TSX Futures Slide as Trump Tariffs and Fed Meeting Weigh on Markets

TSX futures dropped sharply on Monday as investors grappled with the dual blows of newly imposed Trump-era tariffs and the looming Federal Reserve meeting. The combination of trade-related uncertainty and central bank policy ambiguity has created a volatile backdrop for North American markets, with Canadian equities—particularly those tied to manufacturing and trade—bearing the brunt of the fallout.

The Tariff Tsunami: New Barriers and Retroactive Costs

The Trump administration’s latest round of tariffs, effective May 2025, introduces sweeping changes to trade flows, especially for Canadian businesses. Key measures include a 120% tariff on Chinese goods imported via postal channels (effective May 2) and a 25% levy on non-USMCA-compliant truck parts (effective May 3). These policies, coupled with retroactive application to goods in transit, have sent shockwaves through supply chains.

The revocation of the de minimis exemption—which previously allowed small shipments to bypass tariffs—is particularly punitive. For Canadian companies reliant on Chinese imports, the sudden need to absorb $200 per item tariffs by June 1 could squeeze margins. Meanwhile, the auto sector faces heightened scrutiny: trucks and parts not meeting USMCA content rules now face steep penalties, a direct hit to Canadian manufacturers like Magna International (MG), which derives much of its revenue from North American auto supply chains.

The tariffs aren’t all one-way pain, however. The stacking prohibition under Executive Order 14289—preventing multiple levies on the same goods—could provide some relief. For instance, companies overcharged since March 4 may qualify for refunds, softening the blow. Still, the complexity of compliance and the threat of future tariffs (e.g., the proposed 100% levy on foreign movies) keeps markets on edge.

Fed’s “Hold-and-Assess” Strategy: Rate Cuts on Ice?

The Federal Reserve’s May 6-7 meeting looms as a critical event for markets. With inflation stable and employment robust, traders had priced in a 25-basis-point rate cut by year-end. However, the Fed’s stated preference for a “wait-and-see” approach—particularly as trade tensions roil global growth—suggests no immediate easing.

The minutes from this meeting, due May 22, will be scrutinized for hints of policy flexibility. If the Fed signals patience, bond yields could remain elevated, further pressuring equities. Conversely, any dovish leanings might stabilize risk assets—if not outright reverse the TSX’s recent slump.

The Investment Crossroads: Navigating Trade and Policy Risks

For investors, the path forward is fraught with trade-offs. On one hand, Canadian energy and materials stocks—like Suncor (SU) or Barrick Gold (ABX)—might benefit from the Fed’s caution and the U.S. dollar’s strength. On the other, manufacturers exposed to U.S.-China trade dynamics face margin pressure.

The USMCA carve-out offers a lifeline: companies meeting North American content thresholds avoid punitive tariffs, incentivizing localization of supply chains. This could boost firms like Linamar (LNR.TO), which specializes in regional automotive parts.

Conclusion: Tariffs and the Fed—A Delicate Balance

The market’s near-term fate hinges on two variables: the duration of Trump’s tariff regime and the Fed’s resolve to hold rates. While the 25% truck tariffs and retroactive rules threaten short-term volatility, the stacking prohibition and refund policies limit long-term damage. Meanwhile, the Fed’s reluctance to cut rates—even amid trade uncertainty—keeps borrowing costs elevated, a drag on equities.

Historical context offers a cautionary note: in 2019, similar tariff spikes and Fed inaction led to a 10% pullback in Canadian industrials. This time, with USMCA provisions offering some insulation and refund mechanisms in place, the downside could be contained—if the Fed doesn’t overreact.

Investors should prioritize firms with geographic diversification (e.g., Shopify (SHOP)) or exposure to domestic demand (e.g., Canadian National Railway (CNR)), while hedging against CAD volatility. The May Fed meeting and tariff developments will likely decide whether this correction becomes a sustained downturn—or a buying opportunity.

In short, the market’s resilience will depend on how well companies navigate the new tariff landscape—and whether the Fed can find the right moment to ease the pressure.