Strategic Planning for a Trade War

How Canadian Investors Can Safeguard Their Wealth



There’s a new economic reality. Global trade tensions continue to rise and disrupt global markets, creating economic uncertainty for Canadian high-net-worth individuals business leaders, and professionals. Tariffs, supply chain disruptions, and currency fluctuations can erode investment portfolios, alter tax structures, and impact your long-term financial plans.

For those with significant wealth, business interests, assets tied to global markets, or even just a significant portion of investments outside of Canada, strategic financial planning is no longer an option–it’s essential. The question is: How can you proactively safeguard and grow your wealth amid prolonged economic volatility?

In exploring economic impacts on Canada, diversification strategies, tax efficient planning, business resilience options, and retirement planning adjustments, you can position yourself for financial stability and long-term success.

The Economic Impact of a Trade War

With President Trump on a trade war path, announcing tariffs on Canada, Mexico, China, and the European Union (EU), the effects will be felt directly and in ripple effects that will not always be visible on the surface. It is yet to be seen if he will move ahead with all of these threats, but as of writing this blog, he has confirmed a 25% general tariff on Canada and Mexico to take effect on March 4^th. As a major trading nation, Canada is particularly vulnerable to these disruptions in international trade.

Expect these Key Economic Risks:

• Currency Fluctuations: A weaker Canadian dollar due to market uncertainty will drive up import costs impacting businesses and investment returns.
• Market Volatility: Stock markets are already experiencing turbulence as individual and institutional investors react to trade policy changes tied to global industries and equities.
• Industry-Specific Disruptions: Sectors in manufacturing, technology and even real estate may face shifting demand as supply chain bottlenecks due to increased tariffs and trade restrictions play havoc on supply chain management.
  

According to the Bank of Canada, economic uncertainty related to the trade war has already reduced business investment and slowed GDP growth and outlook for Canada.

Diversify, Diversify, Diversify

Something I have always advocated with my clients is one of the prime investment philosophies of value investing is simply diversification, which actually has tangible benefits that are felt over the long term.

Diversification Strategies:

1. International Equities: Is it time to invest outside Canada and the US? Have you looked at the EU market or further afield? It is time to do so.
2. Alternative Assets: Beyond the stock market, there are other investments that may have less volatility, or you may be able to gain access to these alternatives through current investment products.
3. Safe-Haven Investments: Bonds, hedge funds, and low-volatility dividend stocks can help offset large market swings.

During previous economic volatility periods, many investors who looked to treasury bonds, gold, or indexes in these areas saw reduced volatility. This should be a natural part of your portfolio and already built in. I can help you adjust your portfolio for a long-term view.

Tax-Efficient Wealth Planning

Tariffs and inflation increase the cost of doing business and alter wealth preservation strategies. This is even more critical to address during shifting trade policies that may impact corporate or personal tax structures. Are you being proactive?

Key Tax Considerations:

• Capital Gains Optimization: Strategically realizing gains or losses on evolving tax laws as a result of trade wars can often help minimize liabilities.
• Corporate Tax Structuring: If you own a business, exploring tax-efficient structures to reduce the impact of changing trade regulations is critical to profitability.
• Inflation-Proof Estate Planning: Higher inflation erodes purchasing power, which requires adjustments in your estate planning and wealth transfer strategies.

How You Can Stay Ahead

1. Maximize Tax-Deferred Accounts – take full advantage of RRSPs and TFSAs if you haven’t already.
2. Optimize Business Tax Structures – by incorporating strategies, if available, such as income splitting and trust structures to protect generational wealth.
3. Utilize Strategic Gifting – by leveraging tax-efficient charitable donations and family trusts to mitigate estate taxes.

Business Resilience: Navigating Global Volatility

Entrepreneurs and business leaders must adapt to the evolving trade dynamics to ensure their companies remain resilient, protecting their own wealth, but also the livelihoods of those they employ.

The Challenges for Canadian Business Owners

• Tariff-Driven Cost Increases: Expect higher import/export costs as tariffs squeeze profit margins.
• Supply Chain Vulnerabilities: Dependence on international supplies could not lead to significant delays and, therefore, increased costs.
• Changing Consumer Demand: The spending habits of consumers are affected by economic uncertainty, inflation and higher prices which may require altered business revenue models.

Strengthening Your Business

1. Supplier Diversification – will reduce dependency on a single market supplier offering new partnerships across multiple regions.
2. Hedging Against Currency Risk – with financial instruments to reduce the damage of large currency swings.
3. Government Incentives & Grants – to take full advantage of federal and provincial support programs to offset trade-related challenges.

Retirement & Estate Planning in a Shifting Economy

Long-term financial planning should always account for volatility and understand that you can never effectively ‘time the market’. Effective retirement and estate planning has hopefully positioned you well by adjusting your portfolios to avoid major market fluctuations if you are near retirement. For those with a horizon of 10 years or more, smart planning is usually better than smart investing.

Retirement Planning Considerations

• Market Fluctuations: Volatility can come from multiple directions, including trade policies. 
• Inflation Risks: Rising costs due to trade policies can erode retirement purchasing power and have long-lasting consequences. 
• Interest Rate Uncertainty: Changing monetary policies influence fixed-income investments such as bonds and annuities. 
  
  

Strategies to Protect Retirement Wealth

• Reassess Portfolio Risk – as it never hurts to make adjustments based on new market realities.
• Optimize Withdrawal Strategies – by adjusting withdrawal rates to preserve assets in downturns.
• Explore Alternative Retirement Income Streams – such as rental properties, dividend income, and annuities, which can provide stability. 

Conducting a financial stress test to evaluate your retirement resilience in different scenarios provides peace of mind.

A prolonged trade war presents financial challenges to Canadian Investors, but those who take a strategic approach can safeguard their wealth through adjustments and new opportunities. Hopefully, these key considerations and strategies offer conversation starters for you and your advisor during these volatile times.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email. 

Author Steve McBride, Investment Advisor, Ventum Financial, looks forward to connecting with you about your future wealth management needs.

Sources:

1. Bank of Canada - Projections
2. Bank of Canada - Tariffs
3. Bank of Canada – Trade Conflicts
4. Trade Wars & Taxes
5. Businesses and Trade Wars

Participants of all Canadian Marketplaces. Members: Canadian Investment Regulatory Organization, Canadian Investor Protection Fund and AdvantageBC International Business Centre - Vancouver. Estimates and projections contained herein are our own and are based on assumptions which. we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness, nor in providing it does Ventum Financial Corp. assume any responsibility or liability. This information is given as of the date appearing on this report, and Ventum Financial Corp. assumes no obligation to update the information or advise on further developments relating to securities. Ventum Financial Corp. and its affiliates, as well as their respective partners, directors, shareholders, and employees may have a position in the securities mentioned herein and may make purchases and/or sales from time to time. Ventum Financial Corp. may act, or may have acted in the past, as a financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive, or may have received, a remuneration for their services from those companies. This report is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities and is intended for distribution only in those jurisdictions where Ventum Financial Corp. is registered as an advisor or a dealer in securities. Any distribution or dissemination of this report in any other jurisdiction is strictly prohibited.