July 21, 2025
Anil Tahiliani
The often erratic and ad hoc U.S. tariff policy and deadlines have sown confusion among trade negotiators for many countries. Last week, the U.S. administration sent a letter stating a 35% tariff effective August 1st on Canadian goods and services not compliant with the Canada-U.S.-Mexico trade agreement, which are already tariffed at 25%.
Historically, when countries negotiate a trade deal, this typically takes 12-18 months since many industries across the economy are affected and proper time is given to discuss trade objectives with the impacted domestic industries. So far, only three 'trade deals' have been signed; however, full details have not been disclosed, but we know that they include a minimum U.S. tariff level. Whether these are actual trade deals or trade frameworks remains to be seen. Given that the U.S. is trying to sign trade deals with many countries all within a 90-120 day timeframe, the U.S. administration has an unrealistic timeline. As a result, we have seen a pattern of delaying when the tariffs would start since negotiations are ongoing.
Although the U.S. administration touts the revenue collected from global tariffs as if other countries are paying the tariffs, it's actually American companies and consumers that pay the tariff as a hidden sales tax. According to the U.S. Treasury, gross tariffs and other certain excise taxes have brought in $100 billion (USD) in revenue through July 11th. The White House projects $300 billion (USD) in tariff revenues for 2025.
So far, the global stock market has taken the recent tariff news in stride since they are expecting their implementation to be delayed again. Another 30 days to get a trade deal done under the threat of new tariffs is neither good nor fair. However, the U.S. administration is more focused on the perception that the U.S. is winning under their new President, rather than acknowledging the truth that Americans will be paying higher prices for everything once a tariff is placed.
Portfolio Implications
In the Matco Canadian Equity Income and the Matco Opportunities funds, we have been reducing our exposure to the U.S. consumer and sectors directly impacted by tariffs. We expect the U.S. will put in place a minimum tariff level of 10% to15% on every country to provide an annual baseline tariff revenue. Although U.S. inflation has not yet moved significantly higher, we expect it to over the next year as the full impact of the implementation of U.S. tariffs flows through to consumers.
During the April market correction, we took advantage of the panic selling by purchasing high-quality growth companies that were trading at attractive valuations. With the market rebound in May and June, both funds have performed well. Year-to-date through June 30th, the Canadian Equity Income and Opportunities Series O Funds are up 12% and 13% respectively.
Given the economic uncertainty, we continue to focus on fundamental bottom-up research to find companies that can grow their earnings faster than the economy and have specific drivers such as faster revenue growth, beat expectations, deleveraging, or acquisition growth that will provide an opportunity for the stock to be re-rated higher by investors. Given our growth at a reasonable price (GARP) investing discipline, valuation is always very important to us, especially now with stock markets at all-time highs.
Although negative headlines never disappear from investors' radars, we remain stead fast in focusing on economic and company fundamentals and ignoring the daily noise. We expect more stock volatility over the next few months as trade and tariff threats continue in public view. If the stock market heads into another correction phase over the next few months, we again suggest that investors use this as a buying opportunity despite the emotional urge to sell. The largest gains in the stock market are made when going against the tide and looking past the short-term negative news.
If you have any questions regarding your portfolio or our funds, please reach out directly to your Matco portfolio manager.
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