Economy | March 4, 2025

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Tariffs Trigger Trade War and Shake Markets > What It Means for Fintech and Finance

Canada is on the front line of a global trade war unfolding, triggered by U.S. President Donald Trump.  On March 4, 2025, the U.S. imposed 25% tariffs on all Canadian imports and a 10% tariff on energy, and in response, Canada fired back with $155 billion in retaliatory tariffs on U.S. goods, targeting key industries like agriculture, manufacturing, and consumer products, with the first $30 billion in retaliatory tariffs being applied immediately and the remainder $125 billion in 21 days.  Markets reacted swiftly on the news with the Canadian dollar dropping to it's lowest point in five years, USD/CAD currently trading at 1.45 per tradingview.  The S&P dropped 1.5%, erasing post-elections gains as financial markets and investors brace for longer term, volatile economic uncertainty.

Justin Trudeau, Prime Minister of Canada issued this official statement:

“Today, after a 30-day pause, the United States administration has decided to proceed with imposing 25 per cent tariffs on Canadian exports and 10 per cent tariffs on Canadian energy. Let me be unequivocally clear – there is no justification for these actions."

Trudeau said speaking to reporters on Parliament Hill:

"[Trump is trying to prompt] a total collapse of the Canadian economy [because he thinks that will] make it easier to annex us" [something the U.S. president has repeatedly said he wants to do.  But Trudeau said that will never happen because] when it comes to defending our great nation, there is no price we all aren't willing to pay."

Fintech companies need to adapt to the new realities that will impact lending, payments, investment trends, regulatory frameworks and overall economic sentiment, especially if the trade war is prolonged and more of a structural change than a short-term trading spat.  Companies that adapt quickly will be in a better position than those who don't.  Catch up here:  Tariff Trade War Hits Canada – What’s Happening | 30 day pause

A Global Trade War

This isn't just about a U.S.-Canada trade argument. The U.S. has also escalated disputes with other key partners. China is now facing higher tariffs on tech and electronics, so Beijing is retaliating with restrictions on rare earth minerals essential for semiconductors. Mexico is preparing countermeasures after the U.S. raised tariffs on steel and auto parts.

In response to potential U.S. tariffs on European goods, the European Union has proposed reducing its 10% tariff on U.S. car imports to a rate closer to the U.S.'s 2.5% tariff on European cars. This move aims to avert a trade conflict and balance trade relations between the two economies. Also, the EU is considering using its Anti-Coercion Instrument (ACI) to retaliate against potential U.S. tariffs, which could impact major U.S. tech and financial companies operating in Europe. ​

With multiple global economies reacting to rising trade tensions, the consequences and ripple affects will be felt far beyond just North America.  Fintech firms operating globally should anticipate shifts in compliance costs, new regulations and investment strategies.

Market Implications

The drop in the Canadian dollar will make imports more expensive for Canadian firms and increase volatility in foreign exchange markets. Fintech companies specializing in FX and cross-border payments will likely see increased demand as businesses look for more cost effective ways to make global payments and hedge against currency swings and gaps.

See:  What Fintechs Need to Know About New U.S. Tariffs

While stock markets are roiling, financial stocks have taken a hit, such as Goldman Sachs falling by 4.6% and JPMorgan Chase by 3.5% as investors adjust to reassessed economic risks. It's anticipated that wealthtechs and robo advisory services like Wealthsimple could see an uptick in demand for automated risk management strategies and trade portfolios.

Royal Bank of Canada CEO Dave McKay has warned that tariffs are already slowing economic growth, hurting business confidence, and dampening consumer spending. He also called out early signs of a slowdown in housing and both companies and individuals brace budgets for higher costs.

Short-Term Disruption

In the near to mid-term, the volatility in currency markets, investor uncertainty, and rising costs for businesses and consumers will dominate immediate reactions.  Some companies will try to absorb higher costs while most will pass increased costs onto consumers which will raise inflationary pressures.  Fintech companies dealing in trade finance and international payments and any cross-border transactions needs to monitor for regulatory changes.  Incentives may be on the table for targeted sectors to help them through tough times and diversify to new markets and supply chains.

Long-Term Structural Changes

Longer term, if inflation rises as expected, the Bank of Canada could be forced to raise interest rates, making borrowing more expensive for businesses and consumers. Canadian businesses should migrate supply chains away from the U.S., an opportunity for fintechs providing global solutions and alternative trade networks.

See:  Canadian Fintech Booms with $9.5B Despite Global Slump

Smaller fintechs may struggle with stricter credit conditions, finding it harder and more expensive to raise capital, which could lead to larger players consolidating their market share. A prolonged trade war could result in an overhaul of financial regulations governing international payments and lending, as governments react to new trade realities.

How Fintechs Should Respond Now

Fintechs need to be proactive and stay on top of market trends and changes.  Risk management is critical.  Companies dealing with global transactions should monitor any changes to activity, capital flows and compliance changes.  Fintechs dealing in foreign exchange and global payments could offer hedging tools to help companies manage currency fluctuations.  Lenders should reassess credit exposure to sectors most affected by the trade war.

Companies should diversify to new markets urgently, and look for growth opportunities outside the U.S. by exporting and expanding into markets like Europe and Asia via agreements such as CETA and CPTPP.  Look for partnerships in fintech friendly economies such as Singapore, Dubai, and London where trade tensions will be less impacted.  Speak to your customers and partners and see how you can work together to mitigate risk and heightened costs.  Opportunities for platforms offering lower cost fees, lending solutions with flexible capital, and digital finance tools to help track regulations and manage compliance.

Outlook for Fintechs in a Changing Global Economy

The trade war will change global economic relationships.  Companies will reassess supply chains, governments will restructure trade agreements, and financial markets will react to increased risk and uncertainty.  Fintechs need to come to grips that this is a new economic reality that will require companies to be agile, innovative and manage risk in a forward thinking manner.

See:  Digital Export Trends and Global Trade Fintech Opportunities

Now is the time to secure funding and expand into less volatile markets and strengthen partnerships while providing cost effective financial solutions.  Opportunities always exist for companies that move quickly to capture new market share.  There's also a major risk that companies that fail to adapt will be left behind.  Is your fintech ready for the new economic paradigm?

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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