The Decibel - How to protect your money during a trade war

Episode Date: March 13, 2025

On Wednesday, Trump imposed 25% tariffs on steel and aluminum, with Canada hitting back with counter levies on nearly $30 billion dollars worth of U.S. goods. In response to the ongoing trade war, the Bank of Canada cut its interest rate to 2.75% as the trade war rattles the economy.Between stock market downturns, increasing fears of a recession, and the volatility of U.S. President Donald Trump’s on-again-off-again tariffs, Canadians are on edge.As economic unpredictability becomes the norm, a lot of us are feeling nervous about our finances. Today, the Globe’s personal finance columnist and host of Stress Test, Rob Carrick, is here. Rob will help us make sense of the recent market downturns, and explain how to protect our money in the months ahead.Questions? Comments? Ideas? Email us at [e-mail]

Right now, there's a lot of uncertainty when it comes to the economy. On Wednesday, the U.S. imposed 25 percent tariffs on steel and aluminum imports from all countries. Canada responded with counter levies on nearly $30 billion worth of U.S. goods. Those take effect on Thursday at midnight. And amid all the unpredictability from on-again, off-again tariffs, stock markets have taken a plunge.

With the trade war, the high cost of living, and fears of a recession, a lot of us are feeling nervous about our finances. So today, we're talking to Rob Carrick. He's The Globe's personal finance columnist and the co-host of Stress Test, The Globe's personal finance podcast. He'll help us make sense of the recent market downturns and explain how we can protect our money in the months ahead.

I'm Maynika Ramen-Wilms, and this is The Decibel from The Globe and Mail. Rob, thanks so much for being here. I'm happy to do it. Rob, all this recent talk of tariffs and this trade war, they seem to really be having an effect on the markets. What have we seen this week? We have seen the stock markets assess what's going on and think,

yeah, I think we want to sell some stocks. And it hasn't been a rout and it hasn't been a plunge, but markets have been going down and they're going down enough to alarm people. Can you give us a sense of how alarming this is? Like if we compare this to, you know, the 2008 collapse or what we saw during COVID, how significant has this week been? In the grand scheme of things through stock market history,

it's a meh. We are not anywhere near panic levels. During the pandemic, the stock market went down 12% one day and that was really scary because it had gone down 10% a few days earlier, that serious stuff. Lately we've seen 1%, 2%, 3% declines and they accumulate and there's pain there, but this is not anything like a full blown market panic. Okay. And are we seeing different sectors of the market, different companies being affected

differently? How is that shaking out? Well, one of the big notable declining sectors has been US technology. I mean, those stocks were all-stars. There's the magnificent seven tech companies, and they led the markets higher in recent years. And they were very expensive, premium-priced stocks, and they have been leading things down lower now. But that's basically some people saying, that's a really expensive stock. It's gone up a ton. Maybe we'll just peel it back a little bit.

And I wouldn't want to read too, too much into that. You know, some export related sectors may be getting hit harder than others, but I use sort of the broad index to tell me what's going on. And that's sort of a mix of all the stocks out there. And that mix of all the stocks is going down. Okay. And can you just lay this out for us, Rob? We're mainly talking about big drops in the US market. Why does this have such an impact on Canada? We've got our own stock markets, but why are we feeling the effect? Well, investors tend to think similarly. And so if stocks are going down in the States, probably that same sentiment is going to be in play in Canada and in Europe and in the Far East.

So if people turn negative on stocks, it's sort of a global phenomenon. Now there'll be different degrees of negativity. So U.S. stocks might go down more, they might go down less, and sometimes local factors do come into play. I would have expected when the tariff wars started that the Canadian market would have been hit harder because we are more vulnerable. But the U.S. market has lost at least as much as we have, perhaps more. And I think that's because it was sort of a, it had sort of had bigger gains in the past.

