The only thing predictable about the current trade war with the U.S. is that it is in a state of flux.

The recent upheaval surrounding U.S. trade policy has caused ripples around the world. Earlier this year, U.S. President Donald Trump postponed his long-threatened 25% tariffs on all Canadian goods and 10% on Canadian energy imports only to impose them weeks later. Canada responded with retaliatory tariffs on a range of American goods and intends to expand these tariffs to encompass goods from Republican stronghold states as part of its strategic response. Adding to the uncertainty, President Trump paused tariffs on Canadian goods under the CUSMA (Canada, U.S., and Mexico Trade Agreement) through early April.

Tariffs and the potential trade war have created widespread uncertainty across industries, public markets, and consumer groups. Protectionist impacts can take the form of job losses in affected industries and inflationary pressures across the economies of North America. A protracted trade war would have profound consequences for Canada’s economy, which is heavily reliant on trade with the U.S.

As Canadian policymakers look at strategies to navigate the situation — such as dismantling inter-provincial trade barriers, a longtime economic dampener for the country; reducing the flow of Canadian energy to the States; and negotiating carveouts for key industries — Canadian investors are rightly looking for their own path forward. In a changing and sometimes turbulent economic environment, alternative investments, particularly REITs, can be a refuge from this day-to-day volatility.

Rental apartment REITs avoid the worst of a U.S.-Canada trade war

Canadian rental apartment REITs are largely insulated from U.S. tariffs since they operate entirely within Canada and are not reliant on cross-border trade. Housing is a fundamental need, so rental demand remains steady even in periods of economic uncertainty. Private real estate investments also provide stability, avoiding the volatility of public markets and serving as a reliable hedge against market swings.

Tariffs may increase costs for Canadian rental REITs indirectly, as higher renovation or maintenance costs could delay some upgrades, but since only a small percentage of units are renovated at any time, the effect on net operating income (NOI) would be minimal. On the other hand, tariffs driving up the cost of materials like steel and lumber could have a direct impact on construction and development projects. Large-scale developments would be most vulnerable — more on this later.

A broader concern is how potential job losses could negatively affect rent collection and vacancy rates. However, past downturns, including the COVID-19 pandemic, showed that rental demand in Canada remains strong even in uncertain times. Supply chain disruptions may also increase operational costs, but these factors are unlikely to affect the long-term stability of rental properties.

With the Canadian economy and its dollar showing weakness, several factors suggest that the Bank of Canada will maintain low rates as it continues its rate-cutting cycle, which has decreased financing costs for new acquisitions and refinancing. That said, over time, tariffs can potentially lead to an increase in inflation. Generally, real estate remains an attractive hedge against inflation, reinforcing its appeal in volatile markets.

If tariffs remain in place for an extended period, they could slow economic growth or even trigger a recession. However, multifamily real estate has historically performed well during downturns, as homeownership becomes less affordable and rental demand increases. Investors who take a long-term approach should focus on assets with a track record of stability rather than reacting to short-term market disruptions.

Developers with strong, diversified contracts best positioned to navigate tariffs

On the development side of things, tariffs that push up the costs of steel and aluminum, other inputs, and Canadian countermeasures can directly impact construction costs and therefore development costs. The biggest cost pressures would be on large-scale developments (e.g., high-rises) where rising materials costs from pressures on domestic suppliers could affect project feasibility and timelines.

The impacts of tariffs on Canadian steel and aluminum producers, in particular, can take the form of decreased production and unemployment in these industries and those that rely on their products. Blanket tariffs exacerbate these effects economy-wide.

Development and construction companies typically have negotiated contracts in place for materials. Protections in the face of suppliers trying to pass along higher costs centre on strong contract language to ensure existing contracts are honoured. A potential concern is that a supplier would refuse to honour previously negotiated prices in light of these tariffs. To mitigate this risk, developers must ensure that their trade/supplier contracts are sufficiently strong to protect against this possibility.

This underscores experienced developers’ approach to navigating periods of high costs by building resilient supply chains for key materials like lumber, drywall, concrete, steel, and glass. This often means diversifying suppliers through dual-sourcing and prioritizing local options, which would be exempt from cross-border charges.

The longer time horizon of development projects can contribute to greater stability compared to shorter-term investments, as it allows for strategic adjustments to changing conditions and helps mitigate the impact of market volatility over time.

We’ve been here before

It also helps to remember that Canada has been through this before. In 2018, during the first Trump presidency, U.S. tariffs were laid against Canadian steel and aluminum amid negotiations for the CUSMA. Canada retaliated with tariffs on specifically selected products from large manufacturing bases and key Republican states. The trade war lasted until May of 2019 when all sides agreed to the CUSMA, which was ratified the following year.

Although the relative size of the tariffs is much higher — and therefore so are the stakes — the playbook for both sides appears to be the same this time around. And as we have seen in the past, Canadian REITs can offer a refuge for investors during unsettled times.