TSX Under Siege: Navigating Trade Turbulence and Finding Safe Havens in Canadian Markets

Julian WestFriday, May 30, 2025 5:14 pm ET
60min read

The U.S.-China trade war has entered a new phase, and Canadian markets are feeling the heat. As tariff battles escalate and global supply chains fray, the Toronto Stock Exchange (TSX) faces mounting pressure. For investors, the stakes are clear: prolonged trade volatility could redefine sector resilience, reshaping opportunities and risks across energy, tech, and materials. Here's how to position your portfolio for survival—and profit.

The Trade War's Double-Edged Sword for Energy

Canada's energy sector has been a bright spot in the trade storm, thanks to the Trans Mountain Expansion (TMX) pipeline, which unlocked Asian markets. Exports to China surged to 353,674 barrels per day in early 2025, narrowing the WCS-WTI price gap to $9/barrel—a 48% improvement from 2023.

But this success comes with risks. A 90-day tariff truce between the U.S. and China delayed further escalation, but OPEC+'s July output decisions and U.S. auto tariff deadlines loom as critical risks. If crude prices collapse, Canadian producers—despite low breakeven costs—could face margin squeezes.

Investment Play: Overweight energy stocks with Asia-Pacific exposure like CNQ.TO and Suncor (SU.TO). Diversify into natural gas infrastructure (e.g., Pembina Pipeline) to hedge against U.S. tariff fallout.

Materials: Gold Rush or Goldilocks?

The materials sector is thriving, but not without turbulence. Gold prices hit $2,500/oz, fueled by inflation fears and geopolitical uncertainty. Barrick Gold (ABX.TO) surged 24% YTD, outpacing broader market gains.

However, semiconductors and tech-linked materials face headwinds. U.S.-China chip bans and supply chain bottlenecks are sidelining companies reliant on Asian exports. For example, SNC-Lavalin (SNC.TO), which builds infrastructure for global tech firms, saw earnings stumble due to delayed projects in China.

Investment Play: Focus on gold miners (ABX.TO) and fertilizer plays like Nutrien (NTR.TO), which benefits from Asia-Pacific diversification. Avoid materials tied to U.S.-China tech wars.

Tech: A Sector Split at Its Core

The tech sector is a paradox. While Shopify (SHOP.TO) and BlackBerry (BB.TO) thrive as “trade-agnostic” defensive plays, semiconductor firms face existential threats.

The U.S. has banned Chinese buyers from acquiring advanced semiconductors, squeezing Canadian firms like Magna International (MG.TO), which relies on chip imports for automotive electronics. Meanwhile, AI and cloud software companies (e.g., Constellation Software) are insulated due to their global, service-driven models.

Investment Play: Rotate out of hardware and into software. Buy SHOP.TO and BB.TO as safe havens; avoid hardware-dependent stocks.

The TSX's Hidden Weakness: Overexposure to U.S. Tariffs

Despite energy's gains, the TSX remains vulnerable to U.S. policy whiplash. A 70-cent/gallon gas price spike could materialize if Canada retaliates by cutting energy exports—a move Ontario's Doug Ford has threatened.

Near-Term Risks:
1. July 9 Deadline: U.S. auto tariffs on Canadian vehicles could trigger a $20 billion trade dispute, destabilizing industrials (e.g., Linamar Corp.).
2. Energy Cutoff: A U.S.-Canada energy rift would send electricity prices soaring in New England and Michigan, hurting utilities and consumers.

The Bottom Line: Pivot to Resilience

The TSX is at a crossroads. Investors must prioritize sectors with diversified revenue streams and low exposure to U.S.-China trade corridors:

  1. Buy Energy Stocks with Asia Exposure (CNQ.TO, SU.TO).
  2. Hoard Gold and Fertilizers (ABX.TO, NTR.TO).
  3. Avoid Tech Hardware; Embrace Software (SHOP.TO, BB.TO).
  4. Short U.S.-Dependent Industrials (e.g., MG.TO, SNC.TO).

The trade war won't end soon. Those who act now—by hedging with gold, locking in energy gains, and favoring software over hardware—will outlast the storm. The time to position for volatility is now.

Stay informed, stay agile, and invest strategically.