Canada: Prepare for a bloody trade war!

Approximately 88 years ago (in June 1930), American lawmakers did exactly what the U.S. is doing today – they enacted the now infamous Smoot-Hawley Tariff Act 1930 – and raised tariffs on hundreds of goods imported into the U.S. According to one quantitative assessment, these measures reduced U.S imports by over 40%, sending the world’s trading order into a tail spin. There are others that say Smoot-Hawley exacerbated the impacts of the Great Depression

Nerves of steel

In late May 2018, the U.S announced its decision (previously telegraphed and widely expected) to forge ahead with tariffs on steel (25 percent) and aluminum (10 percent) imported from Canada (and other countries too!).  The mere fact that these tough, yet highly anticipated, tariffs were looming, sent the Canadian economy in a tizzy:

  • The S&P/TSX Composite Index dipped by 43.87 points, losing 0.27% intra-day
  • The stock price of Canada’s lone publicly-traded steel company, Stelco Holdings Inc., saw a 3.1% decline
  • The Loonie dipped by 0.7%; and
  • The yields on 10-year government of Canada bonds lost 4-basis points, dropping to 2.23%

If just the mere announcing of tariffs can have this type of impact, imagine what kind of ripple-effect the actual imposition and counter-imposition of more duties will have globally!

The world trading order is a highly interconnected piece of multi-lateral relationships, with the U.S. importing steel from over 100 nations. The attempt to target one specific country (in this case, China) through the broad imposition of steel and aluminum tariffs, will have a domino effect. Based on 2017 steel import figures compiled by the U.S International Trade Administration, the top eight economies (in order of magnitude) most likely to be disrupted by the 2018 steel tariffs include:

  • Canada
  • Brazil
  • South Korea
  • Mexico
  • Russia
  • Turkey
  • Japan
  • Taiwan

To a lesser extent, countries like Germany, Italy, India and France will see a disruption in their balance of steel-related trade with the U.S., albeit of not to a very significant degree. While China, the unspoken intended target, trails the list of economies that will be impacted by steel tariffs, other anti-China measures by the US (such as duties on electronic items, aerospace, machinery and investment) could send shock waves throughout the world’s second-largest economy.

But such shock waves are highly unlikely to be contained to a single country. Smaller economies, like Canada’s, should brace for disproportionate fallout. According to one Washington-based researcher, the imposition of the aluminum and steel tariffs will likely contribute to a US$3.2B loss to Canada’s economy annually.

But the ripples would be felt across a much broader segment of Canadian society. For instance, Canada’s beer industry, a major consumer of aluminum and related products, may be seriously hit – and likely decimated as a result of the new tariffs.

According to the Conference Board of Canada, the beer industry contributed nearly $14B to Canada’s economy in 2016. With one out of every 120 jobs in Canada supported by the industry – either in direct or indirect ways, any shock to the industry (courtesy higher aluminum tariffs) is likely to create a major employment crisis country-wide. 

War clouds looming

In a recent commentary on the prevailing global trade order, primarily related to Canada-U.S. trade, the Bank of Canada (BoC) made some gloomy predictions.  While experts believe that the fallout from a trade war could be “manageable”, the BoC believes prevailing uncertainties could wipe out almost 1% from Canada’s export forecasts by 2020. But with trade-war clouds looming, that’s not the worst of the BoC’s fears!

If the current state of tensions continues, or if the economic skirmishes lead to a full-out trade war, it could wipe out more than 2% of business investment anticipated in the next year or so, from the Canadian economy. As a result. BoC experts expect that Canada’s GDP will suffer a nearly 0.35% hit by the end of 2020. To put that into perspective, Canada’s economy will take a nearly $7.5 billion hit to the country’s earnings.

And all this is just from “uncertainty” over whether a trade war could actually break out. Imagine the carnage that will follow come July 1st, once the Canadian counter-tariffs kick in on imported U.S. steel and aluminum. Given what we know of the Whitehouse’s belligerent stance on world trade, other sectors of the Canadian economy will definitely come into the trade war crosshairs: Autos, Agriculture, Education, Services…and more!

But there are even darker war clouds gathering beyond the shores of Canada and the U.S. The European Union and China have also fired off a barrage of tit-for-tat duties, surcharges and tariffs on U.S imports. So, what does this mean for Canada’s economy? Well – there’s good news, but mostly bad!

If, as China threatened, there is a surcharge on U.S pork imported into the country, it could give a boost to Canadian pork exports. But other European nations could compete for that business too – offering just a sliver of economic opportunity for Canada.

However, the U.S. tariffs on goods made in China would certainly slow down the Chinese economy. That would mean China will slow down it’s demand for commodities – a major export driver for the Canadian economy. At a macroeconomic level therefore, the impending trade war will have more of a deleterious impact on Canada than a positive one!

And when you add to this situation, the fact that the U.S. will certainly play hardball on NAFTA if Canada hits back on the steel and aluminium tariffs, there is every indication that the collateral damage from a trade war will be bloody for Canada.

