Key Industries
Energy, Power, Utilities and Infrastructure
The 10% tariffs announced on Canadian energy imports were lower than the anticipated 25% tariffs but could still disrupt North American energy trade and security if put into full effect.
Despite economic uncertainties, our analysts believe that Canadian utilities companies maintain strong financial health, supportive regulatory frameworks for cost recovery, and dividend yields of 4-5% with growth expectations. Midstream companies with regulated cash flows or guaranteed contracts, particularly those with U.S. growth opportunities, also remain attractive in our view.
In the short-term, oilfield services companies may see minimal direct revenue impact if tariffs return, with Canadian dollar depreciation benefiting U.S.-earned revenues. However, input costs may rise due to global supply chains and retaliatory tariffs. A prolonged trade war could lead to reduced capital spending by exploration and production companies, negatively impacting oilfield service companies.
Consumer
A permanent tariff imposed by Mexico and Canada could significantly decrease the earnings of automakers, potentially causing double-digit percentage losses. Automakers are likely to pass some tariff costs onto consumers, which could reduce sales volumes, but they also have the option to move production to the U.S. to avoid tariffs, demonstrating their adaptability.
Despite the macroeconomic concerns, we think value-oriented retailers are considered to be well-positioned to weather the impact of tariffs due to their focus on offering value to consumers, which may be increasingly attractive in an economically challenging environment.
In our view, companies with significant operations in both the U.S. and Canada are expected to face limited impact due to their domestically-focused and operated store networks. Similarly, some apparel retailers, despite sourcing from China and shipping to the U.S. from Canada, are expanding their U.S. infrastructure and anticipate only modest impacts from the tariffs.
Mining and Materials
Uranium
We think the 10% import tariff on Canadian uranium is considered to be relatively modest and in our view is not expected to significantly disrupt cross-border trade immediately. However, it may cause a slowdown in contracting activities due to uncertainties about the potential escalation of trade tensions between the U.S. and Canada.
Canadian uranium and conversion services are essential for the U.S. nuclear fleet, which supplies around 20% of U.S. electricity. Given the limited domestic production in the U.S. and the lack of viable alternative sources, the U.S. remains heavily reliant on Canadian uranium.
While the current tariffs are not seen as highly impactful to Canadian uranium companies, there is a risk that the situation could worsen if the trade war escalates. In such a scenario, the Canadian government might use the U.S. reliance on Canadian uranium as leverage in retaliatory measures. Meanwhile, U.S.-based uranium producers and developers may benefit from trade protection measures with government funding and the ban on Russian uranium imports.
Wood
Canadian wood products, including lumber and oriented strand board (OSB), account for a substantial share of U.S. consumption. Specifically, Canadian lumber imports made up approximately 24% of U.S. lumber consumption, and Canadian OSB imports constituted about 29% of U.S. OSB consumption in 2024, highlighting the U.S.'s reliance on Canadian wood products.
Companies within the wood products industry may raise US-delivered prices for Canadian products to some extent as a reaction to the tariffs, which should help mitigate the financial impact of the tariffs. Additionally, many wood companies have geographically diversified operations, which may further reduce the tariffs' negative effects on their businesses, particularly if substitution pushes prices for US-produced products higher.
Potash
The imposition of a 25% import tariff by the U.S. on Canadian potash might only cause a temporary slowdown in U.S. demand. Despite the tariff, Canadian potash should remain affordable, and the U.S. would likely continue to depend on it due to a lack of alternative sources.
There is a risk that the situation could worsen if the trade war escalates. In such a scenario, the Canadian government might use the U.S. reliance on Canadian potash as leverage in retaliatory measures.
Multi-Industry Companies
The landscape for tariffs is rapidly changing, and businesses must be prepared for ongoing fluctuations in trade policy, which can have diverse and evolving impacts on multi-industry companies.
Many multi-industry companies have mitigated the potential negative effects of tariffs through in-country/for-country manufacturing strategies. This approach serves as a natural hedge against export exposure, reducing the direct impact of tariffs on their operations. The introduction of tariffs could lead to a stronger USD, creating foreign exchange headwinds for companies with significant international sales, as well as an uptick in inflation.
There is also the risk of retaliatory measures from affected countries. Companies with the ability to implement price increases, especially those with significant pricing power, could be positioned to better navigate these challenges. However, specific end markets, such as the HVAC industry with a large portion of U.S. production capacity in Mexico, and the automotive sector, we think are likely more vulnerable to the tariff changes.
Chemicals and Packaging
In our view, the Trump 2.0 tariffs would have an adverse effect on the majority of companies in the chemicals and packaging sectors, with the potential to negatively influence business operations and financial performance.
Given that U.S. petrochemical companies export a significant portion of their production, including to countries like China, Mexico and Canada, retaliatory tariffs from these nations could lead to higher prices and reduced demand for U.S. exports, thereby harming the U.S. petrochemical industry.
The negative consequences of the tariffs would likely extend to various sub-sectors such as coatings, agriculture, lithium, and packaging. However, companies that have a substantial portion of their sales directly within the U.S. market may be relatively better shielded from the impacts of the tariffs compared to those more reliant on exports.
Homebuilders and Building Products
The tariffs introduced by the Trump administration on imports from Mexico, Canada, and China present a risk for companies in the building and building products sectors. These risks come from both direct effects, such as increased costs, and indirect effects, such as higher interest rates and reduced demand, particularly at a time when housing demand is weak and affordability is already strained.
Original equipment manufacturers (OEMs) in the building products sector could face the most significant direct challenges from the tariffs, in our view. These companies may attempt to mitigate the effects through strategies such as shifting production sources, raising prices, improving productivity, and cutting costs, as well as benefiting from favorable foreign exchange movements.
Financials
The possibility of a tariff-induced recession would negatively affect the performance of Canadian banks. If investor concerns continue, this may lead to a downturn and reduced confidence in the banking sector.
In response to the potential economic challenges, Canadian banks may experience an increase in performing Provision for Credit Losses (PCLs), indicating a rise in the allowance for potential loan defaults. Additionally, banks could see slower loan growth and more volatility in capital markets. However, there might be some relief measures, such as a decrease in the Domestic Stability Buffer (DSB), which was observed during the COVID-19 recession.
Valuation multiples and price targets for Canadian banks remain unchanged, though the market is facing the prospect of substantial short-term downside risk and elevated volatility. Canadian life insurance companies may also experience volatility, but to a slightly lesser extent compared to banks, as they are somewhat less directly impacted by the immediate economic shifts caused by tariffs.
Healthcare – Medical Devices
If tariffs are implemented in the coming month, this may be inflationary for the medical device industry, as they can increase the costs of goods, components, and raw materials. This might then lead to higher costs for consumers if companies pass costs along, potentially affecting demand for these products.
The tariffs could provoke more protectionist or retaliatory actions from the affected countries, which might hinder the ability of companies to sell their products and services in these markets.
Despite the potential risks, the current assessment by our analysts is that the overall impact on companies may be negligible/manageable, with most having limited manufacturing exposure and others facing sales exposure in the single digits in the affected regions. Additionally, it is believed that companies may have the ability to pass on the increased costs to customers to some degree to mitigate the impact on their margins.
RBC Capital Markets Research authored the report “Tariffs: Macro & Industry Perspectives” published on February 3, 2025. For more information on the full report, please contact your RBC representative. To access the full report, please contact your RBC representative.
