Will Carney fight back?

Are Trump’s new tariffs on Canadian goods a negotiating tactic, and would interim deals be enough to overcome the uncertainty they create?

Market recap

• Equity markets stumbled this week as conflicts broke back open in the Middle East and on the trade front.
• The S&P 500 ended down 0.6%, with communication services and consumer stocks dragging on the index, while energy and utilities outperformed.
• The TSX edged up 0.3%, as strength in materials and energy offset losses elsewhere.

Tariffs

Last week, U.S. President Donald Trump announced new 50% tariffs on a range of Canadian goods citing discrimination against the U.S. on three fronts: alcohol, vehicles and dairy products. ¹As a result, a wide swath of Canadian goods will be impacted, with the largest sectors being chemicals and plastics, electronics and electrical equipment, consumer goods and forestry and wood products. Our view is that this is a negotiating tactic consistent with the approach the administration has taken previously. As we have seen many times, President Trump tends to prefer large, round, headline-catching numbers—like 50%, 100%, or 200%—in hopes that they will make people worry and add to the United States’ negotiating leverage. Typically, these numbers don’t end up sticking. Ultimately, the U.S. appears to want to strike bilateral deals with Canada and Mexico rather than a trilateral agreement; in fact, they have already had a third round of talks with Mexico. While Canada likely would prefer to stick together with Mexico, Mexico’s position is unclear; their relationship with the U.S. is currently better than Canada’s, and they may want to take advantage of that. While it is possible that some interim deals could be reached to lower the 50% to a less scary number, we think this may signal to the U.S. that they have Canada on the ropes, ultimately harming Canada’s negotiating position. Consider this hypothetical scenario: Canada and the U.S. reach a deal to lower the tariffs to 35%. While that might provide some certainty in the near term, 35% is still a bad outcome and shows that Canada is willing to bend, which is unlikely to fill Canadian companies with confidence. There is no question that Prime Minister Mark Carney is in a tough negotiating position. While he has made inroads in terms of diversifying Canada’s trade away from the U.S., that is not something that can be done overnight; rather, it is setting the stage for five, ten, or twenty-five years down the road. Currently, the oil angle is what interests us the most. Despite being a net oil exporter, the United States does need Canadian oil, which gives Carney some leverage. But the question is: if Canada is increasingly doing business with other countries, what would prevent the U.S. from doing the same? It is a complicated situation, but our expectation is that Carney will attempt to leverage Canada’s energy position into a tariff scenario that is favourable relative to other countries.

Bottom line: In our view, Canada’s best option is to fight for a good, longer-term deal rather than make shortsighted interim agreements. However, if Carney comes to believe that a good deal isn’t possible, then shorter-term agreements may be the only option while Canada waits for a new and more amenable U.S. administration to take office.

U.S.-Iran

The U.S.-Iran conflict continues to deepen, with oil prices having now rebounded to their highest levels since May.² While we do not think that investors necessarily need to take more risk off the table at this stage (i.e., reduce equity weight), some things have changed in our view. As I’ve discussed previously, our evaluation was that the conflict would most likely be resolved before the U.S. midterm elections in November, on the assumption that President Trump would not want Americans to go to the polls with elevated oil prices on their minds. Now, we think there is a real possibility that the conflict could persist beyond the midterms; it is not our base case, but we do think the probability has increased. If the conflict does continue to December or beyond, then there would be no obvious timeline for peace—no upcoming event or milestone that markets could look to as a likely end point. This, in our view, represents a major additional risk that would cause us to re-evaluate our risk-on versus risk-off position. Furthermore, this October could also represent a flashpoint in U.S.-China trade relations. Our expectation is that China has a strong hand and is unlikely to bend the knee, while both Democrats and Republicans are likely to take a hard line on China in the midst of an election campaign. That could cause a spike in volatility on top of the heightened uncertainty from the U.S.-Iran situation.

Bottom line: While we don’t think it’s time to take risk off the table just yet, there are reasons to be more defensive, and we’ll continue to monitor the situation through the U.S. midterm elections and beyond.

Technology

Over the past week, two major news stories on Alphabet (Google) emerged: first, that they and other hyperscalers have accumulated a significant amount of off-balance-sheet debt, and second,³ that the company declared historic quarterly earnings of $112.1 billion, up nearly 300% year-over-year.⁴ How should investors weigh these apparently conflicting signals? That is the precise question that markets are grappling with at the moment—and right now, the debt side of the equation seems to be outweighing the earnings side. As long as capital expenditures (capex) stays high, Tech companies—and especially hyperscalers—can be expected to do well. But this is an arms race, so if one big company slows down its capex spending, there’s the risk that it could spiral and cause a downturn in a lot of the big Tech stocks. The belief that these companies need to keep spending, with required capital coming first from the equity side and now from the debt side, is something that markets are monitoring very closely because of the impact it is having on balance sheets. These firms used to have phenomenal balance sheets because cash flow was strong. Now, their balance sheets are weaker, and in our view, investors should demand more return in exchange for that risk. It is a situation that we’re watching carefully, because if markets turn on companies despite high growth, then we’ve entered a situation where strong earnings are no longer rewarded, and that’s an important indicator.

Bottom line: Up to now, earnings have mattered. However, if debt concerns raise the bar so high that there’s a limit on how high stocks can go, then the risk-reward trade-off may no longer be worth it, and investors may start to pull back on their hyperscaler bets.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Risk-on, radar up: a constructive setup, but still cautious outlook .

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Source

¹Serah Louis, Paula Tran, “’A pretty strange list’: What Canadians need to know about Trump’s new 50% tariffs and the claims used to justify them,” Financial Post, July 23, 2026. 

²OilPrice.com. 

³Erik Sherman, “Big AI Data Center Owners Are Massively Expanding Their Debt,” Forbes, July 24, 2026. 

⁴Samantha Subin, “Alphabet earnings takeaways: Q2 revenue beats, GOOGL stock sinks on 2026 capex hike,” CNBC, July 22, 2026.