Jaws, released in 1975, is largely considered to be the first summer blockbuster in the movie industry. According to IMDb (Internet Movie Database), the film sold a staggering 127 million tickets during its original run. Just two years later, it was eclipsed by Star Wars in the summer of 1977, which sold 138 million tickets.
While the summer blockbuster is still a thing, it’s not what it used to be (Inside Out 2 sold just 59 million tickets in 2024). But blockbuster season is alive and well in another arena – U.S. politics. And for Canadian investors, the latest policy shifts there could have a more lasting impact than any Hollywood sequel.
The big beautiful bill could grease profits
On July 4, the U.S. President signed the One Big Beautiful Bill (BBB) Act into law. This comprehensive legislation could affect almost every aspect of American society: taxation, government spending, defense, and social programs.
Key highlights include:
- Permanently extends the 2017 tax cuts
- Exempts tips from taxation
- Increases tax relief for seniors
- Reduces clean-energy subsidies
- Boosts funding to defense and border security
- Reduces funding to programs like Medicaid, food stamps (SNAP), and student loans
But the most significant update relevant for stock market investors concerns the treatment of capital expenditures. Companies can now fully expense expenditures associated with investments in research and development, equipment, and construction or improvements to factories and other facilities in the year incurred. Previously, some capital expenditures could only be partially written off and often over multiple years, or in some cases, decades.
Research firm Piper Sandler estimates these changes could save companies $300 billion in corporate taxes in the first year, equal to 1% of U.S. GDP. For example, AT&T expects a resulting $1.5–2 billion in cash tax savings in 2025.
Back to the (tariff) future
While the BBB aims to boost U.S. economic growth and corporate profits, the return of aggressive tariffs presents a challenge. After pausing tariffs in April to pursue individual negotiations, the Trump administration reached a series of new trade deals with various countries by August 1, raising overall average U.S. tariff rates to levels not seen in over a century. These trade deals cover not just U.S. import tariff rates, but also investment and purchasing agreements.
For example, the U.S. dropped the proposed tariff rate from 20% (announced in April) to 15% on goods coming in from the EU while the region committed to invest $600B in the U.S. and purchase $750B in energy products. However, with only informal agreements in place so far, it’s unclear what has truly been settled. Given recent history, it’s reasonable to assume these deals could change substantially.
While Canada has yet to secure a deal (the U.S. has imposed a 35% rate), the good news is that over 90% of Canadian merchandise exports to the U.S. are USMCA-compliant (our current trade agreement) and remain duty free. The bad news is that industries like steel and aluminum face higher tariffs and more volatility.
The (debt) hangover
Through sweeping executive orders, legislation and trade policy, President Trump has enacted more economic change in the first six months of his presidency than many presidents achieve in four years. The net result is clear: a more inward-looking country, that rewards domestic investment and penalizes foreign reliance.
The BBB and trade policies are designed to work together to achieve the president’s goals. Tariffs make it more expensive to import goods but raise government revenues. Making the 2017 tax cuts permanent and changing the tax treatment of capital expenditures lowers government revenues, but also makes it more attractive to operate and invest in America, potentially achieving the goal of moving industry back to the U.S.
What could go wrong? Several issues are evident. Shifting policies may deter investment, tariffs may reduce GDP and increase inflation, and the cost of the BBB will likely exceed tariff revenues, raising the U.S. deficit.
Of course, increasing deficits and debt aren’t just an American issue. All G7 nations have seen debt levels rise in recent years (see figure 1), with the group set to hit COVID-era levels of debt to GDP by the end of the decade.
Figure 1: Expected G7 debt levels, compared to CAD & U.S.
Source: IMF
No country for fiscal restraint
What are the implications for Canada with of all of this debt growth? One is that Canada may find it necessary to align their policies with those of the United States in areas like full expensing of capital expenditures to maintain domestic investment and remain competitive.
In addition, spending will likely rise to support industries adversely affected by tariffs and to pursue initiatives aimed at expanding access to new foreign markets. Major (and expensive) projects will likely be green lit. Additionally, increased government spending may be required just to sustain an economy weakened by the impact of tariffs, especially if the USMCA gets significantly renegotiated in 2026. Overall, prioritising deficit reduction is unlikely for many governments, including Canada, given these challenges.
It’s tempting to think that the economy and the markets move in lock step, but the two don’t always move in tandem. We can have a weak economy and larger deficits and a strong stock market.
Long-term concern of rising debt could be offset by market drivers like AI, lower rates, and fiscal spending. A balanced portfolio, blending offense and defense, is critical to managing risk and seizing growth potential in this environment. That’s why we’re keeping an eye on tax changes, industry-specific risk, opportunities to rebalance and policy moves in Ottawa and beyond to ensure the strength of our portfolio.
Summer blockbusters come and go, but recent policy decisions in Washington could reflect a deeper shift in America’s relations with the world and have a more significant effect on investment outcomes for years to come.
Source: FactSet, NBF, Piper Sandler
Scott Blair, CFA
Head Portfolio Manager
