Trump's Currency War Hit List - Is Canada a Target?

derailedcapitalism's picture

A lot has been said about the potential for a US-Canada trade war. And judging from a lot of what’s happened, especially with respect to a strengthen USD, it looks like currencies may be what could light the spark to the barrel of gunpowder.

THE BACKDROP

The fact of the matter is that a strong dollar isn’t necessarily good for all sectors of the U.S economy. A strengthening dollar can have a “deleterious feedback loop” for export-oriented companies, since it means their products are now more expensive for foreign customers to buy. The net effect is that US-based manufacturers could suffer tremendously – including in terms of having to cut jobs and downsize their operations.

Another sour pill to swallow for Team Trump, if the USD continues to rise against major currencies, is the fact that foreign corporations, such as German pharmaceutical giant Bayer or Euro aerospace behemoth Airbus that do significant business in the U.S, profit more than U.S corporations selling overseas.   

And that’s exactly contrary to the platform of ‘Buy America”, job creation and boosting exports that Mr. Trump ran on during his campaign. So when a country’s currency weakens, in relation to the USD (i.e. the Greenback grows comparatively stronger), the war hawks in the Trump administration sit up and take notice!

WAR CLOUDS GATHER

Since November 2016, the PowerShares DB US Dollar Index (UUP), which tracks the USD against a basket of world currencies, has been on a steady increase, from $25.59 (Nov 11, 2016) to a high of $26.70 (Dec 20th, 2016). Granted that some of those gains have been paired back by Mr. Trumps jawboning statements ($25.89 at the time of writing); but it still represents a nearly 4.8% rise over a 6-month period ($24.71 on Aug 15, 2016).

Back on the campaign trail, Mr. Trump had already started beating the war drums. However, his war cries were largely directed towards China, and to his neighbour to the South – Mexico. But the battle cries keep getting louder. More recently, Trump senior trade advisors have levied similar accusations against Germany, and have also been severely critical about the Japanese currency “malpractices”. 

CANADA IN TRUMP’s CROSSHAIRS?

Things could get messy for Canada’s economy, if the same rhetoric is applied to the US dollar’s performance versus the Canadian dollar. Back in November, the USD traded at $1.34 per CAD, with “Trump Talk” pushing it up in strength to $1.36 (Dec 27, 2016). At the time of writing, the Greenback has lost some steam, trading at $1.31 per CAD – roughly just about where it traded 6 months ago.

So what will a stronger USD mean for the Canadian economy, if the Trump Administration decides to label Canada a “Currency manipulator”? What could a currency war with the US mean for Canada?

Well, the US is Canada’s largest trading partner, and any strengthening of the Greenback against the Loonie is positive for Canadian exporters, but negative for the US – since it tilts the balance of trade. Mr. Trump may therefore do all he can to ensure the dollar does not gain too much strength versus the CAD. One way to retaliate might be to target specific Canadian industries, like Energy, Forestry and Auto. 

In terms of specific impacts to Canadian economy, New Brunswick, Alberta and Ontario will be the worst three provinces to be hit by any currency war fallout; that’s according to TD Economics analysis. These three provinces have exports that are significantly exposed to the US, and any retaliatory measures by the US, such as a border tax, will have deleterious effect on provincial economies.

With respect to specific industries that could become casualties of any currency-initiated trade war between the two neighbours, based on TD Economics figures (Share of total goods exported to the US), it is likely that Auto Parts, Regulatory Consultants, Consumer goods and Forestry products will be the hardest hit.

SILVER LINING?

Searching for a sliver of sunlight peeking out of the dark currency war clouds, Trump advisors have assured Canada that, should trade and currency be up for discussions and renegotiations, then Canada may have nothing to be worried about from the new administration. However, as has been the hallmark of the new occupant at the Whitehouse, what’s said (or promised) and what’s actually delivered might be two entirely different things.

Brace for it…the USD-CAD currency wars might just be about to begin!

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Lyman54's picture

Truedopes carbon tax will kill Canada long before any move Trump makes.

DemandSider's picture

But his new pipeline ensures he'll have something to tax.

The Real Tony's picture

As the housing market in the Greater Toronto area implodes and all the Pakistanis (especially the ones that used 8 welfare cheques with different names on them for a down payment) lose "their" homes (and fly back home again) and illegal renters in the basements especially in Brampton watch for the Bank of Canada rate to turn sharply negative and a resulting 50 cent dollar. Just a question of when probably in two years' time or less.

towjamb's picture

Ha ha, joke's on you -- NB is already in a depression.

Huh Reeeally's picture

A strong USD affect lot's of things, like tourism. I paid $1.40 CAD for USD including transaction fees in Las Vegas last October, and our dollar is no stronger now. This year we're staying home where our money is accepted at PAR throughout the country :-) Already booked our Churchill trip to see the Polar bears, and we're seriously thinking of exposing ourselves to Fukishima radiation on the west coast this summer.

This article is a little off the rails, Canada-US always come to terms, we're not the biggest trading partner by accident. Rogoff wants to ban the USD $100, we've already stopped using pennies. See how that works? US wants oil independence? No problem, we have plenty, just keep those pesky Russians out of the arctic and we're all happy. Double our NATO spending? You gotta be kidding, a couple closed door meetings will solve that one no problem. The point is, we're really the only true friend the US has, hence the undefended border between our two countries.

