Tariffs take centre stage…again

What’s next for Canada and the United States now that trade talks have broken off?

Market recap

• If it wasn’t abundantly clear that the era of ultra-low interest rates is over, it should be now.
• Like a frog suddenly realizing that the pot is really, really, hot, investors saw the 30-year Treasury yield push above 5.3% this week for the first time since 2007.
• Despite Treasury’s attempt to contain the selloff via a ramped-up buyback program, yields still rose, with the 10-year moving above the 4.7% mark.

Canada-U.S.

Late Friday night, Prime Minister Mark Carney announced that he had suspended trade talks with the United States, explaining later that Canada had pursued “every opportunity” to reach a deal but that the U.S. had “asked for too much and offered too little.” As a result, U.S. President Trump’s previously-announced 50% tariff on $28 billion of Canadian goods went into effect at midnight Saturday, while Carney announced that Canada would be matching those tariffs “dollar for dollar,” with these retaliatory measures coming into effect after Labour Day.¹ While $28 billion represents only a fraction of the total trade between the two countries, this is obviously bad news, especially given the progress the two sides appear to have made in the days leading up to the deadline. Not only had President Trump announced an extension to the tariff deadline, but news reports also indicated that an agreement was close and that it would likely include a reduction of steel and aluminium tariffs from 50% to 25% and auto tariffs from 25% to 15%.² While Carney himself had stated that negotiations were heading in the right direction, details of a potential deal were scarce, which left us concerned that there could be some major issues that had yet to be worked out. As it turns out, that is exactly what happened. For now, we have not made any changes to our Canadian allocation, but this is exactly why we went underweight Canadian equities this month—we were skeptical that a deal that would be beneficial to Canada could be reached quickly. If a trade deal is eventually reached—and if it doesn’t look too bad for Canada—then that certainty would probably be enough for us to move back to a neutral position, as it would open the door for people to get back to investing in the Canadian economy and potentially mean some job growth. However, it remains to be seen whether an agreement is still possible in the near term; Carney’s strategy could include waiting until after the U.S. midterm elections in November, when Trump’s political leverage may be reduced.

Bottom line: From Canada’s perspective, no deal may be preferable to a bad deal, though it remains in both sides’ best interests to get back to the negotiating table.

Bonds

Thus far, U.S. Treasury Secretary Scott Bessent’s bond buyback program has done little to calm investors’ concerns about liquidity and rising government debt—though Bessent claims that he still has a “big tool kit” at his disposal.³ With investor confidence fading and international buyers making up a smaller slice of all U.S. Treasury buyers, we think the risk here is substantial. Bessent is trying to calm down the bond market and ease the pressure from rising yields, and in principle, we think that’s a positive—it shows that the Department of the Treasury is monitoring investor confidence and is willing to take action if necessary. However, investors don’t appear to be buying Bessent’s story. Right now, bond markets are effectively on pause—neither bullish nor bearish—as they wait to see the outcome of the U.S. midterm elections, the U.S.-Iran conflict, and the trade and tariffs situation. That also means that bond markets haven’t moved much in response to either positive or negative news, including Bessent’s buyback program. Ultimately, it is likely that some of these uncertainties will have to be resolved before bond investors’ concerns start to ease.

Bottom line: The U.S. Treasury Department is doing what it can to ease investor concerns, but currently, there are still too many unknowns for Scott Bessent’s bond buyback program to be effective.

Healthcare

With all of the attention being paid to artificial intelligence (AI), other stories have arguably been overshadowed, and Healthcare is a good example. Last week, Merck and Moderna announced that an experimental personalized cancer vaccine developed by the two companies showed positive results in its first-ever clinical trial, causing both stocks to soar.⁴ Prior to this news, Healthcare had been out of favour for some time, having become more of a tactical play for investors looking to diversify away from the AI story. The significance of this clinical trial is not just the single result itself, but rather the broader potential of mRNA-based shots that it potentially demonstrates. From an investment standpoint, we view this story as an example of the benefits of our Global Equity Team’s approach. Instead of dividing the world by geography, they divide it by sector, benefiting from each team member’s deep experience and industry knowledge in their respective areas. Our Healthcare team saw the potential of mRNA vaccines from a fundamental standpoint and now are benefiting from recent upside in Merck, which they have an overweight position in.

Bottom line: While we continue to believe in the AI story, the promising cancer vaccine trial results not only validate a selective rotation to other areas, but also highlight the benefits of our Global Equity Team’s sector-based model.

Positioning

For more insights on market risks and opportunities, check out our BMO Global Asset Management 2026 Mid-Year Market Outlook

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Originally Posted 8/24/26 – Tariffs take centre stage…again