August 2025

U.S. tariffs implemented this year were sold to the American public as being paid by foreign exporters, recharging U.S. manufacturing, and narrowing the size of U.S. trade and fiscal deficits. Early data suggests tariffs are not achieving those goals. U.S. Job growth has decelerated—including in the trade-sensitive manufacturing sector that was meant to benefit from tariffs. In the case of Canada, the blanket International Emergency Economic Powers Act (IEEPA) tariff on Canada impacts a small share of exports that are not compliant with the CUSMA free trade agreement. While sector specific tariffs including on steel and aluminum products remain, more than 90% of Canadian exports continue to access the U.S. market duty free. In August we maintained our twelve-month forward outlook of three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) over the next twelve- month period.

China’s surveyed unemployment rate rose to 5.2% in July 2025.¹ China’s trade surplus came in at USD 98.24 billion in July as exports rose 7.2% year-on-year, while imports increased by 4.1%. China’s trade surplus with the U.S. declined in June, as both exports and imports with the U.S. declined, falling 21.7% and 18.9%, respectively.² The headline annual inflation rate in the Eurozone was unchanged from the prior month at 2% in July of 2025. This marks the second consecutive month that inflation has aligned with the European Central Bank’s official target,³ while the unemployment rate in the Euro Area remained unchanged at 6.2%.⁴

The U.S. economy grew an annualized 3% in Q2 2025, rebounding from a 0.5% contraction in Q1, when businesses and consumers rushed to stockpile goods ahead of expected price increases following a series of tariff announcements.⁵ The U.S. annual inflation rate remained at 2.7% in July 2025,⁶ while the U.S. unemployment rate rose slightly to 4.2% in July.⁷ The U.S. trade deficit in goods narrowed sharply in June 2025 as imports fell 4.6% from the prior month, while exports edged down 0.7%.⁸ Canadian GDP contracted by 1.6% on a seasonally adjusted annualized rate in the second quarter of 2025, reversing from the 2% growth rate in the previous period. The report shows some evidence that the trade damage isn’t rapidly creeping through the broader economy. The decline was headlined by lower exports and weaker business investment in machinery and equipment. Exports fell 27% on an annualized basis while business investment contracted 10.1% after rising just 1.1% in the first quarter, highlighting the mounting pessimism facing Canadian firms as they contend with the uncertain and frequent changes to U.S. levies and policy.⁹ The annual inflation rate in Canada eased to 1.7% in July 2025,¹⁰ while the unemployment rate remained unchanged from the previous month at 6.9% in July of 2025.¹¹ Canada posted a seasonally adjusted trade deficit of C$5.9 billion in June as imports expanded by 1.4%. Exports rose by 0.9%. Exports to the United States were 3.1% higher from the previous month but remained 12.5% lower annually.¹² 

Despite ongoing tariff-related trade tensions and macroeconomic uncertainty affecting markets, U.S. equities maintained their upward momentum in July, with the S&P 500 increasing by 2.2%.  The S&P Mid Cap 400 and S&P SmallCap 600 concluded July with increases of 1.6% and 0.9%, respectively. Canadian equity indices finished the month on the upside. The S&P/TSX Composite increased 1.7%. The Europe 350 began the second half of 2025 on a positive note, gaining 1% in July. Most countries contributed positively to the S&P Europe 350, with the notable laggard of Denmark. Pan Asian equities sustained their upward trajectory in July, despite a weakening of currencies against the US dollar. The USD denominated S&P Pan Asia BMI closed the month up 1.1%.

In August, we reduced exposure to the S&P 500 and added that exposure to the Canadian TSX equally across all models, reflecting our view that Canada is managing the U.S. tariff uncertainty, replacing some U.S. exports with contracts in Europe and abroad. We maintained exposure to investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility.

Demand for foreign goods in the U.S. is expected to hold up in the near term due to a lack of domestic alternatives. Concurrently, U.S. trading partners are looking to other countries for new opportunities. Canada’s 15 free trade agreements (FTAs), covering 51 countries and over 1.5 billion consumers will be a high priority focus, with more deals under negotiation to expand its global network. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

¹ Trading Economics. China Unemployment. August 15, 2025.

² Trading Economics. China Inflation. August 7, 2025.

³ Trading Economics. EU Inflation. August 20, 2025.

⁴ Trading Economics. EU Unemployment. July 31, 2025.

⁵ Trading Economics. U.S. GDP. July 30, 2025.

⁶ Trading Economics. U.S. Inflation. August 12, 2025.

⁷ Trading Economics. U.S. Unemployment. August 1, 2025.

⁸ Trading Economics. U.S. Trade. July 29, 2025.

⁹ Trading Economics. Canada GDP. August 29, 2025.

¹⁰ Trading Economics. Canada Inflation. August 19, 2025.

¹¹ Trading Economics. Canada Unemployment. August 8, 2025.

¹² Trading Economics. Canada Trade. August 5, 2025.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2025. Index performance is based on total returns and expressed in the local currency of the index.