So you could expect it would, you know, the corrective phase would take it down a bit lower. But that's something encouraging for Canadian investors. We are not taking the worst of this. Okay. I guess the big question is this all because of Trump's tariffs and the uncertainty that we're seeing these days around this trade war? Well, as I said, stocks have really done well in the past few years,

and they were always going to come back down to earth at some point. So we could think what would cause that? So it turns out tariffs could well be the trigger to a market downturn. That market downturn might not have happened in 2025, although we had two amazing years in 2023 and 2024. Do you get three amazing years in a row? Not too often. So I think experienced market people

had to be thinking, the market's gonna go down sooner or later. What will cause that? And as I say, tariffs might just be the trigger. Okay, so this is kind of the thing that pushed it over the edge, it seems like. Kind of, yeah. Okay.

Something I've been wondering about though is timing, because we saw initial tariffs come into effect last week. We were talking about these in Canada right but we really saw Monday as the big drop in the stock market so how does that timing work out why did we only see a drop you know so many days later I think what's happening is the stock market isn't kind of a state of denial it doesn't actually believe tariffs are going to be a long-standing deep problem for the economy. And every time something happens that sort of changes that view, stocks go down a lot. So it could be tweets from the president.

It could be some one of his advisors makes a statement and the markets react instantly. And that's why you're seeing this choppiness. I mean, there's this underlying optimism. Markets seem to want stocks to go higher, but they're confronting reality reality and sometimes it hits them right in the face that the president tweets something that seems to be directly what's going to happen stocks start to sell off and then there's some optimism maybe there'll be a settlement and accommodation and stocks start to rebound a bit so it's gonna be a seesaw like we are not gonna get out of this cycle until there is some sort of

clarity we have renegotiated the free trade agreement between Canada, U.S. and Mexico. We have agreed to halt tariffs completely. Something that says, we're putting this past us. So it sounds like this uncertainty then is kind of for the foreseeable future? It's not going away until we get more certainty. That's what the stock market wants right now.

You mentioned how tweets from the president, U.S. President Donald Trump, can affect things here, Rob. How is Trump responding to seeing the markets drop in these ways? Well, it's interesting because I had thought that, and a lot of other people did too, that he regarded the stock market as sort of his audience. And if the audience gave him a thumbs up, that would be stocks rising and a thumbs down would have hit hard. But now he is rationalizing. He's saying we're going through a period of adjustment and that may mean some inflation and some economic disruption and some stock market declines.

That used to be something that he apparently didn't like and would take pains to avoid, but not so much anymore. It just shows how committed he is to this, to this tariff cause. Okay, so he's basically taking the position then that there is gonna be a little bit of pain here, but he's ready to endure that. He's ready.

I don't know if the population's ready. And I guess we'll see that how much blowback there is. And I think it's already starting. I mean, people are expected, you know, economic prosperity from a Trump administration. And what they're getting now is a lot of turbulence and telling people that, yeah, there's turbulence and it's going to get worse before we get to this great ending.

We'll see how patient they are about that. Honestly, I think this is kind of overwhelming for a lot of people, right? You're worried about what's going on. You're trying to understand what's happening. If people are worried about their investments, Rob, what should they be doing in this time of instability? Well, I think now it's essential that you take a look at where you stand with your investments. I mean people who are investing for the long term and have some other portfolio in stocks

and some in bonds and GICs, I don't think you make any changes. You know we've seen upsets like this in the market in the past and if you're in your 20s, 30s, 40s, even 50s, you're going to see more of these in the future. We have to be able to lean into these times, maybe invest a little cash when the markets are down and otherwise just let it ride. But if you have a disjointed portfolio, if you own some things that you're not really sure about,

if you're all stocks and no bonds, if you are buying a house in four years or three years and you have your down payment money in the stock market. Yes, you've got to press some buttons and pull some levers and make some changes. Okay, we're going to get into a few of the different parts that you mentioned there. The one thing I want to start with though is you mentioned, you know, you kind of want to diversify your portfolio. So not have everything in stocks, have different things that you're investing in. What are the signs that your portfolio is actually diversified enough to weather these kinds of changes?

