Experts at Franklin Templeton explain why it would take "a lot" for Canada to catch up to the US as a global superpower
As institutional investors anticipate US President Donald Trump’s next announcement of tariffs in the coming weeks, experts at Franklin Templeton challenged the idea that decoupling from the US is viable or even logical for institutional investors.
Michael Greenberg, head of Americas portfolio management at Franklin Templeton Investment Solutions, made it clear at Franklin Templeton’s mid-year investment outlook event on Tuesday that while reducing overreliance on the United States is sensible, full economic decoupling is not.
He pushed back on the idea that institutional investors could realistically walk away from the US, arguing that structural realities still anchor global capital to American markets.
“There is no alternative,” he said, referencing the well-worn acronym TINA, adding that the US Treasury market remains unmatched in scale and liquidity.
“Why would you want to? This is the largest consumer base in the world at our front door, to the point that we've got a lot of Canadian companies that get a lot of the revenue from the US. I don't know if you want to cut that off just yet,” he emphasized.
While Greenberg acknowledged that the dominance of the US dollar in global trade and finance may gradually decline, he underscored that “it’s not going to change overnight.” That enduring role, combined with the strength of US corporations, reinforces the country’s investment relevance.
He also acknowledged that Canada isn’t positioned to rival the United States in terms of scale, especially when it comes to consumer power.
“We just don’t have the population,” he said.
He also credited American firms as among “the most innovative companies in the world,” resilient in the face of past challenges and likely to remain so in the future. Yet, he noted that valuations are elevated after years of outperformance, making the case for diversification rather than departure.
“It’s more of a portfolio rebalancing rather than a complete abandonment of US assets,” Greenberg said.
That’s why he actively advocates for a broader strategy of diversification, across trade, policy, and investment. He acknowledged that moves like Canada’s renewed defense spending and infrastructure projects may help reduce reliance in specific areas. He also pointed to missed opportunities within Canada’s own borders, like inefficient interprovincial trade.
As countries like Canada, Europe, and emerging markets pivot toward greater self-reliance, he believes portfolios will benefit from being less U.S.-centric but not completely without it.
“When you look at the markets, they’ve been very US focused, whether it's US dollar, US equities. That's really been the driver of a lot of returns in markets as Canada and other nations,” he said, noting that as Europe, emerging markets and Latin America try to diversify themselves away from the US, “that actually might help bring some diversification back into portfolios.”
If investors are indeed heavily invested in US, what would it take for Canada to catch up? Tim Caulfield emphasized that it would take “a lot”, acknowledging that Canada is unlikely to match the US when it comes to technological dominance, especially in areas like AI.
However, he argued that Canada doesn’t need to lead to benefit. Instead, the country can ride the wave of U.S.-led advancements and harness the resulting productivity gains. He pointed to the early AI boom as an example, where firms like Nvidia have been the obvious winners. But that investment surge, he noted, creates spillover benefits.
“Canada can benefit from a lot of those investments, even if we're not at the cutting edge, because ultimately, it'll be the productivity benefits that come from the advent of these technologies that's seen more broadly across the market in various industries,” said Caulfield, director of Canadian equities research at Franklin Templeton’s ClearBridge Investments.
“It's a good reminder that old school industries will benefit handsomely from a lot of these new technologies.”
Darcy Briggs, senior vice president and portfolio manager at Franklin Templeton Canada believes the biggest challenge investors face, much like at the start of the year, is uncertainty, Notably, around trade policy, which is weighing on confidence and future activity. He noted central banks, like bond markets, are holding their position until the US clarifies its tariff regime.
“We’ve got a high degree of uncertainty, and with uncertainty usually means very slow or downward pressure on growth,” he said. “Trade has been somewhat restricted. Whenever you restrict trade, you actually get softer growth as well. In terms of whether we're going to get a recession, that's really too early to tell because you still have some fundamental growth and activity moving forward, but the longer that uncertainty persists, the more it's going to weigh on growth and activity. That includes investment, spending, consumption and everything else.”
Caulfield laid out a stark assessment of how tariffs are reverberating through the Canadian economy, particularly for sectors most exposed to US trade. He pointed first to sharp increases in sectoral tariffs, including a 50 per cent hike on steel and aluminum, which he said pose serious viability challenges.
But the real issue, according to Caulfield isn't just the targeted sectors. It's the broader knock-on effects.
He emphasized that Canadian equity markets, unlike the domestic economy, are internationally diversified, with about one-third of his fund’s revenues coming from the US.
Still, even that insulation can’t protect against macro-level consequences. He pointed to declining volumes and rising provisions for credit losses as signs of deeper stress. It’s those “second order effects,” he said, that are proving hardest to escape.
However, Greenberg ultimately believes that Canada’s strength lies in carving out specific, global niches. With natural resources, a robust education system, a stable rule of law, and a livable climate, Canada can attract talent and capital in areas where the US might otherwise be faltering.
“Let’s come together politically and develop a long-term plan,” he said. “Not just think about what we want to do in the next six months or the next election cycle, but what's our five to 10 year goals here?”
