Why Aren’t Markets Moving on Tariff News?

On the evening of Friday, August 21, news broke that negotiations to prevent new U.S. tariffs on C$27.6 billion worth of Canadian goods¹ had fallen apart. Some investors were surely anxious that weekend that markets would drop when trading resumed Monday morning. Instead, the S&P/TSX Composite Index finished Monday in positive territory, rising 0.39 per cent.

Given that markets often don’t like uncertainty, and it can’t get much more uncertain than Prime Minister Mark Carney saying the country is “at war” with the U.S., it might seem surprising that investors largely shrugged off the latest trade development, which includes 50 per cent tariffs on billions of dollars’ worth of Canadian goods and dollar-for-dollar countermeasures against the U.S.

But Eric Savoie, Senior Investment Strategist with RBC Global Asset Management, didn’t think so. He says that markets have generally seemed to be taking tariff news in stride in part because investors have become used to seeing hefty tariffs announced and then either scaled back or eliminated after some negotiation between countries.² “We’ve seen this pattern play out over the past year,” he explains. “I think that’s why maybe why the stock market is not so worried about it.”  

Desensitized to news

Since April 3, 2025, a day after “Liberation Day,” as President Donald Trump called it, when the U.S. announced blanket 10 per cent tariffs on imports of foreign goods and additional targeted measures including 25 per cent tariffs on Canadian autos,³ markets have responded mostly calmly to the on-again off-again tariff news coming out of the U.S.

Back then, the S&P 500⁴ and S&P/TSX Composite Index⁵ both posted their biggest drops since the onset of the pandemic in 2020. Fast-forward to July 1, 2026, when the U.S. opted not to extend the Canada-United States-Mexico Agreement (CUSMA), triggering annual reviews of the pact instead, and market reaction was flat.⁶

Savoie says that part of the reason why markets seem not to move as much on tariff news these days could be that investors have become somewhat desensitized to the ongoing trade uncertainty. “It would have been different if this was the first time we’ve seen this,” he says.

At the same time, because most of the goods that flow across the U.S.–Canada border are still covered by CUSMA, many publicly traded companies will be protected from the new tariffs.

As for businesses that have already been hit by past tariff measures, Savoie points out there’s been little indication of major impacts on earnings – which is the key driver of whether stock markets rise or fall. In fact, there are expectations corporate earnings in Canada could climb by 28 per cent for 2026.

“Those are extraordinarily strong profits despite a backdrop of tariffs,” he says. “I would have thought that we would have already started to see some damage on the corporate profit side from these tariffs, and it just hasn’t materialized, either because the impact is just too small or there are so many other tailwinds that are much larger than the tariff headwind.”

Different pains for different sectors

Of course, that doesn’t mean there will be no impact. While many public companies have proven resilient against tariffs and ongoing trade uncertainty over the last year, some areas could be affected if the latest round of tariffs remain in effect, says Savoie.

For instance, plastic and wood products, electrical machinery and furniture sectors are among the most significantly impacted by the latest measures. That could result in slower growth in Quebec, British Columbia and Ontario in particular.⁷

More broadly, the affected goods represent about 0.8 per cent of Canada’s GDP and roughly five per cent of the country’s exports, according to RBC Economics estimates. Assuming the tariffs, and Canada’s countermeasures slated to go into effect on September 8, remain in place, that could push inflation up about 0.2 to 0.3 per cent and could drag Canada’s GDP down by 0.3 to 0.5 per cent, according to RBC Global Asset Management. “That’s sizable, but in the context of the broader economy, it’s not necessarily a game-changer,” Savoie says.

Even with this kind of impact, markets could remain resilient, says Savoie. If tariffs have a 0.5 per cent impact on the economy, and earnings growth climbs by about four or five times GDP, corporate profits would only decline by 1.5 per cent, says Savoie. “It’s something, but when you’re talking about earnings growing at double digits, the numbers are still quite good, even if you cut them by a few percentage points,” he explains.

There are also ways that the economic impact of tariffs, if they remain in place, can be offset, Savoie notes. Revenue collected by the government from tariffs on U.S. imports can be recirculated into the economy through subsidies or other support to companies and consumers facing higher costs, he says.

What investors should watch from here

What happens next is anyone’s guess, but for now, investors seem to be taking a wait-and-see approach. “I think probably the bigger risk for the stock market is if both sides fully execute on their major threats,” Savoie says, which includes the Canadian tariffs on U.S. goods that are set to come into force in September and additional U.S. measures against Canadian auto parts slated for January 2027.

An ideal scenario would be some de-escalation of tensions – even if that doesn’t mean tariffs disappear entirely – to bring more certainty for businesses and investors. That could mean a reduction in tariff rates or the number of goods affected, or even simply signs that talks around CUSMA are progressing in a positive way.

Looking ahead, whether the market will react to more tariff news will likely come down to whether the trade dispute starts showing up in corporate earnings. “If the effects of tariffs start to appear in company profits or outlooks, then that’s something investors should take note of,” Savoie says. “But so far we haven’t really seen that.”