What's Next After Trump Nearly Ended Trade Talks With Canada
After markets closed last Friday, U.S. President Trump said he was ending all trade talks with Canada. He pointed to the digital services tax on U.S. technology companies as the reason.
On Monday, Prime Minister Carney abruptly rescinded the DST. While trade talks may resume, economic risks remain.
The automotive sector will suffer the most in Canada, the U.S., and Mexico. Canada and Mexico are both the main importers of U.S. vehicles and vehicle parts. Firms have an integrated supply chain, resulting from 30 years of free trade. Investors should be wary of General Motors (GM), Ford (F), and especially Stellantis (STLA). Despite withdrawing its guidance for the full year, F stock is in an uptrend. Investors are likely betting that the U.S. will concede to sustain trading volumes among the countries.
DST Rescinded
Trump had characterized Canada as a difficult country to trade with, referencing the Digital Services Tax. However, now that Carney cancelled the DST, services firm will not need to pay a 3% tax on revenue from online users. This reversal should help Netflix (NFLX), Alphabet (GOOG), and Meta Platforms (META).
Investors should watch the Canadian Index (EWC), its currency (FXC), and the U.S. dollar (DXY). The U.S. dollar continued to weaken from January through April. It rallied briefly in May, only to continue toward multi-year lows.
