Tariffs are rarely good news. As David Kelly, global strategist at J.P. Morgan Asset Management put it: “The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.”
Given the erratic nature of Trump’s tariff pronouncements and the ongoing trade tensions between the U.S., Canada and other global trade partners, it is difficult to predict the impacts of all this on the investment management industry.
As of today, the U.S. has imposed multiple tariffs on Canadian goods, including 25% on steel, aluminum and certain automobiles. Further auto-parts tariffs are set for May.
In response, Canada introduced reciprocal 25% tariffs on nearly $30 billion in U.S. imports, including vehicles and metals, while targeting products that are not compliant with the Canada-U.S. Mexico trade agreement.
But with head-spinning tariff impositions, pauses, reversals and negotiated changes, there has been no consistency or predictability in the U.S president’s trade policy.
This kind of extreme market volatility and tariff uncertainty poses significant risks to the financial sector. Dramatic daily swings, capable of erasing trillions of dollars in value in a day, create instability. Canadian investors are increasingly anxious, especially when their portfolios lose value. Coupled with a weakening job market and expected inflation, economists caution that Canada could face a recession, potentially dampening new individual investment flows.
Beyond their immediate repercussions, tariffs highlight the urgency for Canada to become more economically resilient. Many commentators have called for tactics such as diversifying markets for Canadian goods and services, dismantling interprovincial trade barriers and enhancing productivity.
Even before the trade war, the Bank of Canada described Canada’s weak productivity growth as an “emergency.” Indeed, between 1984 and 2022, Canada’s economic productivity declined relative to that of the U.S. from 88% to 71%. Italy was the only G7 country to score more poorly.
We need regulatory reform
One strategy to enhance productivity in Canada is to improve regulatory efficiency and — while there has been some progress recently — it remains one of the most significant opportunities to drive progress. This is particularly critical for the securities industry, which is hampered by expanding regulatory developments in two major ways.
First, the securities industry has been subject to a large number of major regulatory initiatives over the past few years, both proposed and implemented. This has translated into significant and ongoing work for companies and has strained capacity across operations, compliance and technology.
While the increased regulatory burden has a direct cost, the resources that must be committed to ensuring compliance also incur an opportunity cost, constraining innovation. Every dollar that asset managers and wealth managers must allocate to compliance represents one fewer dollar available for business growth, product development or technological innovation.
A recent study by the C.D. Howe Institute, The Good, the Bad and the Unnecessary: A Scorecard for Financial Regulations in Canada, underscores that Canadian financial services regulators do not sufficiently consider the negative effects of new rules on competition and innovation.
Second, the regulatory environment can significantly hinder companies’ ability to pursue major projects, particularly those requiring extensive capital investments, such as pipelines, infrastructure or resource-development initiatives. For instance, pipeline projects Energy East and Northern Gateway faced prolonged and prohibitive regulatory reviews, ultimately leading to cancellation.
Similar regulatory obstacles impede renewable energy projects, large-scale construction, technology infrastructure initiatives and so on. These hurdles not only restrict investment opportunities for Canadian investors but also limit broader economic growth and employment in associated industries.
While regulation is a necessary element of financial markets and corporate activity, the external tariff pressures remind us of the critical need for a stronger and more efficient Canadian economy. Addressing regulatory inefficiencies must become a top priority.
Reducing regulatory burden will enhance Canada’s economic resilience, enabling the country to more easily navigate uncertain economic environments while supporting better financial outcomes for all Canadians.
Ian Bragg is vice-president of research and statistics at the Securities and Investment Management Association.
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