TSX Soars 236 Points: Is the Canada-U.S. Trade War Ending? Here’s What Investors Need to Know

The Toronto Stock Exchange (TSX) surged 236 points this week, fueled by hopes that the simmering Canada-U.S. trade war might be nearing a resolution. Investors are betting that diplomatic backchannel talks and corporate adaptability could prevent a full-blitz tariff escalation. But is this optimism justified? Let’s dive into the data and the sectors leading the charge.

The Trade War in a Nutshell

The U.S. has imposed 25% tariffs on Canadian automobiles and parts, while Canada has retaliated with tariffs on $155 billion of U.S. goods—from orange juice to appliances. The WTO is now arbitrating, but with the Appellate Body defunct, enforcement hinges on goodwill. Meanwhile, Canadian companies are scrambling to pivot supply chains.

Why the Optimism Now?

This week’s rally was sparked by reports of quiet U.S.-Canada negotiations and Canada’s strategic tariff relief measures. The government’s “performance-based remission framework” for automakers—allowing tariff-free imports if they keep Canadian jobs—has given investors hope that business continuity can be maintained.

Sector Breakdown: Winners and Losers

1. Railroads: The Unsung Heroes

Canadian National Railway (CNI) and Canadian Pacific (CP) have become symbols of resilience. Both maintained their 2025 revenue growth forecasts despite the trade war, citing new cross-border trade routes (e.g., Canada-Mexico fuel shipments) and domestic demand. CP’s CEO even highlighted opportunities in “trade diversification.”

Investors should watch for CP’s Q2 results, as its focus on Mexico ties could pay off if tariffs ease. Meanwhile, CN’s stock has outperformed the TSX by 8% this quarter——a sign of market confidence in their logistics agility.

2. Energy: Betting on Sovereignty

The energy sector is a prime beneficiary of Canada’s “strategic pivot.” Imperial Oil (IMO) reported strong Q1 results, buoyed by cost-cutting and a focus on non-U.S. markets. The government’s push to fast-track East-West pipelines and critical mineral projects (e.g., lithium in Manitoba) has drawn institutional investor interest.

But don’t overlook the risks: U.S. energy tariffs (10%) on Canadian exports remain in place. Investors should pair exposure to IMO with positions in renewable energy firms like NextEra Canada, which benefit from long-term infrastructure spending.

3. Automotive: A Delicate Balance

General Motors (GM) cut production at its Oshawa plant, but Bombardier (BBWI) saw its target price jump to C$115 after beating earnings estimates. The key here is geographic diversification. Companies like BBWI that export to Europe and Asia are thriving, while those tied to U.S. auto tariffs are struggling.

The Risks Lurking

Don’t mistake hope for certainty. Three threats remain:
1. Legal Limbo: The WTO could rule against the U.S., but enforcement is uncertain.
2. Economic Slowdown: The U.S. GDP contracted 0.3% in Q1, and Canadian home sales are collapsing.
3. Currency Volatility: The Canadian dollar’s “death cross” (20-day moving average below 200-day) suggests further weakness, which hurts exporters.

What to Do Now

Buy the dip in railroads: CP and CN are well-positioned for trade diversification.
Go big on energy sovereignty: IMO and critical minerals firms like First Quantum (FM) offer long-term upside.
Avoid U.S.-exposed automakers: Focus on Bombardier or Tesla (TSLA) instead of GM or Ford (F).

Final Verdict

The TSX’s 236-point surge isn’t just about trade war hopes—it’s a bet on Canadian corporate adaptability. With railroads leading the charge and energy firms pivoting to new markets, this rally has legs—if the U.S. and Canada avoid escalation. Investors should stay aggressive on Canadian logistics and energy, but keep a wary eye on tariffs and GDP data.

As we’ve always said: In trade wars, the winners are those who pivot fastest—and Canada’s companies are proving they can do just that.