The Canada-U.S. rift widens. Now what?

Is Trump’s 50% tariff a temporary setback, or a sign of a fundamental shift in the relationship between Canada and the United States? What are the key takeaways from Fed Chair Kevin Warsh’s remarks at Jackson Hole?

Canada

Thus far, Canadian markets have proved remarkably resilient in the face of U.S. President Donald Trump’s 50% tariff on $28 billion of Canadian goods. While some have interpreted Trump’s move as a prelude to a “TACO moment”—a reference to the U.S. administration’s track record of eventually backing down from eye-catching tariff numbers—we view the tariff as a sign of a more fundamental shift in the relationship between the two countries. It is possible that future negotiations could result in the tariff number coming down from its current, extreme level. However, it is clear that the relationship is quite strained, with President Trump’s view on Canada seemingly differing even from some members of how own party in Congress, many of whom support few or no tariffs on Canadian goods. Prime Minister Mark Carney’s announcement of retaliatory tariffs, to go into effect after Labour Day, tells us that the situation could worsen; not only would Canada be only the second country, after China, to introduce retaliatory tariffs against the U.S., but Trump also tends to respond to opposition with further escalation. The one positive is that these retaliatory tariffs only go into effect on September 8, which gives negotiators time to resume discussions—if both sides are willing to get back to the negotiating table, that is. Our preference is to wait and see what the situation is like after Labour Day before deciding on whether any allocation changes are warranted. That said, these trade tensions are likely to be a drag on consumer sentiment and add uncertainty to Canadian businesses. While the Canadian economy isn’t always closely correlated with Canadian stock market performance, the trade situation may also impact investor confidence, especially if it drags on. These factors are exactly why we’ve been underweight Canadian equities.

Bottom line: We are taking a wait-and-see approach to the Canada-U.S. trade dispute, preferring to see some kind of resolution before we get more optimistic about Canadian equities. That said, we view it as a positive for Canada that Mark Carney refused to sign a bad deal.

The Fed

U.S. Federal Reserve (Fed) Chair Kevin Warsh delivered his first-ever remarks to the Jackson Hole Economic Policy Symposium on Friday morning. In this much-anticipated speech, Warsh emphasized that, in his view, the Fed still has “work to do” on inflation, noting that all indicators show it to be running above the Fed’s 2% target and stating that “the Fed’s predominant focus right now should be on prices.” Warsh also elaborated on his well-known distaste for forward guidance from the Fed, saying that its role should be “limited and circumscribed” or else it can create confusion, limit the Fed’s freedom to make the right calls, and muddle the economic and financial indicators on which the Fed bases its decisions.¹ In the immediate aftermath of the speech, the implied probability of an interest rate hike in September rose to 50% from 36% before the remarks.² Overall, Warsh’s comments were largely in line with our expectations. As a new Fed Chair’s first Jackson Hole address, it was a noteworthy milestone. But the topics covered by Warsh—elevated-but-not-explosive inflation, a stable-but-slow-growing labour market—were unsurprising. Warsh appears content to occupy the middle ground for now, appearing neither too bearish nor too bullish—he highlighted the dangers of inflation, but also noted several positive indicators that may balance them out. (As the increase in the probability of a September rate hike shows, however, the speech was nonetheless interpreted as slightly hawkish by markets.) If there was a mild surprise in Warsh’s remarks, it is that he did not say more about the U.S. Treasury Department’s recent intervention in the bond market. Otherwise, however, the speech seemed designed to avoid any headline-grabbing news.

Bottom line: While a September rate hike appears slightly more likely after Kevin Warsh’s Jackson Hole address, the speech otherwise offered few surprises.

AI

Nvidia announced its Q2 earnings last Wednesday, and simply put, the artificial intelligence (AI) leader had an incredible quarter, solidly beating projections and painting a rosy picture of expected revenue growth.³ Markets rewarded the company to the tune of the second-largest single-day gain (as measured by market value) by any stock in history⁴—the first time in four quarters that an earnings beat has actually resulted in a significant stock lift for the company. The key point in Nvidia’s forward guidance was the eye-popping expectation of 70% income growth in 2027, and a comment stating that demand for Nvidia’s products actually exceeds that number, but that the company currently does not have enough capacity to meet it all next year. The surprise of the day was the Nvidia’s rising tide did not lift all boats in the Tech space; while Nvidia stock surged 8.7%, the NASDAQ as a whole was up just over one percent and the momentum did not continue on Friday as the stock gave back a fair bit. Typically, we’d expect a story of this magnitude to result in a sector-wide rally in the 2-3% range, but that didn’t materialize. Our analysis is that many investors remain concerned with broader AI and Tech valuations, as well as potential competition in the AI space from Chinese firms. In this environment, our expectation is that investors’ desire for diversification will pick up, and that the rotation will not only be U.S.-to-China, but also U.S. Tech to names in other sectors. (This is something we highlighted earlier in the year.) This, in turn, is likely to result in continued market volatility.

Bottom line: Nvidia’s Q2 results show that earnings are still important, even if they did not provide the broad-based boost to Tech that some may have expected.

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 August 31, 2026 – The Canada-U.S. rift widens. Now what?