All of this talk about Donald Trump liking Justin Trudeau in the media was a fantasy perpetuated by the current government to try to paint a picture of how we can “get along”.
Of course, the undercurrents were anything but – not only were there significant trade disputes ongoing (softwood lumber to name one), but the rumblings of NAFTA being pulled and other Canada-US relationship issues are significantly material issues that were not being given sufficient attention.
So now the USA is firing another salvo in the attempt to negotiate a better deal – steel and aluminum tariffs. This is part of a broader negotiation strategy relating to NAFTA and will continue to hurt Canada’s (and Mexico’s) economies because of capital investment uncertainty.
Already with the election of Donald Trump it is perfectly evident that relatively fewer want to invest in Canada when the relative risk/reward ratio is being seriously skewed by corporate hostility in both federal and provincial governments in Canada, coupled with a very business-friendly climate in the USA. This pressure will likely continue with the current presidency.
The gross incompetence of our existing federal government at getting anything done (other than throwing money down a black hole) will be costing Canadians dearly in terms of continuing to decrease our standard of living.
The math on trade disputes is pretty simple.
The United States represents the vast majority of the Canadian export economy (about 75%).
Canada represents about 15% of the United States’ trade exports.
As a result, the USA can inflict much more economic pain to Canada than the other way around. As a result, when the USA decides to tighten the screws (like they are with this speculated tariff on steel and aluminum), it is one more step to negotiating a more beneficial trade deal.
What does this mean for the markets?
Likely in Canada, a lower interest rate as the economy will slow further. This would also decrease the value of the CAD/USD pair.
Sacha….did you close the comments on Tph debentures?
Not explicitly, I think I set wordpress to shut down topics after X days without activity.
well it shutdown just after DJ and I started chatting….anyways DJ, if your reading, thanks for the links.
Turns out it was shut down after 180 days automatically. In the world’s most ugliest fix I changed this to 360. Good luck!
Thanks for the fix Sacha.
A side note here on the actual topic of the CAD/USD currency and free trade. I’m sensing now that this negotiation bluster has already been baked into the currency markets. People think Trump is crazy but it’s all part of a rational strategy when looking at it from a game theoretical perspective. So in that respect I wouldn’t take much action on the currency. In fact I could see short covering take the currency back up to 80 cents again. In the long run Canada has serious economic issues that will impact currency, but that’s a totally different topic.