Well, you know, it depends how old you are, it depends how aggressive you are, it depends how comfortable you are with stock market risk. But most people from 20 to 80 should have 10, 20, 30, 40 percent of their portfolio in bonds or GICs or cash. And I think you should open up your portfolio and see just to make sure that you are. Stocks did super well in the past few years. So as a percentage of your portfolio, stocks may have ballooned, you know, bonds have sort of crept along and stocks exploded. So if you thought you had like 60% stocks and 40% bonds,

you might find now you've got 75% stocks and 25% bonds. You might wanna make a bit of adjustments. You could pair down some of your best performing stocks 75% stocks and 25% bonds, you might want to make a bit of adjustments. You could pair down some of your best performing stocks and take that money and put it into bonds or buy a GIC or put it into some cash investment and make your portfolio a little more resilient for whatever ups and downs are ahead. Yeah. So you're talking about bonds and GICs there, Rob.

Those are essentially things that are a little bit more stable. Could you, I guess, just give us a sense? Yeah. Yeah, exactly. So let me just give a little bit more stable. Could you, I guess, just give us a sense? Yeah. Yeah, exactly. So let me just give you a bit of background. Bonds are basically issued by governments and corporations to borrow money for their operations, and they're considered much more secure than stocks. And GICs are basically bank deposits.

A bank says, you give us $5,000, we'll pay you 3% over five years, and that's backed by deposit insurance so you can be totally confident owning GICs and bonds not quite so confident, but almost. Okay. So on a day when the stock market is really tanking, if you looked at the bond market,

you would quite likely see either stability or maybe even some rising prices. What people do when they sell stocks is, they often buy bonds, especially government bonds, because everybody knows government bonds are pretty safe, because if the government can't pay, they'll just raise taxes. So that's where your stability comes from. And I'm not going to tell you that your portfolio

isn't going to get hit and hit hard. Even if you own a bunch of bonds, we're blunting the worst of it. If stocks are down 20%, maybe your portfolio is down 8%, 9%, 10%. You will not get the worst of it. And that is a win in down markets. If you want to avoid stock market declines and you think, I want to invest, but I don't

want the downside, you shouldn't be in stocks because stocks are all about riding it through the long term, accepting these hits because in the aggregate over the long term the ups are going to way outweigh the downs and you're going to make a nice amount of money. Okay, so that's how to think about it if you're in it for long term investing. Is there any situation though where people should be thinking about pulling their money out of the market now? If you mistakenly put money in the stock market for a short term goal, something that's happening in five years or less, you should not be in the stock market for a short-term goal, something that's happening in five years or less, you

should not be in the stock market. You never should be in the stock market. And if your money is still in the stock market, take it out. People forget the difference between saving and investing. Saving is putting my money safely away. I accept a modest return because I might need it in the short term. And if the stock market's down at that time, I don't want any exposure to that. So that's why I say one to five years, you're a saver,

and you should keep it in a high interest savings account or something similar to that. Longer term, you accept stock market downs because you're gonna make money in the long term. The reason I think it's important to note that is because stocks did exceptionally well in recent times. And sometimes people get lulled into thinking, stock markets always go up.

And also I'm good at picking stocks. Well, everybody looked good in the past few years, and everybody was very confident because the stock markets were delivering massive returns. We've had a pivot to harder times right now, and make sure that your thinking about investing has pivoted as well. The easy pickings in investing, they're gone. And that's why I say stay safe if you need your money in five years. Okay. If people are close to retirement, what should they be considering here?

