ETFs to Watch as US-Canada Trade War Deepens, Retaliatory Tariffs in View

Trade relations between the United States and Canada have entered uncharted territory following the recent collapse of high-stakes tariff negotiations. With both nations failing to reach a deal, a full-blown trade war has effectively escalated across North America. 

U.S. tariffs of 50% are already in effect on $20 billion worth of Canadian goods, while Canada said it would impose retaliatory tariffs beginning Sept. 8.

Against this backdrop, unprecedented headwinds to cross-border commerce are likely to sustain extended volatility across regional equity markets.

For investors, this escalating dispute creates a critical backdrop for evaluating their portfolios, putting Canadian stocks and exchange-traded funds (ETFs) directly under the financial spotlight.

Before delving into these ETFs, it is important to identify the stocks most exposed to the trade war, prompting investors to reassess their positioning.

Corporates in Crossfire Amid US-Canada Tiff

The economic ripple effects of these tariffs will reach across key sectors, affecting large-cap Canadian companies that rely heavily on integrated North American supply chains and U.S. demand.

For example, banking giants like Royal Bank of Canada RY and Toronto-Dominion Bank TD face dual risks. A broader economic slowdown induced by retaliatory tariffs can weaken loan growth and heighten domestic default risks. Furthermore, major financial institutions with an expanded footprint and retail presence in the United States are likely to face margin compression under shifting regulatory scrutiny and cross-border capital friction.

On the other hand, energy pipeline giants like Enbridge Inc. ENB operate vital crude and gas corridors into the United States. While midstream long-term contracts provide a cash-flow buffer, broader trade friction, regulatory delays on cross-border infrastructure, and shifting tariff policy on energy exports threaten volume expansion and project pipelines. 

Meanwhile, e-commerce facilitators like Shopify Inc SHOP might face reduced transaction volumes if merchant cross-border sales become sluggish due to rising import costs. Freight and rail operators like Canadian Pacific Kansas City CP may face diminished industrial cargo, agricultural shipments, and auto transport across the U.S.-Canada border, thereby being adversely impacted by this trade war.

Trade Friction and ETF Portfolio Repositioning

As trade policy volatility heightens macroeconomic uncertainty, investors must reassess their exposure to Canadian equities.

The primary risk lies in the market's heavy concentration — financials, energy, and industrials dominate the major indexes, making them vulnerable to cross-border friction. 

During such tariff disputes, investors might want to prioritize rebalancing their exposure to Canada-focused ETFs. Investors should closely monitor each fund’s liquidity, top holdings, and sector concentration, which could amplify volatility.

Canadian ETFs to Watch

Considering the aforementioned discussion, investors should keep the following ETFs on their watchlist to help mitigate downside risk during prolonged tariff disputes:

JPMorgan BetaBuilders Canada ETF BBCA

This fund, with net assets worth $11.48 billion, offers exposure to 77 Canadian stocks. Of these, RY holds the first spot in this fund, with an 8.95% weightage. TD holds the second spot with a 6.12% weightage, while SHOP holds the third position with a 5.68% weightage. ENB holds the sixth spot, holding 3.43% shares in this fund, while CP holds the tenth spot with 2.67% of shares. 

BBCA has rallied 15.7% year to date and charges 19 basis points (bps) in fees. The Financials sector holds the largest share of this fund, followed by Energy and Materials. The fund traded at a volume of 0.11 million shares in the last trading session.

iShares MSCI Canada ETF EWC

This fund, with net assets worth $6.92 billion, offers exposure to 84 companies in Canada. Of these, RY holds the first spot in this fund, with an 8.88% weight. TD holds the second spot with a 6.01% weight, while SHOP holds the third position with a 5.67% weight. ENB holds the fifth spot, holding 3.41% shares in this fund, while CP holds the tenth spot with 2.67% of shares. 

EWC has gained 15.7% year to date and charges 50 bps in fees. The Financials sector holds the largest share of this fund, followed by Energy and Materials. The fund traded at a good volume of 1.03 million shares in the last trading session. 

Franklin FTSE Canada ETF FLCA

This fund, with net assets worth $867.8 million, offers exposure to 87 Canadian stocks. Of these, RY holds the first spot in this fund, with an 8.76% weightage. TD holds the second spot with a 5.98% weightage, while SHOP holds the third position with a 5.58% weightage. ENB holds the sixth spot, holding 3.36% of shares in this fund. 

FLCA has risen 15.3% year to date and charges 9 bps in fees. The Financials sector holds the largest share of this fund, followed by Energy and Materials. The fund traded at a volume of 0.11 million shares in the last trading session. 

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