facing economic hits. Its response is a domestic nation-building agenda. The game plan involves accelerating development of mining and energy projects, pumping more money into housing and infrastructure, and removing internal trade barriers among provinces. All told, Carney government’s has set a goal of “catalyzing” $500 billion in private investment over five years, worth about 25% of gross domestic product, according to TD Economics.

Legions of roadblocks remain at the provincial and federal levels. Canada is also sensitive to First Nations groups, who often need to sign off on mining and energy projects. Near term, Canada’s stimulus measures may help the country avoid a deeper slowdown, but new infrastructure, trade deals, and growth projects will take years to bear tangible results.

Still, the government is trying to deliver “the largest economic transformation” since World War II as it reorients trade from the U.S. and builds domestic resilience, notes TD.

Canada’s stock market, meanwhile, is looking strong. It’s up 21% in U.S. dollar terms this year, getting a lift from lower domestic interest rates, a weaker U.S. dollar, and demand for the kind of stuff that Canada sells: raw materials and other hard assets that offer inflation protection. The Canadian market is holding up despite a drag from Canada’s energy industry, in a rut because of low oil prices.

Canadian stocks tend to pay attractive dividends. Several banks and energy and materials companies yield more than 4%. And because it lacks much tech, the market has a higher equity risk premium than the U.S., Rosenberg notes. That means investors are getting compensated more for taking risks on Canadian stocks.

Charting a New Course

How do you tell the difference between a Canadian and American? Canadians would have an answer to that question.

The joke illustrates Canadians’ mixed feelings about their neighbor (and the indifference of Americans). Trump has also catalyzed the country’s national pride, provoking boycotts of U.S. goods and a resurgence of patriotism.

In Toronto and other cities, “Canada Is Not for Sale” hats are common. Liquor stores, mainly run by provincial authorities that account for 79% of sales, have stopped stocking American alcohol. Canadian tourism, led by snowbirds visiting Florida, has dropped. Many Canadians proudly speak of going “elbows up,” to use a hockey term, vowing to protect the country’s sovereignty and economic interests.

Despite the rhetoric, there’s no chance of Canada willingly joining America’s union. But divorce isn’t practical, either. While both countries have much to lose in a prolonged trade war, Canada, whose economy is the size of New York state’s, relies far more on its bigger, richer neighbor.

About 40% of Canada’s GDP, roughly $2.2 trillion in 2024, consists of American imports and exports to the U.S. The U.S. buys about three-quarters of Canada’s exported merchandise. It works both ways: In 2024, Canada “was the top destination for U.S. exports and the third-largest source of U.S. imports,” according to the Office of the U.S. Trade Representative.

Much of those exports are made in Canada by U.S. and multinational companies, notably in the auto industry. But thousands of jobs on both sides of the border hinge on goods flowing back and forth, including autos and auto parts, energy supplies, and raw materials. Also significant are Canadian agricultural products, from beef to tomatoes, worth over $40 billion in 2024. Altogether, $909 billion worth of trade flowed in 2024. By comparison, total U.S. trade with China in 2024 was about $580 billion.

“The entire Canadian economy is an appendage of the U.S. economy,” says Luck.

The stakes are such that Carney—like other world leaders—has dropped his pugilistic tone with Trump. Along with scrapping countervailing tariffs on most U.S. imports, his government ditched a digital-services tax that had been a sticking point with Trump. “What’s clear now is that the U.S. is giving us the best trade deal in the world,” he said recently in a news conference, highlighting the country’s relatively low effective tariff rate.

For now, more than 90% of Canadian goods are entering the U.S. duty-free under the U.S.-Mexico-Canada Agreement, or USMCA, the framework that Trump signed in 2020. The effective tariff rate is 6%, according to Oxford Economics, though it’s likely to rise to 14% as U.S. customs catch more goods that had gone under the radar.

Indeed, the tariff impact may get worse before it improves. For most goods outside USMCA, there’s now a 35% tariff. Exports may drop further because of Trump’s scrapping of the “de minimis” exemption for goods under $800. Canadian auto makers have cut production and delayed investments, notes TD, and nonresidential investment is barely moving, expected to expand just 0.3% in 2025.

The impact is rippling through Canada’s economy. RBC Economics now expects growth to be “slow, but positive” through the second half of the year. TD Economics expects 0.6% growth this year and a rebound to 1.9% in 2026.

“The main thing that’s happening both in Canada and the U.S. is that growth is relatively sluggish, and core inflation measures are elevated and sticky,” says Jason Daw, RBC’s head of North American rates strategy. Canada’s economy has performed better than what had been expected since Trump’s “Liberation Day,” he adds, but there’s still risk in flare-ups over trade or lower oil prices.

One positive is that Canada, like other countries, is embarking on a mix of fiscal and monetary stimulus. The Bank of Canada has cut its benchmark interest rate to 2.75% from 5% in 2024. Most of those cuts predate the trade war, but more may be coming. Futures markets indicate roughly even odds for another quarter-point cut at the next policy meeting on Sept. 17.

Carney’s government, meanwhile, is trying to get provinces to cooperate more on trade while pushing federal reforms that could expedite project and infrastructure development. In June, the government passed the One Canadian Economy Act to help knock down internal trade barriers. Other Liberal party plans include $130 billion of stimulus over four years, including tax cuts, infrastructure projects, and higher military spending, reaching 5% of GDP by 2035.

Rosenberg is skeptical that these measures will move the needle. The country needs “massive tax reform,” he says, partly to kick-start foreign investment, which has seen net outflows of 436 billion Canadian dollars ($316 billion) in the past decade. “There’s a push to fast-track natural-resource projects, getting oil and gas pipeline infrastructure more rapidly developed. But there are a lot of impediments in Canada, too.”