People think, oh, I'm close to retirement. And if I'm retiring in less than five years, does that mean I should sell all my stocks? Well, you're going to be retired for 20 or 30 or let's hope 40 years. Good long life. You're going to need those stocks. And in that case, you have to sort of think, I'm a long-term investor, and I'll be riding the stocks up and down. What I tell retirees is, if you're worried about a stock market decline,

keep a bunch of cash in your retirement savings that you can use to pay for your living costs while stocks are down. You should never have to go sell some beaten down stocks that have crashed to pay for whatever costs you have. Have cash and say, okay, 2025 is a rotten year and I need to take some money out of my retirement savings. I'm just going to take it out of my cash and leave my stocks untouched. Maybe they'll be better off next year. We'll be right back. So Rob, we've talked about the stock market.

Let's turn to savings now. Where should people be putting their money if they're not going to be investing it? I would say pick a high interest savings account at one of the alternative banks that are emerging in recent years with some very good products for people who want to keep money safe and earn a decent rate of interest. Let me give you some examples of some of these challenger banks. Well Simple is an investing entity, but they also take deposits now and they're offering a pretty good interest rate.

EQ Bank, Neo Financial, those are all some names to check out. These accounts offer interest rates in the 1.5 to 3, 3.5% range. They all have deposit insurance so they're safe. The reason these alternative banks offer better rates is because they're hungrier. The big banks don't have to do anything to collect your money. In fact, they're not even earning it at all. These challenger banks think we need money to put into our operations. The only way to break through is to offer a better rate. Okay. Of course, we're all saving up for different operations. The only way to break through is to offer a better rate. Okay.

Of course, we're all saving up for different things. If someone has been saving and they feel like they're ready to make a big purchase, like buying a car or something, is this a good time to buy? Well, I have two answers to that question. The first answer is probably not giving all the economic uncertainty. And we don't know how various sectors will respond to this. If there is a protracted trade war, there may be job losses. There may be income is cut, bonuses may be canceled,

raises may be unavailable. So there's that, but let's face it, if there is a scarcity of customers for cars and houses, it means prices might come down. So if you have a hundred% secure job and a strong income and you are hyper confident about your prospects, it might be a good time to go shopping. There might be deals out there

that we haven't seen in a while. You mentioned houses as well, of course. So what do you need to be thinking about if you're looking to make a house purchase in the next few months? House secures my income. And it's not just how can I afford things today, but house costs tend to rise over time.

And so it's helpful to have raises coming through to help you fund, you know, the rising costs. You know, your mortgage might be, if you take a three-year mortgage or a five-year mortgage, okay, your mortgage payments are level, but property taxes are going up and home insurance is going up and the cost of maintaining a house is always going up. If you're confident that you can afford your mortgage today and that your income is going to be gradually increasing to help you afford these

rising costs, then the housing market doesn't look too bad from today's vantage point. Mortgage rates are creeping lower. Prices seem to be softening in some markets, not all, but some. I think we're going to see a lot more of that if the trade war lasts. I mean, if I was a certain kind of person, I'd be keeping an eye on the housing market. Okay. I also wanna ask you about inflation, Rob. We've been talking about this a lot

in the last couple of years. How is all this instability affecting inflation? Well, inflation is going to probably tick higher in the coming months because tariffs tend to be inflationary. Meaning they cause inflation. Yeah. Well, we put counter tariffs on US exports to Canada.

What we're really doing is we're taxing American products coming into Canada. And so if we put a 25% tariff on certain US products in the Canadian market, we can expect a roughly similar increase in prices paid by consumers. So that's inflation. Also, the Canadian dollar tends to go down when the trade war flares up and that also makes American goods priced at Canadian dollars more expensive. So yes, their inflation is going to pick up because of tariffs. I don't think it's going to be a forest fire like it was a few years ago when inflation was hitting like six, seven, 8%. I don't think it's gonna be like that.

I've seen bank forecasts that we may get from, I think our last reading was 1.9, maybe up to 3%. But I think people are gonna feel this. I think there's a lot of people out there who are still hurting from the last buildup of inflation. And it still weighs on their mind. It's still felt when they go to the grocery store. And if you start adding to inflation even a little bit,

I think it's gonna weigh on people. So like you said, are we gonna start to see those higher prices again at the grocery store? I think so. I don't think we're gonna see like, you know, that same pace of price increase that we saw before. But I think we were all thinking, are we catching our breath in the last couple of months?

