The US-Canada Trade Truce: Strategic Sectors and Investment Opportunities in a Post-Tariff Era

The U.S.-Canada trade truce, formalized in late August 2025, marks a pivotal shift in North American economic relations. By rolling back retaliatory tariffs on September 1, 2025, Canada has aligned with U.S. exemptions under the USMCA, resetting trade negotiations and unlocking opportunities for key industries. While lingering tariffs on autos, steel, and lumber remain, the broader normalization of trade has already begun reshaping investment landscapes. For investors, the focus now turns to identifying undervalued equities in sectors poised to benefit from this post-tariff era.

Automotive: Navigating Tariff Relief and EV Transition

The automotive sector has been a flashpoint in U.S.-Canada trade tensions. Canada's 25% retaliatory tariffs on U.S. autos and parts, imposed in response to U.S. Section 232 tariffs, have long strained cross-border supply chains. While the recent truce removes tariffs on most USMCA-compliant goods, the auto sector remains under pressure. General Motors (GM) and Ford, for instance, face projected losses of $4–5 billion and $1.5 billion, respectively, due to ongoing tariffs on non-compliant parts and materials. However, the removal of broader tariffs could stabilize supply chains and reduce production costs for U.S. automakers reliant on Canadian components.

Canadian automakers and suppliers, including Stellantis and Magna International, also stand to gain. The shift toward electric vehicles (EVs) adds another layer of complexity. U.S. incentives like the Inflation Reduction Act (IRA) are reshaping production strategies, favoring firms that align with domestic manufacturing goals. For example, Stellantis has announced a $10 billion investment in EV production across North America, leveraging its cross-border footprint. Investors should monitor how these companies adapt to policy-driven transitions and whether they can secure IRA tax credits for battery production.

Steel and Aluminum: Policy-Driven Recovery and Green Transition

The steel and aluminum industries were among the hardest hit by 2025 tariffs, with the U.S. imposing 50% and 35% duties on Canadian steel and aluminum, respectively. These tariffs, framed as national security measures, disrupted trade flows and depressed Canadian exports. However, the truce has created a window for recovery.

Canadian steel producers like Stelco Inc. (STL.TO) and ArcelorMittal Dofasco (MT.AX) are well-positioned to benefit from two trends: green steel innovation and U.S. demand for decarbonized materials. Stelco, for instance, has secured $1 billion in government funding for its green steel initiative, aiming to reduce emissions by 80% by 2030. With a trailing P/E ratio of 21.69 and a debt-to-equity ratio of 0.61, Stelco appears undervalued relative to its growth potential. ArcelorMittal Dofasco, part of the larger ArcelorMittal S.A. (MT.AS), also stands to gain from U.S. demand for sustainable steel, though its financial metrics remain less transparent.

Aluminum, meanwhile, is surging due to its role in EVs and renewable energy infrastructure. Canadian producers like Alcoa Canada (a subsidiary of Alcoa (AA)) are capitalizing on this demand. Alcoa's debt-to-equity ratio of 0.41 suggests a conservative capital structure, and its alignment with U.S. green energy goals positions it for long-term growth.

Lumber and Timber: Lingering Disputes and Diversification

The lumber sector remains a sticking point, with U.S. Section 232 duties on Canadian softwood exports still in place. These duties, which have cost Canadian producers like Canfor Corporation (CFP.AX) and Interfor Corporation (IFP.AX) billions annually, have forced a pivot toward Asian and EU markets. The $5 billion Regional Diversification Corridor initiative is funding logistics upgrades to facilitate this shift, offering a lifeline to Canadian producers.

While the sector remains volatile, companies that invest in technology and sustainability could outperform. Canfor, for example, has reduced its carbon footprint by 20% since 2020 and is expanding into high-value wood products. With a P/E ratio of 15.3 and a debt-to-equity ratio of 0.8, Canfor appears undervalued despite its exposure to U.S. duties.

Undervalued Equities and Strategic Entry Points

The truce has created a favorable environment for investors to target undervalued equities in these sectors:

1. Stelco Inc. (STL.TO): A green steel pioneer with strong policy tailwinds and a high dividend yield (7.34%), though its payout ratio of 154% raises sustainability concerns.
2. ArcelorMittal Dofasco (MT.AX): Part of a global steel giant with a P/E ratio of 10.42 and a debt-to-equity ratio of 0.24, suggesting robust financial health.
3. Alcoa Canada: A key player in the aluminum boom, with a conservative debt structure and alignment with U.S. decarbonization goals.
4. Canfor Corporation (CFP.AX) and Interfor Corporation (IFP.AX): Lumber producers diversifying into international markets, with Canfor's 15.3 P/E ratio indicating potential for growth.

Conclusion: A Post-Tariff Era of Opportunity

The U.S.-Canada trade truce is a catalyst for renewed economic integration, particularly in autos, steel, and lumber. While near-term challenges persist—such as unresolved tariffs on autos and lumber—the long-term outlook is bolstered by policy-driven transitions like green steel and EV demand. Investors should prioritize companies that align with these trends and demonstrate resilience in the face of trade uncertainties.

As the 2026 USMCA review approaches, the resolution of lingering disputes could unlock further value. For now, the undervalued equities in these sectors offer compelling opportunities for those willing to navigate the evolving trade landscape.