Investing.com -- The election of a new Liberal minority government in Canada clears the way for a near-term resolution of the escalating trade tensions with the United States, according to a report from BCA Research. Strategist Matt Gertken wrote that “the U.S. and Canada will resolve their trade dispute quickly, leading to a North American deal and better prospects for future relations.”
The report argues that with Canada’s political transition complete and U.S. President Donald Trump seeking to avoid a recession in the early part of his term, both leaders have strong incentives to strike an agreement by summer. “Trump’s trade war will likely conclude with an outline deal sooner rather than later in 2025,” Gertken added, pointing to the potential renewal of a revised USMCA pact in 2026.
For Canada’s Prime Minister Mark Carney, economic pragmatism is expected to replace the anti-American tone of the election campaign. BCA analysts say Carney “will need to rule for all Canadians… and grow the economy,” which means engaging directly with Washington to remove trade uncertainties and avoid escalation.
Trump, for his part, faces his own constraints. With equity markets teetering from past tariffs and fears of a global trade downturn mounting, the administration is unlikely to risk a deeper rift with a close economic partner. “Trump has delayed Canada and Mexico tariffs… now he seeks compromise,” Gertken wrote, noting that a deal with North American allies could also strengthen the U.S. position in future talks with China and the EU.
The anticipated framework would involve Canada scaling back non-tariff barriers, expanding defense contributions, and pledging not to serve as a backchannel for circumventing U.S. export controls. In return, Trump would lift new tariff threats and preserve core trade preferences.
BCA expects Canadian assets to benefit the most on a relative basis. The research firm has initiated a tactical long position on CAD/MXN, reflecting confidence that Canada will outperform Mexico amid declining trade risk and larger fiscal support measures.
However, the report also cautioned that any trade breakthrough won’t offset the economic drag from a broader U.S. slowdown. “Cyclically, the U.S. economy is likely to slow and face recessionary or stagflationary outcomes, which bodes ill for U.S., Canadian, and Mexican corporate earnings,” it stated.
While improved diplomatic ties between Ottawa and Washington may support market sentiment, BCA maintains a defensive investment posture. The firm recommends favoring government bonds, safe havens, and holding long exposure to North American energy over Middle Eastern producers due to geopolitical risks in the Gulf.
Still, the near-term political backdrop is conducive to dealmaking. “The Canadian election creates a personal and popular mandate for Carney, who can now cooperate with Trump,” BCA concluded. For financial markets, a North American détente may offer temporary relief, even as uncertainty elsewhere is expected to persist.
