Beyond Tariffs: How Canadian Investment in the U.S. Benefits Trump's Economy
The recent Supreme Court decision that invalidated President Donald Trump's authority to impose tariffs under the International Emergency Economic Powers Act dealt a significant blow to his trade strategy. The ruling affected an estimated US$130-$160 billion in tariff revenues, yet Trump quickly pivoted, announcing a new 15% worldwide tariff using different legislation. However, the real story of economic interaction between the U.S. and Canada goes far beyond tariffs.
The Canadian Investment Advantage
While tariffs have dominated headlines, Canadian entities have been steadily increasing their investments in the United States. According to economic data, Canadian investors added an average of $60 billion annually to their foreign direct investment holdings in the U.S. over the four-year period leading up to 2024. This substantial investment flow places Canada among the top global investors in the American economy, surpassing allocations from many larger economies.
Avery Shenfeld, chief economist for CIBC Capital Markets, noted that this investment represents a significant "big win" for the United States. "If that's the President's view, then Canada has a lot to crow about in upcoming trade talks, based on what it's already been doing in the U.S. for a long time," Shenfeld stated, referencing Trump's recent celebration of Japanese investment in the U.S.
Investment Flows and Economic Impact
The investment relationship between the two countries shows a clear pattern: Canadian investment in the U.S. consistently exceeds American investment in Canada. This creates what economists describe as a financial and capital account surplus for the United States, meaning America receives more investment flows from Canada than it sends northward.
Several factors drive this investment trend:
- Pension fund diversification: Canada's large pension funds have expanded their direct investment activities in the U.S. to diversify beyond their domestic market
- Equity market participation: Canadian demand has significantly boosted U.S. stock values, contributing to American wealth creation
- Consistent investment patterns: The $84-billion net investment by Canadians in U.S. equities in 2025 represented the second-highest annual total, only exceeded by 2021's $95 billion investment
Trade Agreement Context
Interestingly, most Canadian exports that would have been subject to the invalidated tariffs were already exempt under the Canada-United-States-Mexico Agreement (CUSMA). While this provided protection for Canadian businesses, the Supreme Court ruling offered additional security by removing the tariff threat should the trade agreement ever collapse.
As CUSMA comes under review this year, economists suggest that Canada's substantial investment contributions to the U.S. economy should be highlighted during negotiations. Shenfeld emphasized, "Perhaps we can remind the President of that big win in upcoming talks over Canada-U.S.-Mexico trade, and let him tweet away about it."
Broader Economic Implications
The investment relationship demonstrates that economic ties between the two countries extend well beyond trade in goods. While tariffs generate political attention, the steady flow of Canadian capital into American businesses, real estate, and financial markets creates lasting economic benefits for the United States.
Warren Lovely, an economist with National Bank of Canada, pointed out that Canadian investment in U.S. equities far exceeds the $10 billion that flows to non-U.S. equities, highlighting the special economic relationship between the neighboring countries.
This investment dynamic creates a mutually beneficial economic relationship that persists regardless of political rhetoric about tariffs and trade imbalances. As trade discussions continue, the substantial Canadian investment in the U.S. economy represents a powerful economic reality that transcends temporary tariff disputes.
