Lexicon Financial Group Weekly Update — August 26, 2026
“The benefits of a tariff are visible. Union workers can see they are ‘protected.’ The harm which a tariff does is invisible. It’s spread widely. There are people that don’t have jobs because of tariffs, but they don’t know it.”
ISSUE 242
Looking Around
Being a financial reporter seems like a recession-proof industry. There’s always something to talk about whether this is true or not. That said, this year, of course, wars in Ukraine and the Middle East, rising energy prices, growing inflation, and supply chain disruption as well as tariffs have dominated headlines. This time last year, it was interest rates and the rise of artificial intelligence (AI). Five years ago, it was about recovering from COVID and inflation. Today, especially here in the Great White North (aka Canada), the prevailing news cycle is tariffs, tariffs, tariffs.
It is often said that if you do not remember the mistakes of the past, you are bound to repeat them. As a concept, tariffs aren’t new, of course. The imposition of taxes on traded goods can be traced back to ancient Egypt around 2000 BC. During this period, tariffs helped control foreign traders and protect Egypt from foreign competition. The Roman Empire also imposed tariffs to generate revenue and control the trade flow across its empire. In the Middle Ages, European monarchs used tariffs to promote mercantilism, an economic theory in which a nation accumulates wealth by exporting more and importing less. This theory, by the way, provided the momentum for the era of European countries establishing colonies as sources of raw materials for as well as markets for their finished goods.
Because tariffs make it more expensive for people to buy goods manufactured in other countries, the classical idea is that it spurs people to manufacture goods locally.
To say the least, the application of tariffs and trade barriers has always been a hotly debated topic due to their potential economic consequences and effects on international relations. Yes, tariffs can protect a country’s domestic industries from foreign competition, preserving jobs and fostering growth in protected sectors. But tariffs usually lead to inflation and increased business costs that ultimately slow overall economic growth, decrease consumer spending, and put affordability even further out of reach.
In the United States (U.S.), tariffs constituted the primary source of federal revenue for the U.S. government until the implementation of income tax in 1913. The Smoot-Hawley Tariff Act of 1930 increased tariffs on over 20,000 imported goods and, many argue, actually triggered a trade war, prolonging the Great Depression. After World War II, the U.S. abandoned this approach. The General Agreement on Tariffs and Trade (GATT) came about in 1947 to avoid the tariff mistakes of the past. GATT was replaced by the World Trade Organization (WTO) in 1995 thanks to a worldwide movement toward trade equalization and reducing tariff barriers.
The trouble with tariffs is that the costs are borne by the consumer in the domestic economy and purchasing patterns don’t change overnight. We may see this scenario play out in the current trade war between the U.S. and Canada. The impact of tariffs cause ripple effects throughout the broader economy. They may protect specific domestic industries (on both sides of the border) in the short term but may hinder their competitiveness in the long run. Why? Businesses shielded from foreign competition have less reason to innovate, upgrade, or improve their efficiency or products, which limits their future growth potential. Tariffs also lead to retaliatory tariffs which could hurt exporters, reduce their foreign sales and threaten jobs in industries dependent on exports.
Tariffs could have implications far beyond economics. They strain relationships between nations that lead to tensions or conflicts. This may not directly impact the economy but the secondary effects—such as instability, uncertainty, and potentially decreased foreign direct investment—could have significant economic consequences.
Investors must understand the balance between tariffs, their impacts on specific sectors, and how their investment portfolios may be impacted in an interconnected global economy. (1)
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Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Canada has 1 important edge in the North American trade war
Should You Invest in Bonds Right Now?
What Europe’s Extreme Weather Means for Its Stocks and Economy
Japan Q2 growth misses forecasts on weaker spending, investment
What does the latest data say about the state of China’s economy?
Looking Back
Led by mining stocks, the S&P/TSX Composite Index (TSX) rose last Friday while investors weighed lingering strains in global bond markets and a looming U.S.-Canada tariff deadline. The materials sector led the gains with a 2.9 per cent rise, as gold prices rallied against a U.S. dollar weakened by the U.S. Treasury's bond buyback move. For the week, the TSX was down 0.3 per cent.
Heavyweight Canadian financial stocks also climbed 0.3 per cent ahead of bank earnings this week. Energy stocks also gained 0.5 per cent. Helped by higher sales at clothing and general merchandise stores, Canadian retail sales rose 0.6 per cent in June, which beat expectations. In spite of the renewed trade conflict, money markets expect the Bank of Canada to keep interest rates unchanged at its next meeting, while pricing in a nearly 47 per cent chance of a rate hike in December. (2)
Major U.S. stock indexes finished lower last week as higher Treasury yields, exacerbated U.S.-Iran tensions, higher oil prices, and weakness in semiconductor and artificial intelligence (AI) related shares broadly weighed on investor sentiment. There were also mixed takeaways from several retail earnings reports that appeared to contribute to last week’s cautious market tone. The S&P MidCap 400 Index led the declines, dropping 2.46 per cent, while the Nasdaq Composite and Russell 2000 Index shed 2.05 per cent and 1.65 per cent respectively. The Dow Jones Industrial Average held up the best by falling 0.85 per cent. The yield on the 30-year U.S. Treasury bond reached its highest level since 2007 last week. Rising concerns around the U.S. fiscal outlook and heavy government and corporate debt issuance—including financing tied to AI capital spending—appear to be contributing to the sell-off.
However, U.S. business activity accelerated sharply in August. The S&P Global Flash Composite Purchasing Managers’ Index (PMI) rose to 56.0 from 54.5 in July. Services PMI jumped to 56.8 from 54.6, while the manufacturing PMI eased to 53.2 from 53.9. The survey also indicated that employment increased at its fastest pace since January 2025 as business confidence improved. Price pressures also moderated, with selling-price inflation slowing notably, although input costs remained elevated amid higher energy prices.
The pan-European STOXX Europe 600 Index ended last week down 0.56 per cent in local currency terms. Other major European stock markets ended down for the week as investors were unnerved by the sell-off in global government bonds, rising inflationary pressures, and uncertainty about whether the U.S. and Iran can make peace.
Japan’s stock markets declined sharply last week for the same reasons as other major stock markets. The yield on the 10-year Japanese government bond (JGB) climbed to a 30-year high of around 2.93 per cent early last week amid expectations for further Bank of Japan policy tightening and mounting fiscal concerns following the government’s recently announced plans to cut the consumption tax. Weaker-than-expected second-quarter gross domestic product (GDP) data provided some counterweight to these pressures. The JGB yield ended the week around 2.88 per cent broadly unchanged from the previous week.
China stock markets diverged last week as Hong Kong-listed shares outperformed mainland benchmarks. Mounting worries about faltering economic momentum weighed on sentiment in the mainland as July data showed a broad slowdown in economic activity. Notably, semiconductor and robotics names pulled back in tandem with other chip stocks globally, despite some positive earnings updates and the stellar performance of humanoid robotics company Unitree Robotics, following its stock market debut. (3)
The History of Tariffs and Their Potential Impact, Emilio "Jack" Morrone, One Financial Services, August 11, 2025
TSX rises boosted by miners as choppy week ends, Reuters, August 21, 2026
Global markets weekly update - U.S. business activity growth accelerates to fastest pace in over four years, T. Rowe Price, August 2026
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
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