Canadian stocks could benefit from mid-term change in US tariffs
The stock market winners of the 2026 midterm elections could emerge north of the U.S. border. The S&P/TSX Composite Index, the Canadian stock market benchmark, rose 2.3% the day after the US election, its best one-day performance since March 31. The index is also up 1.6% since the vote, while the S&P 500 has fallen 0.5% in that period. Democrats flipped eight Senate seats and more than 40 House seats to take control of the US Congress. Their new power on Capitol Hill builds confidence that the United States could take a softer stance in its trade relationship with Canada. Under the second Trump administration, the United States banned several Canadian imports, while Canada responded with its own tariffs and restrictions. Today, “there’s optimism that something is going to change,” said William Alan Reinsch, the Scholl chair in international business at the Center for Strategic and International Studies, a bipartisan policy research group. “This is based on the election results, but also on the statements of a number of Democrats … that they intend to attack Canadian tariffs.” .GSPTSE mountain 2026-11-03 S&P TSX vs SP500 since mid-term Canada has long considered the United States as its largest trading partner. In 2024, Canada sent 76% of its total exports worth $596.1 billion to the United States, according to Canadian government data. The country’s top exports to the United States include raw aluminum, auto parts, crude oil, and paper and wood pulp, according to international trade data platform The Observatory of Economic Complexity. This historically warm relationship has cooled over the past two years – and this has had critical consequences for Canada and its markets. The iShares MSCI Canada ETF (EWC) plunged 5.4% on April 4, 2025, two days after President Donald Trump unveiled drastic tariffs against a slew of countries, including Canada, on what he called “liberation day.” And in July, Trump announced additional 50% levies on some Canadian imports such as dairy products, alcoholic beverages and motor vehicle parts, triggering sell-offs in some stocks. “Investors have fears about global trade and global complexities, and that has probably led to some selling in these stocks,” Chris White, head of research at Canada-based investment firm 5i Research, told CNBC. He pointed out that many Canadian stocks have been hit by U.S. tariffs, although the Toronto Stock Exchange outperformed in 2025 because it is largely made up of energy companies and gold mining companies that have benefited from the growing geopolitical uncertainty linked to Trump’s tenure. Democrats take on Trump tariffs According to Justus Parmar, founder and CEO of Fortuna Investments, there are signs that a Democratic Congress will take on Trump’s tariffs more aggressively next year, creating new opportunities for investors in Canadian stocks. “There’s going to be a lot of pushback from Democrats (on tariffs),” Parmar told CNBC. “We see some really big opportunities in Canada to start deploying money.” Democrats have already proposed some measures to rewrite federal trade laws, which could undo U.S. tariffs against Canada and limit the ability of Trump and future presidents to unilaterally impose new ones. In September, Senators Kirsten Gillibrand, D-N.Y., and Peter Welch, D-Vt., introduced the Banning Antiquated Duties and Delivering Equitable American Levies Act, or BAD DEAL Act, to “repeal all tariffs collected under Section 338 of the Tariff Act” and reimburse Americans for duties paid under that authority, including those brought against Canada. The president still has some room to negotiate a reduction in these tariffs and try to achieve a victory (in terms of reputation) with his remaining voters. Scott Laing, a finance professor at the University at Buffalo School of Management, U.S. Sen.-elect Abdul El-Sayed of Michigan is one of several new lawmakers who have also criticized Trump’s tariffs and vowed to tackle them. However, Scott Laing, a finance professor at the University at Buffalo School of Management, noted that Democrats won’t have enough representation in Congress to completely neutralize the president’s trade powers. “The Democrats have the majority, but they don’t have a supermajority,” Laing added. “So the tariffs are ultimately in the hands of the president.” Even so, Trump appears more likely than ever to change his mind on tariffs after Republicans’ defeat in the midterm elections, which were widely seen as a referendum on his administration’s policies. “The president still has some room to negotiate a reduction in these tariffs and try to secure a (reputational) victory with his remaining voters,” Laing said. “He’s aware that they need to go down and bring down costs for consumers, so I wouldn’t be surprised if they go down a little bit…the tariffs are an easy way to kind of give him the ability to bring (costs) down and preserve his legacy.” How to play it There are several ways for investors to position themselves in Canadian stocks to take advantage of the tailwind of an expected change in US trade policy. 5i Research’s White noted that Magna International and Linamar Corporation — two large auto parts makers — could benefit from tariff relief. Both companies rely on business with the United States because the Canadian and American auto industries are highly integrated, Laing said. Other companies that rely heavily on U.S. sales, such as Canada Goose and Molson Coors, are also expected to see a surge following such relief, Laing said. Molson Coors has plunged more than 30% since Trump’s tariffs were first announced, while Canada Goose is trading roughly flat. Ontario-based Algoma Steel Group, a producer of hot- and cold-rolled steel plate and plate, also stands to benefit significantly from improved trade relations between the United States and Canada, White said. “With the tariffs, their share of U.S. sales has declined,” from more than 50% to less than 25%, limiting growth in Algoma’s share, Mr. White noted. Late last year, the company also cut 1,000 positions, citing pressure from U.S. tariffs. The steelmaker’s shares have remained roughly flat since Trump’s “liberation day.” White also noted that several Canadian-based software stocks, including Descartes Systems Group, could benefit from a boost as Democratic gains give way to more predictable geopolitical conditions that should encourage investors to spread their dollars more widely. “In times of fear and great uncertainty, Canadian investors sometimes flee to these big (Canada-based) banks simply because they have shown a lot of resilience over the years,” White told CNBC. “It kind of took capital out of the software business.” Descartes stock is down nearly 9% since April 2, 2025, providing a good entry point for investors, according to the researcher.
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jack colman
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