Steve Johnston says he doesn’t enjoy spreading the blame with his message that the imposition of recent U.S. tariffs is only aggravating the effect of self-imposed stagflation policies that Canadian politicians have embraced for years. Worse, he sees the tariffs as just the beginning of an elaborate U.S. policy designed to siphon global investment capital from trading partners to reindustrialize America.
“We’ve been in stagflation—above-trend inflation, below-trend growth—for some time,” says Johnston, the director of Calgary- and Toronto-based private equity firm Omnigence Asset Management. “Canada has growth problems due to capital flight, a lack of capital investment in productive assets, and an overinvestment—about 40 per cent of fixed capital—in non-productive residential real estate. U.S tariffs are only the straw that breaks the camel’s back. They’re going to make Canadian currency structurally weaker and drive even more investment capital out of the Canadian market.”
Yes, tariffs on Canadian exports are a significant concern, but there’s little to be gained by speculating where they will go after the latest 90-day pause, or why the U.S. didn’t give Canada the same blanket 10 per cent deal it gave other countries, Johnston says, (China, now facing U.S. tariffs of 104 per cent, is the notable exception.) In his view, even if tariffs were to go away completely, it wouldn’t fix what’s wrong with the Canadian economy. If President Donald Trump remains committed to a reindustrialization strategy, Johnston notes, the U.S. can also go beyond tariffs, using additional tax and regulatory tools at its disposal to make it happen.
Simply responding to tariffs in kind with our largest trading partner and putting up barriers is not a winning strategy.
Steve Johnston
Ian Lee, associate professor at the Sprott School of Business, Carleton University, says that Trump’s guidebook to upending international trade is no secret. He encourages Canadians to read “A User’s Guide to Restructuring the Global Trading System,” written by Stephen Miran, chair of Trump’s Council of Economic Advisers, and published in November 2024.
“In this paper, somebody very close to Trump codifies Trump’s somewhat disjointed and rambling discourses, press conferences and tweets over a period of 10 or 15 years in a very high-level, very intellectual paper,” Lee says.
Miran is a Harvard-educated economist, but his paper is hardly an orthodox economic treatise. It claims that the U.S. has shouldered an outsized burden for world defence, that imbalanced trade arrangements have punished the U.S., and that the American dollar’s world reserve status has overvalued its currency, making U.S. exports less competitive.
“There is a path by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit,” Miran writes. “But it is narrow, and will require careful planning, precise execution, and attention to steps to minimize adverse consequences.”
Lee says that whether the plan will work, or whether tariffs succeed as a blunt policy tool, is irrelevant. If that’s the course the U.S. has chosen for the next four years, Canada must adjust.
“Simply responding to tariffs in kind with our largest trading partner and putting up regulatory barriers is not a winning strategy,” Johnston says. “What is our strategy to stop the capital flight out of the Canadian market and encourage domestic investment in productive assets? How do we genuinely make Canada a better place to invest, so our standard of living doesn’t continue to decline?”
Part of that challenge, he adds, will be to get Canada to decide whether it remains a “tax-your-way-to-affluence” country or commits to controlling spending, reducing unmanageable debt that is helping to fuel inflation, and encouraging capital formation.
“America is adamant about attracting a finite amount of capital, and it will have to pull it out of the markets of its trading partners, including Canada,” Johnston says. “Even if tariffs go away, losing the competition for capital will make our stagflation worse.”
For his part, Lee characterizes recent Canadian economic policy as “subsidize, protect and regulate”—a recipe for declining productivity and competitiveness.
He looks to the upcoming CUSMA renegotiation in 2026 (or perhaps earlier) to place all unresolved issues between Canada and the U.S. on the table in a “souped-up diplomatic treaty” that addresses everything from Arctic security, illegal immigration and handguns from the U.S., to Canada’s restrictions on foreign telecom investments—even Canada’s agricultural supply management system. Trump, he says, will be eager to bring a victory of that sort home before the U.S. midterm elections in November 2026.
“Yes, Canada should continue to diversify its economy,” Lee says. “But the notion that we can replace the U.S. as our major trading partner is delusional.”
Should the next Prime Minister recognize that Canada will never be a manufacturing superpower, Lee hopes that the federal government clears the way for Canada’s natural resources, critical minerals and abundant energy to reach world markets.
“There’s a strong sense that the last nine years have been lost years,” he says. “On the Natural Resources Canada website, there are 470 projects worth half a trillion dollars waiting for somebody to do something. If Canada sends a signal to the world that it’s again open for business in natural resource development, that figure could explode.”
What can businesses do?
As Trump has so far shown no signs of backing down on his reindustrialization policy ambitions, how can Canadian businesses and investors respond?
Businesses should prepare for a range of long- and short-term tariff scenarios, given the uncertainty and evolution of tariff measures, says Christina Zurowski, a customs and trade tax partner with Doane Grant Thornton LLP.
“Review supply chains, explore alternative sourcing, evaluate cost structures, and even, where possible, consider if there is an option to shift who is clearing the goods at the border to mitigate tariff-related risks,” she says. “Understanding and appropriately applying the customs provisions from valuation and qualification under CUSMA, given current relief accorded on CUSMA-qualifying goods, will help ensure any tariffs applied are applied correctly and not creating risk in the future.”
While political events such as elections and trade agreement negotiations can influence future policy, Zurowski says, all businesses can benefit from careful preparation regardless of the outcome.
Opportunities for investors in the new world
As for investors, Lee recommends they remain liquid until the federal government reveals its economic agenda, which he says will likely be soon after the election. He also agrees with Johnston that convincing foreign capital to invest in Canada will be key to building prosperity.
Even taking a dim view of Canadian economic resilience, investment opportunities remain. Preparing for a continued stagflationary environment, Johnston says his firm remains focused on investments that tend to be longer on inflation and shorter on growth.
“There are parts of the economy that can actually perform well in that world,” he says. “For example, services driven by regulation must still be performed, even in a downturn. Environmental services, such as non-destructive testing of building structures, are a good example.”
If the fortunes of the middle class continue to decline, Johnston adds, they will want to keep cars on the road longer—and that should spur demand for automotive maintenance services. Likewise, cost-conscious consumers may be more likely to frequent low-cost, casual dining chains. Real assets such as farmland increased in price rapidly during the stagflation period of the 1970s and may continue to drive returns because food demand is inelastic. Canada also possesses a large and competitively priced universe of commodity and commodity-linked assets that tend to behave more positively under stagflation.
Paul de Sousa, head of wealth management, sales and development at Sightline Wealth Management, an independent wealth management firm specializing in alternative investment strategies, says that S&P 500 sectors such as consumer staples, energy, financials and utilities, and TSX sectors including financials, staples and utilities, along with their key stocks, are likely to maintain defensive qualities due to limited tariff exposure.
He also cautions investors to take a long view on the new face of U.S. trade policy.
“Trump’s moves signal his administration’s unwavering commitment to reshaping global trade,” he says, “even if it risks economic turbulence at home.”
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