This is the beginning of the new year, it’s just the hardship of February!
While U.S. news is bombarded with so crazy nonsense that I can’t even keep up with it, Canadian news has been dominated by a topic: the threat of the U.S.-Canada trade war.
There is no good reason for Trump to impose a 25% tariff on Canada and Mexico.
The stupidest trade war in history, wsj.com
Although tariffs were suspended until March, the looming threat of the trade war and the immediate economic recession that would bring took over our news reports.
It was so interesting to see my Canadians react in the past few weeks. Canadians are not the most openly patriotic people in the world, but it turns out that your closest allies threaten your economy and sovereignty * There is no damn reason Positive to annoy people.
Nationally, Canadians express their dissatisfaction by sing the American national anthem at sporting events (although in particular, still cheering for the singers themselves, because after all, we are still Canadians).
Nowadays, Canadians are boycotting American goods every day, and instead choose to buy Canadians. The store is pulling American products from the shelves and directing customers to buy local products.
We are fighting to cancel our travel plans to the United States.
It also completely subverts the political discourse of the country. Our upcoming election was supposed to be a referendum for the Canadian Liberal Party, but it has turned into a question: Which politician can best protect our economy from its southern neighbors?
It’s also a live lesson about how to face a bully. In a trade war, the only real weapon we have against tariffs is to put them into tariffs. Retaliatory tariffs are designed to damage the aggressor’s economy and cause enough pain among their citizens to hope that their politicians will retreat. No one will win a trade war, but if you don’t retaliate and just let someone collect you and get rid of it, there is no motivation to let the invaders stop, so if we want this trade war to end, we really have no choice.
The problem is that due to the relative size of our country, even if Canada is going to impose a dollar retaliatory tariff on the United States, our tariffs have not done the same as their economy. Economists estimate that if the U.S. imposes a 25% tariff on Canadian goods, our GDP will be reduced by about 2.5%. If we make retaliatory tariffs appropriately, their GDP will not shrink much.
However, the same dynamics exist in the U.S. trade relations with Mexico. U.S. tariffs on Mexico will also immediately include Mexico in the recession, but Mexico’s counterattack has no same effect on the United States.
So the only meaningful strategy is to get Canada and Mexico to connect weapons and say, “If you tariff, we will all impose you at the same time.” Retaliatory tariffs in Canada and Mexico may put the United States in recession, but only if we stand Together and coordinate our reactions.
It is a diplomatic strategy, commonly seen in the Hunger Games trilogy, called “If We Burn, You Burn With Us.”
Picture: Diplomacy
So that’s basically what Canada and Mexico did last week. We both threaten retaliatory tariffs on the U.S., stock markets feared an upcoming recession, and eventually, Trump retreated.
But this does not always avoid threats. At best, this earned us a probation. In less than a month, we are back and argue again about the same shit. Frankly speaking, even if the U.S. president imposes tariffs on Canada and Mexico, there is nothing to stop the U.S. from threatening us later on by any perceived slight, real or imagined threat.
So that’s why the buzzword for Canadians (presumably Mexico) thinking is the D word. No, not Donald. Not even democracy. I mean: diversity.
Canada made a mistake to make our economy too dependent on trade with the United States. By interweaving our economies, the logic begins, and it doesn’t make sense for Americans to blow up our economies because they can also be hurt. This is an interesting theory, but unfortunately, for all of us, it’s totally wrong.
Now we are scrambling to solve this problem by building infrastructure such as pipelines, railways and ports to transport our resources to markets in Asia and Europe, but that will take time until it is completed and Canada will be vulnerable to injury . We have opened up a failed place by failing to anticipate a second Trump presidency, rather than the economic diversification a few years ago.
But this also raises another problem. On a personal level, are we diverse enough in our financial lives? Are we also susceptible to individual failures? If so, how do we eliminate a single point of failure and make sure no one can ruin our financial lives?
Diversify your assets
In terms of investment, Canadians mainly tend to invest mainly in domestic assets. We invest in Canadian stock markets and Canadian bonds at Canadian dollars, just because it is familiar.
This is called motherland bias, and it may be against you.
Patriotism is a good thing, but not when it comes to investment. I love Canada, but I have to be realistic: we are not that big. As the world undoubtedly notices, Canada’s economy is primarily based on resources and trade, so we are vulnerable to geopolitical risks, such as trade wars with our largest trading partners. It is not safe to keep all the eggs in one basket.
That’s why we advocate a global diversified portfolio that includes your home country and international markets. For Canadians, this means putting some eggs in Europe, Asia, and even the United States.
This is a fact. No one can predict what will happen in the future. If anyone told me that in 2025, Americans will be in a trade war with Canada and Mexico, and Elon Musk has no consequences to plunder the U.S. Treasury, then I would tell this guy is crazy. But we are here.
This is why our equity allocation is evenly distributed between Canada, the United States and EAFE (Europe, Oceania and Far East). Things in North America will become volatile in this trade war. So in an uncertain world, it’s better to put your bets across the geographic area because you never know which region will lead the way. What’s really interesting is that the EU shrugged and responded to Trump’s tariff threat. The EU is big enough to trade between itself and smart enough to not hand over its economic keys to foreign power. Who knows? It might be a fun year that Eafe does do.
Diversify your currency
Many Canadians also keep most of their wealth in Canadian dollars. As has been shown in the past few weeks, exchange rates can fluctuate surprisingly.
The easiest way to get USD (without literal) in your investment is to use ETFs in our workshops because they are not in currency.
Money object funds use financial instruments such as options to offset the impact of foreign exchange in your return on investment. On the other hand, a currency-unplanned fund holds its underlying assets in its original currency, so when you use U.S. index funds (such as vun or international index funds like XEF), when the dollar is worth to your home As you rise, you will benefit from the currency, CAD.
This is not super intentional. When we write the seminar, we suggest that currencies do not match funds because their fees tend to be lower. But hey, when life accidentally brings you victory, you can do it?
Diversify your income
Finally, the biggest source of all-in-one basket syndrome is people’s dependence on work.
“But I love my job!”
“But my boss is the best!”
“They will never fire I!transparent
I hear these typical responses when I suggest that no matter who you are, who you work for, you shouldn’t rely on your job. I said: Of course. You believe this is really great. For now, this may even be true.
But ask anyone working in the U.S. federal government how they feel about their job security now. This is Federal Government. Can you think of a job that is more stable and recession-proof than the federal government’s work? I can’t do it, but those people are staring at the threat of layoffs created by the wealthiest people in the world.
Those federal workers felt the same thing in her last job. Her company just released a record revenue quarter, but they sent people around. That’s when she realized that the only person you really trust is yourself and your investment. Your boss, no matter how good they look, can be replaced later. And that new boss may just see you as a responsibility to get rid of.
That’s why having a portfolio generates passive income is the best defense you can resist this possibility. Even if you are not going all out yet, if you are out of work, currency that can be sold in liquid format (if necessary) is available, it is even more comforting to hold a large mortgage that needs to be fed.
in conclusion
FI in FI stands for financial independence. Financial independence is the most powerful position. This means that even if your boss tells you that you have been laid off, you can laugh in their faces and thank them for their severance payments. That is the real power.
You gain that power through diversity. If you diversify your investment, money, and income, no one (or one event) can derail your plan.
This is the lesson Canada is learning now. But hopefully, by seeing our error, you can apply the course to your personal finance before it’s too late.
Remember, security comes from the D-word: diversity, diversity, diversity.
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