Lexicon Financial Group Weekly Update — October 8, 2025
“On their own, tariff and trade barriers, if viewed as transitory negotiating tactics, will not significantly change global investment patterns or the structure of global supply chains and employment.”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
ISSUE 199
Looking Around
We are now entering the sixth month of trade tariffs and it seems like a good time to assess their impact.
First some context. Where U.S. trade policy will land, and how trading partners will respond, is still a moving target. Over the past nine months, the U.S. administration has increased tariffs against virtually all trading partners and the levies continue to evolve week by week.
Needless to say the average tariff rate implemented by the U.S. is the highest for more than 50 years (see figure below)
Canada, which initially found itself squarely in the U.S. administration’s crosshairs, has avoided across-the-board tariffs for now. Negotiations between Canada and the U.S. regarding sectoral tariffs ranging from 25 to 50 per cent on steel, aluminium, and non-U.S. auto content, and some copper products are ongoing, but the more important part of negotiations is the joint review of the USMCA (or CUSMA) which must be held by July 2026. This review process will give all sides an opportunity to air grievances, demand changes, and reach agreement.
Despite the claims of the Trump and his administration, the long-term slide in U.S. manufacturing employment has been more rooted in technological advancement than overseas competition. However, some overseas competitors, like China, have not always played fair. It’s ascent was partly driven by welcome market reforms beginning in the 1980s and a dogged pursuit of export-led growth. And, China is not the only country to use these tactics.
Canada relies on the U.S. as a destination for about 75 per cent of its merchandise exports, equivalent to 19 per cent of GDP in 2024. After including exports of services like travel, transportation, and commercial services, exports to the United States represents about one quarter of the Canadian economy. GDP, remember, is short for “gross domestic product”. It’s a rough but widely used approximation of the economic activity that takes place in an economy. It may be overly-simplistic to say that Canadian manufacturers need U.S. buyers more than U.S. buyers need Canadian manufacturers. Ultimately, the laws of supply and demand will dictate the flow of goods and services. For those who believe in free or freer markets, tariffs and taxes are an impediment.
Nevertheless, economic linkages between Canada and the U.S. are not just confined to trade. Cross border investment is significant as, at the end of 2024, U.S. investors had Canadian asset holdings equivalent to US$2.5 trillion, or around 9 per cent of GDP. Canadian investors held an estimated US$2.7 trillion in U.S. assets, equivalent to almost 120 per cent of GDP. Why? Over the last few decades, Canada has exported more goods to the U.S. but the U.S. has sold more financial assets to Canada.
It is estimated that the U.S. average effective tariff rate on imports from Canada has increased to around 7 per cent, up from virtually nil in 2024. Canadian tariffs in the other direction have also increased but average less than 1 per cent. According to U.S. data, imports from Canada were down 4.4 per cent year-over-year through the first seven months of 2025 while northbound exports declined 3.2 per cent over the same period. Not great for businesses that import and export, but not catastrophic.
Despite all the recent focus on additional tariffs on steel, aluminium, copper and automobiles, the real test of Canada-U.S. trade relationship will be how the new deal gets negotiated in 2026. The negotiation is not new; it’s part of a clause that requires it to be reviewed and renewed periodically. If a deal isn’t reached, review process is to be repeated annually until 2036. U.S. administration officials have already made it clear that they intend to renegotiate the USMCA, rather than renew it in its current form. (1)
In the face of all of this, early indicators appear to show that Canada has, at least for now, dodged an outright recession. Sure, the S&P/TSX Composite index (TSE) is up by more than 20 per cent but there are regions in Canada where the impact of tariffs are being felt more acutely, For example, the unemployment rate in Windsor, Ontario, has climbed to 11 per cent. And unemployment in Canada is now above 7 per cent where RBC Economics expects it will remain through to the end of this year. (2)
For now, it appears that the full impact of tariffs have yet to be felt. We continue to watch and monitor, and make adjustments as necessary. Should have you have any concerns, let’s set up a quick meeting and we’ll discuss it with you directly. There are no taxes or tariffs on our discussions!
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Will Canada avoid a recession? Here’s what economists say
Will the federal government shutdown last long enough to hurt the U.S. economy?
Europe’s economy isn’t dying: the real story behind the US–EU gap
Japan's economic policy outlook unclear under Takaichi-led minority government
World Bank raises China growth forecast to 4.8% despite U.S. trade tensions
Looking Back
Last week the S&P/TSX composite index (TSX) rose to another record high on as shares of e-commerce company Shopify jumped and investors shrugged off downbeat domestic economic data. Technology accounts for 11.5 per cent of the TSX's weighting which is far less than the U.S. S&P 500 where technology represents 50 per cent of the index. The industrial sector was up 1.1 per cent while the energy sector rose 1 per cent. In all, nine of 10 major sectors ended higher with only healthcare being 1 per cent lower. For the week, the TSX was up 2.4 per cent.