You know, prices seem to be maybe a little bit more stable. Food prices weren't like soaring higher month by month. I'm not saying they're going to start soaring again, but we could start to see them creep up at the grocery store, yes. The other thing that's happened this week is on Wednesday, the Bank of Canada announced a rate change. This is the seventh consecutive drop. It is now at 2.75% the interest rate.

What does that tell you about the economic situation we're in? You know, it's interesting. The Bank of Canada is saying, if you took tariffs away, the economy is actually pretty good shape. It's actually picking up momentum, but we're worried about the trade war and what it might do to the economy. So we're going to just push interest rates down a little bit and we're worried about the trade war and what it might do to the economy. So we're going to just push interest rates down a little bit and we're going to see what

happens. The Bank of Canada is not panicking. You know, panicking would be pushing the rate all the way back down to where it was during the pandemic. I think it was 0.25% of percentage point. You just said we're at 2.75 now. So we are way, way, way away from five alarm panic levels. The Bank of Canada is being prudent, cautious. It's saying we're going to symbolically cut interest rates.

It's going to be a little cheaper to borrow for consumers and for business. But also we understand the economy may need a little support. We're not too afraid. It doesn't need to be a giant amount of support. We're giving it a little extra nudge just to help it along through these uncertain times. There's been a lot of talk around potentially Canada heading into a recession, Rob. This is a scary word for a lot of people. Remind us, what would be the indicators

that we are actually there? I sort of think people should look at two things. One, watch the economic reports and look for two consecutive quarters of the year where the economy contracts. That's the technical definition. So basically six months of no economic growth and in fact, a little bit of a decline.

The more gut level indicators, the unemployment rate, I think we're around the high 6% range right now. If you see it cross over into seven and get up to eight, that is a sign that the economy is in deep trouble. And that's the one that the economy is in deep trouble. And that's the one that people tend to feel. I could tell you, oh, the GDP contracted this quarter. Did you know that?

You might think, oh, okay, maybe, maybe not. But if the unemployment rate is rising, you're going to hear about layoffs, you're going to see headlines about that, you're going to hear anecdotes about people, you know, losing their job or having their hours cut. And that really hits people. That affects our ability to afford our lives. And that's really where the recession lies. Rob, honestly, I think a lot of people are feeling really worried right now.

And, you know, sometimes anxiety like that can lead to poor financial decisions. So I guess what would you say to people, you know, to address legitimate concerns that they might have about the situation, but, you know, without falling into panic mode. Well, nothing I've seen so far calls for anything close to panic. I think what's shocking to everybody is it's the idea of tariffs and this talk about the 51st state coming from the United States, our supposedly best friend.

That's the shock of this. The economic side of it has been very modest so far. But you know what? I mean, quietly in the background, we've just hit the five year anniversary of the pandemic. And I think there's still a bit of lingering anxiety on a social and emotional level from that. And then you layer on, you know, this trade war

and people are feeling very jangly. And I think that it's, a lot of it is on a political and economic level, on a personal finance level. The hit so far has hasn't been that big. I'm not saying it won't get bigger in the future. It probably will. But I think people should keep a little perspective. Don't assume the calamity you see happening politically is actually there's a mirror image of it happening in your finances. So far, it's not.

Rob, always good to talk to you. Thank you for being here. You're welcome. finances. So far, it's not. Rob, always good to talk to you. Thank you for being here. You're welcome. That's it for today. I'm Maynika Ramon-Wilms. Our intern is Amber Ranssen. Our producers are Madeleine White, Michal Stein, and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer and Matt Frainer is our managing editor. Thanks so much for listening and I'll talk to you tomorrow.