Unlove Thy Neighbour: Natural Resources Issuers Poised to Weather the Tariffs Storm if Imposed

For now, Canada and Mexico have each received a 30-day reprieve from President Trump's proposed tariffs. China, however, did not get off the hook and has been hit with a 10% tariff on Chinese goods imported by the U.S. In return, China has begun to trigger retaliatory tariffs on U.S. goods. Although the U.S. tariffs have been delayed pending negotiations with Canada and Mexico, the threat remains. In this commentary, we provide our view on the potential impact of tariffs on the natural resources sector (mining and forest products) and its associated issuers.

Key highlights include:
-- There will be short-term disruptions in trade flows until supply chains are rebalanced.
-- We do not expect mining companies to scale back production but will look to deliver according to their operational guidance provided for 2025. However, this may not be the case for forest products companies
-- Mining companies have the ability to absorb any short-term negative impact of the potential tariffs without any effect on their credit ratings. Forest products companies have the flexibility to sell exclusively within their domestic markets to by-pass the effects of potential tariffs.

"The robust commodity prices that have persisted over the past few years have allowed mining companies to significantly reduce their debt levels and consequently they have strong credit metrics," said Brian Szeto, Vice President, Energy and Natural Resources. "As a result, mining companies have the ability to absorb any short-term negative impact of the potential tariffs without any effect on their credit ratings."