Other strategists say the government needs far more pro-growth policies. “The good news is Canada is very resource-rich, but there have been so many anti-investment and regulatory burdens,” says Ryan Carmichael, global macro analyst at PGM Global in Montreal. “The prospects are there; it’s how long it will take to play out.”

The next big catalyst will be renegotiating the USMCA. The deal is scheduled for a formal review next July, and Carney says “consultations” have started.

Michael Davenport, an Oxford Economics senior economist based in Toronto, expects an agreement by the middle of 2026 and most broad tariffs to be removed by the end of next year. The current carve-outs by the U.S. and Canada for goods covered by the current trade pact reflect the value both put in it.

“It brings validity to the idea that the agreement will be renegotiated and that most trade will remain tariff-free, though with slightly higher tariffs than pre-Trump and with more managed trade,” Davenport says. A new pact may also include quotas and features of other trade deals, including a broader military partnership and promises to buy more U.S. military equipment.

(Illustration by Justin Metz)

All of this is happening as other countries also seek workarounds to the U.S., including former rivals that are now drawing closer. The leaders of Russia, India, and China recently met, pledging warmer relations and economic cooperation, partly as a bulwark against the U.S.

Brazil is also drawing closer to China in the wake of 50% tariffs imposed on the country by Trump. In May, President Luiz Inácio Lula da Silva attended a summit in China and described Brazil as the “axis of a multipolar order” that includes the Global South, a view that China has pushed for years as an alternative to the U.S. as the fulcrum for the global world order.

“The U.S. is like a rock in a river, and they’re flowing around it,” says William Reinsch, a trade expert at CSIS and former Clinton administration official. “They’re all very conventional market-opening, tariff-opening deals. They’re going on around us, and Canadians will be part of that.”

Canadian Stocks on Sale

Canada’s market looks nothing like the U.S. While Nvidia and other tech companies make up more than 40% of the S&P 500 index , Canada’s S&P/TSX Composite index consists largely of financials, energy, and materials (mainly gold miners), which constitute 60% of its value.

“The biggest thing I like about the TSX is the fact that it has built-in inflation hedges,” says Carmichael. “Energy, gold miners, and banks—those three groups give you some protection against higher rates and an inflationary environment.”

The most efficient way to invest is an exchange-traded fund like iShares MSCI Canada . It’s a proxy for Canada’s economy, with 37% in banks, 17% in energy, and 13% in materials. Top holdings include Royal Bank of Canada, Shopify, Enbridge, and Brookfield. Investors also get railways like Canadian National Railway, mining companies like Agnico Eagle Mines, and consumer stocks like Alimentation Couche-Tard.

Canadian banks, after rallying sharply, aren’t such bargains anymore, but some still look cheaper than their stateside counterparts. Toronto-Dominion Bank, for one, yields 4% and trades at 12 times earnings, a discount to JPMorgan Chase at 15 times.

For energy and infrastructure, Enbridge and Brookfield have multinational asset bases that should support growth in earnings and dividends. Enbridge yields 5.5% and has multiple growth projects in North America; Goldman Sachs recently initiated on Brookfield with a Buy, noting that it has a $1 trillion asset base on the cusp of a step-up in book value and excess capital generation. Goldman sees a 20% gain in the stock over the next year.

Beyond the big names, consider some smaller growth companies. Goeasy, for one, is a subprime lender that’s racking up sales and profits and should benefit if interest rates continue to fall. Shares are up 28% this year but still trade at a reasonable nine times estimated 2026 earnings.

Among gold miners, Alamos Gold is expanding production, aiming to reach 680,000 to 730,000 ounces in 2027, from a midrange of 610,000 ounces this year. Production costs are falling, which should support more free cash flow. Alamos stock has surged past the commodity’s performance for years as it has expanded production.

Philippe Hynes, president of Tonus Capital in Montreal, favors companies such as Lassonde Industries and Secure Waste Infrastructure. Lassonde is a packaged-juice and specialty-foods maker that’s expanding in the U.S., with new plants in New Jersey and North Carolina. Juice prices have increased due to Trump’s tariffs, but the company says it’s taking measures to manage costs. Lassonde stock is up 20% this year, a sign that investors view its growth outlook favorably.

Secure Waste Infrastructure is generating ample free cash flow. (Courtesy Secure Waste Infrastructure.)

Secure Waste runs facilities to clean the waste from energy and other industrial sites. The company has acquired several rivals and is now buying back shares and generating ample free cash flow, says Hynes. “They’re trading at a decent valuation relative to other waste companies in the U.S.,” he adds. The stock, which also trades over the counter in the U.S., is flat this year and probably won’t rise much without gains in oil prices, making it a bet on a broader energy recovery.

Canada is also packed with speculative “junior” miners, though they pose far more risk than large, established firms. NorthIsle, for one, has a market cap of less than $300 million, trading over the counter in the U.S. and on the TSX Exchange. The company recently raised capital and aims to start production in 2031 or sooner, mining the equivalent of 48 million pounds of copper and 200,000 ounces of gold a year over the first five years of production.

The firm still needs permitting and other approvals to get moving, but it should go faster with more support from B.C., along with buy-in from First Nations groups.

“I’ve been in this industry for 30 years, and this is the first time I’m seeing alignment across all governments and most stakeholders,” said CEO Sam Lee, speaking to Barron’s while on a trade mission in Korea with the Canadian government. “It’s truly a pivotal moment for our country.”

Write to Daren Fonda at daren.fonda@barrons.com, Reshma Kapadia at reshma.kapadia@barrons.com, and Al Root at allen.root@dowjones.com