Global trade conditions have become more fluid in recent months as policy developments and geopolitical events continue to shape the outlook. Recent legal and geopolitical developments, including a U.S. Supreme Court ruling affecting certain tariffs and renewed tensions between the U.S. and Iran, have added to uncertainty around trade flows and energy markets. For Canada, these developments add another layer of complexity to trade discussions, investment planning and the broader economic outlook.

On April 8, The Hon. Brian Tobin, Vice Chair, BMO Financial Group, moderated a discussion with:

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  Steve Verheul, Former Chief Trade Negotiator for Canada and Independent Geopolitical Strategist

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  Sal Guatieri, Director and Senior Economist, BMO

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  François Trahan, Chief Investment Strategist, BMO Capital Markets

Listen to the Markets Plus podcast based on the discussion:

Here are some of the key themes from their conversation.

Steve Verheul said the U.S. Supreme Court ruling was notable for how it reshaped the tariff landscape, particularly by removing the use of one of the more flexible tariff authorities. In the near term, this places greater emphasis on other tools, such as Section 122 of the U.S. Trade Act, a temporary tariff authority that is currently facing legal challenges in the U.S. Court of International Trade.

Any broader tariff actions would likely require formal trade investigations, including those related to excess capacity and forced labor, processes that typically take longer to play out. As Verheul noted, these mechanisms offer a different balance between flexibility and durability, which may contribute to an extended period of uncertainty as trade policy evolves.

But Verheul said the shifting landscape may actually favor Canada. The U.S. tariff push has so far yielded uneven reshoring and job gains, while Canada’s position as a major supplier of energy, aluminum and other commodities gives Ottawa a degree of leverage as trade dynamics continue to evolve.

Verheul also flagged other potential trade frictions, including U.S. investigations into whether trading partners are doing enough to prevent goods made with forced labor from entering the country, though the primary focus remains on the USMCA negotiations.

Everything ultimately hinges on whether the USMCA exemption holds, Verheul said. The exemption covers roughly 90% of Canadian exports and gives Ottawa greater flexibility to remain patient. “If we were to reach a point where the U.S. removes that exemption, then we’re in a whole different world,” he said.

Sal Guatieri said the combination of tariff uncertainty and higher oil prices is hitting supply and demand at the same time, complicating the policy outlook for the U.S. Federal Reserve and the Bank of Canada. In his view, central banks are facing limited visibility as they weigh how these competing forces may ultimately affect growth and inflation.

Guatieri said inflation could average above 3% in both the U.S. and Canada this year, while economic growth has been marked down somewhat to roughly 2% for the U.S. and 1% for Canada. He noted that the Federal Reserve could still cut rates if oil prices pull back, though that path looks narrower than it did before the recent conflict.

At the Bank of Canada, Guatieri said the case for a rate hike remains weak, citing subdued core inflation, soft growth, and a labor market that has shown little improvement over the past year.

The scale of the recent disruptions might normally have pointed to a much sharper selloff, but François Trahan said markets have been surprisingly resilient. He credited policy support already in the pipeline and North America’s status as an oil producer, which has helped U.S. and Canadian equities hold up better than markets dependent on energy imports, such as Japan and South Korea.

Trahan pointed to market performance as evidence of that resilience. “If I polled my clients in mid-February and asked what would happen to the S&P if oil prices went up $50, I don’t think anybody would have thought that, at the very worst, it would be down 7%,” he said.

Trahan said energy, industrials and materials have been among the strongest performers during the recent period of volatility, continuing a trend that was already in place before geopolitical tensions escalated. He said these sectors have benefited from offering both inflation protection and exposure to the economic cycle, making them more attractive in an environment where rate cuts can no longer be taken for granted. As a result, he said growth stocks may face a more challenging backdrop over the remainder of the year.

Trahan said the clearest indicators for the Canadian economic outlook will be oil prices and the direction of the U.S. tariffs. “A weaker dollar is usually associated with a world economy that is gaining momentum,” Trahan said. “I’d like to see this decline in the U.S. dollar continue.”

For Guatieri, the tariff exemption under the current USMCA framework remains a key factor for Canada. He said the outcome of those negotiations will play an important role in shaping whether the Canadian economy is able to sustain modest growth or faces a more challenging outlook.

Brian Tobin asked Verheul to share his assessment of Canada’s position in those talks, drawing on his experience at the negotiating table. Verheul said Canada is entering the discussions from a position of strength, noting that while the United States has already advanced negotiations with Mexico, talks with Canada have progressed less. As a result, he said increasing pressures on U.S. trade policy could work in Canada’s favor as discussions continue to evolve.