There are a lot of fairweather friends, we all have some and know what they're like. Canada - US are solid, the odd squabble here and there but nothing to warrant this article. Even the recent DT-JT meeting apparently went well. We're part of the five-eyes and our version of the NSA (the CSE) is unknown by 99% of Canadian citizens. We're joined at the hip whether we like it or not.

dogismycopilot's picture

Trudeau is doing a fine job of fucking Canada up on his own. 

 

DemandSider's picture

Congratulations to  the liberal Trudeau on his new tar sands oil pipeline. Australian liberals have a lot of explaining to do themselves with all of those coal exports, as do Germany, India, and The PRC with their new coal plants. I guess only American fossil fuels cause global warming.

Huh Reeeally's picture

Yes, following in Pierre's footsteps. In fairness though, he's got a lot of help.

TheVillageIdiot's picture

Yes the extreme socialist gene,  also known as communist, seems to have been passed to the next generation successfully 

snowbird's picture

Trump intends to reduce the corporate tax rate from 28% to 15% and significantly reduce regulations and permitting regarding existing businesses and start-ups. The liberals in Canada will never attempt to counter these moves. It would represent a drastic  change and would alienate their base of support. They will simply extend and pretend.

Meanwhile the lack of investments will slowly and steadily drag down the economy. Coupled with an aging population, with less money to spend, means Canada may have no other choice but to keep interest rates low with a weak dollar.

Singelguy's picture

If Trump manages to achieve the tax and regulation reductions, how many Canadian corporations will pack up and move south of the border?

CRM114's picture

There's probably a strong incentive for the ones that WERE American till they shifted north for tax reasons. Not at all sure any others would move.

TRM's picture

Hey Trump, don't pick on Canada. We still sell oil for only US dollars so we are not undermining your reserve currency status. Sure we setup a CDS with China but that was only because everyone else did it and our companies couldn't compete paying the US-Reserve currency tax.

Does anyone really think this is about anything but the reserve currency war? Who is the US targeting? Iran and Russia are selling oil and gas for non-US dollars and China is selling everything else for whatever they can get. The Yen and Euro both took their shot and look how they ended up. Now it's the Yuan's turn, or so thinks the USA banksters.

pitz's picture

Canada has massive deflation ahead of it as the housing bubble pops, and Canadians have no purchasing power of US goods.

I wouldn't worry too much about Trump.  Trump hasn't said nary a word negative about Canada on the campaign trail, and while Trudeau is an obvious irritant, especially on the immigration and terrorism file, economically Canada is part of the 'rust belt' that Trump is so eager to revive. 

CheapBastard's picture

Plus, the influx of thousands of immigrants will push pressure on Canadian wages while prices of essentials rises. Food, rent, etc will rise while wages fall. That's part of what happened in the USA with the flood of over 35,000,000 immigrants in the past 15 years, many of these are illegal also which adds to the problems.

J. Peasemold Gruntfuttock's picture

Oh Canadia!

Don't worry about FX rates, just keep producing those luverly 9999 Au and Ag Maples!

Can't get enough of that great stuff.

 

J. Peasemold Gruntfuttock

bluskyes's picture

Much ado about nothing.  Currency values only affect trade temporarily, especially since all commodities and fuels are priced in USD - Even in Kanukistan

MASTER OF UNIVERSE's picture

TrumpO the AssClown & Wall Street can lick my balls in deference to my intellect & intelligence over their own.

 

The USD will implode very soon, and everyone knows the Stock Market will implode with it, along with Securities, and all the banks stuffed to the rafters with NPLs. And once that happens you can kiss the bond markets goodbye.

 

Go ahead, punk, make my day!

 

Are you feeling lucky, punk?

chickadee's picture

Bank of Canada Governor Stephen Poloz has been undermining the value of the Canadian currency since he first replaced Mark Carney. That's the only play in his book.

Huh Reeeally's picture

The USD has lost 95% of its value since 1913, and the CAD is worth 0.76 USD today, is either currency a store of value? At the vaunted 2% inflation rate the $$ loses 90% in 35 years. Stealth theft, it's the only play the Rothschilds permit.

U4 eee aaa's picture

Not just Poloz. keeping the currency weak has been the option since the '90's. The conservatives went away from it for a while but they quickly returned to it when Harper wanted to buy votes in Ontario

Canadian earmuffs's picture

Having a low value Canadian dollar is great for Canada. I used to manufacture in Canada and export to the USA in the 80' and 90's and made a fortune on the low Canadian dollar.  It may mean that your trip to Aruba cost you more but it is great for the economy.  The whole article is saying how a strong US dollar is bad for the US and you answer that Stephen Poloz is an idiot for keeping the Can dollar low.  Maybe you should sometimes re-evalute your position on Canada and see it as the great country that it is rather than follow the extreme partisan politics of the USA which have never been how Canadians do their politics. 

bluskyes's picture

Good for CANADA but not for us shmuks trying to put fuel in our tanks, and eye out a living.

grgy's picture

Exactly and that will not go unnoticed by the US. I don't trust our Liberal politicians to manage a peanut stand let alone our economy. Hopefully, Trump takes some pity on junior.