That said, Canada's services economy contracted at a steeper pace in September as businesses shed jobs and outstanding work sank to a five-year low according to S&P Global's Canada services PMI data. Canada’s soft economy drove the Bank of Canada (BoC) to cut interest rates last month to a three-year low of 2.50 per cent. Money market pricing has leaned toward further easing by the BoC this month. (3)
Stock markets in the U.S. shrugged off the U.S. government shutdown and posted solid gains last week. In a “bad news is good news” environment, equities appeared to draw support from the September private payrolls report from payroll processing firm Automatic Data Processing (ADP) showing jobs lost. The labour market data appeared to make it more likely that the Federal Reserve (Fed) will cut rates at its October meeting. The technology-heavy Nasdaq Composite Index outperformed while the Russell 2000 Index of small-cap stocks, which tend to benefit more from lower rates, easily outperformed the broad market S&P 500 Index.Stock indexes in the U.S. rose to record highs last week due to the Fed lowering short-term interest rates for the first time in nine months. Small-cap stocks—which can be more sensitive to interest rate movements than larger companies—rallied, with the Russell 2000 Index gaining 2.16 per cent. Some commodities also fared better, with gold gaining more than 3 per cent to extend its strong year-to-date run and copper, considered a barometer for the manufacturing sector because of its industrial uses, jumped over 7 per cent.
The major economic news was economic data that was not released—the closely watched September nonfarm payrolls report from the Bureau of Labor Statistics (BLS), scheduled for last Friday morning. The BLS was impacted by the government shutdown, which has furloughed approximately 750,000 government employees, according to the Congressional Budget Office. If the shutdown continues, other vital economic indicators such as the September consumer price index (CPI) report could be delayed. This could make the economic situation even murkier in advance of the Fed’s policy meeting in late October.
In Europe, the STOXX Europe 600 Index ended last week 2.87 per cent higher as technology stocks rallied and expectations for lower U.S. borrowing costs this month boosted investor sentiment. Major stock indexes also rose. Headline annual inflation in the eurozone accelerated to 2.2 per cent in September up from 2.0 per cent in August thanks to higher services costs and a slightly slower drop in energy prices. Core inflation rate, which excludes volatile food and fuel prices, remained at 2.3 per cent. Although seasonally adjusted unemployment rate in the eurozone crept up to 6.3 per cent in August, up from 6.2 per cent in July, the consumer confidence indicator—a barometer of economic health—in September improved to -14.9 from -15.5 in August. This uptick in sentiment reflected a stronger intention to make major purchases over the next 12 months.
Japan’s stock markets registered mixed performance last week. However, Japanese technology stocks rallied on favorable developments relating to artificial intelligence investments. Also, despite uncertainty about the outcome of Japan’s ruling Liberal Democratic Party’s presidential election on October 4, the yen strengthened to around JPY 147.3 against the USD, from about JPY 149.5 the prior week, as the greenback weakened following the shutdown of the U.S. government.
Mainland Chinese stock markets rose in a holiday-shortened week. China’s stock markets are closed from October 1 to October 8 for the National Day holiday and Mid-Autumn Festival. This eight-day break—also known as the Golden Week holiday—marks a period of high consumption in China as millions of people travel, shop, and eat out. The surge of spending is expected to boost domestic consumer stocks from liquor companies to domestic airlines. Analysts scrutinize sales data from Golden Week to gauge the health of Chinese consumers, who are central to Beijing’s effort to rebalance the economy toward consumption and service industries. (4)
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.
Special Report - Paths Forward (and Backward) for Free Trade, Aaron Goertzen, Senior Economist and Director, BMO Economics, October 6, 2025
Has the Canadian economy dodged a recession? Peter Armstrong, CBC, September 24, 2025
TSX notches 2.4% weekly gain as Shopify hits a record high, Fergal Smith, Reuters, October 3, 2025
Global markets weekly update - Lack of government data reports muddies U.S. economic outlook, T. Rowe Price, October 3, 2025
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
USMCA Ensures No Tariffs on Most Canadian and Mexican Goods
Trump Tariffs: Tracking the Economic Impact of the Trump Trade War
Canada’s economy is bad. But the U.S. economy is worse
America’s shortsighted, lopsided capitalism was never built to last