Parting thoughts

Though it may be tempting to look at these developments through rose coloured glasses (“This too shall pass!”), only the uninformed would take such an optimistic view. These rather serious developments should be looked at in a much broader context, including the aero-space spat (Bombardier Vs Boeing), Softwood lumber disputes and NAFTA.

Considering that the U.S. is Canada’s largest trading partner, and factoring into the equation all of these headwinds, it’s easy to see where Canada’s economy is headed: Straight into a full-blown trade war that could set our economy back years!

Comments

Albertarocks peippe Tue, 06/19/2018 - 14:15 Permalink

Stupid fuckers like you who just love to jump on the bash "anyone" bandwagon are the epitome of what's wrong the the USA.  You've had it easy with a country like Canada on your northern border, not to mention that Canada is the only friend you've got in the entire freakin' solar system.  You could just as easily say "thanks Canada for being such a good neighbor who never causes us any trouble".  That's not something we could say back though.

"U.S. goods and services trade with Canada totaled an estimated $673.9 billion in 2017. Exports were $341.2 billion; imports were $332.8 billion. The U.S. goods and services trade surplus with Canada was $8.4 billion in 2017."

https://ustr.gov/countries-regions/americas/canada

If you want to call that a parasitic relationship then it's a two-way parasitic relationship.  Other than that, go fuck yourself you thankless little bitch.

In reply to by peippe

Kayman MadHatt Tue, 06/19/2018 - 16:17 Permalink

Another Canadian Myth. The British won the war, sort of, in 1812. And Canada wasn't even a nation until 1867 when the Brits enacted the British North America act, creating the "Dominion" of Canada.

Not all Canadians are of the Justin Trudeau variety, but there are plenty of those parasites in the Montreal, Ottawa, Toronto tax-sucking triangle.

In reply to by MadHatt

dadcss Albertarocks Tue, 06/19/2018 - 15:27 Permalink

Hold on there Albertrocks. 1st lets refrain from the personal punches. Yes Canada has been a good neighbor, lets get that out of the way. Now, America being the consumer driven economy of the world in combination with Canada being resource rich has made a symbiotic relationship. Mighty convenient to ship and receive oil from sands, lumber, drywall products and peat moss. What other country on this planet is going to consume those items like the USA? Remember the saying, when the US sneezes Canada gets a cold. So Canada needs to suck it up and tone it down a notch or two. 

In reply to by Albertarocks

ebear Honest Sam Tue, 06/19/2018 - 21:05 Permalink

"Looks like a tariff will directly affect your income."

Yours too:

https://en.wikipedia.org/wiki/Foreign_ownership_of_companies_of_Canada

The irony here is that a good chunk of "Canadian" companies affected are actually majority US owned.

Meanwhile, Canadians invest more overseas than they do at home.

Dependence on a single trading partner (USA) has been a bugbear for Canadians going way back.  US tariffs on Canadian goods will simply cause Canadian companies to seek other markets such as China, Japan, India...etc.

That won't eliminate the US as a major export destination, but anything that reduces our dependency is, in the longer run, a good thing.

 

In reply to by Honest Sam

JerseyJoe Albertarocks Tue, 06/19/2018 - 18:32 Permalink

yeah.  Hmmm I think if CA was a problem, you would be states.  Just ask Mexico. Hate to be the one to break it to you.

I think your leaders understood this quite well.  Don't poke the bear.  A wise way to play it.

The trade imbalance between the US and CA has been decades to CA's favor...  Just tugging on the punch bowl a little before throwing on the lights and asking the guests to pack-up.  Don't take it personal.  It's business.  I am sure CA will do fine in the longer run.  

In reply to by Albertarocks

jin187 JerseyJoe Tue, 06/19/2018 - 20:32 Permalink

To be fair, there's not so much a trade imbalance dollar-wise as it is just a restricted market.  Canada is seriously protectionist when it comes to products they make themselves.  This is why it's so disgusting to see them siding with the globalists.  It's always "do as I say, not as I do" when it comes to these libtard socialist democracies.

In reply to by JerseyJoe

ebear JerseyJoe Tue, 06/19/2018 - 21:13 Permalink

"the trade imbalance between the US and CA has been decades to CA's favor..."

The balance of trade is one thing, but you still have to look at who owns the companies, and in the case of Canada, more often than not, the owners are US corporations.

Tariffs on Canadian exports will hurt US corporate earnings, you can count on it.  I don't have hard numbers, but I'm sure it's a significant amount.

In reply to by JerseyJoe

Truth_Hoits Albertarocks Wed, 06/20/2018 - 07:30 Permalink

Canadian, how much do you save annually on defence and drug research? What percentage of your GDP goes to defence?

 

Canadian, why do you have tariffs?

 

Canadian, how different would your economy be if there weren't American companies doing business in Canada?

 

Canadian, how much longer will you be a Canadian after some of your cities start enacting Sharia laws? They started already, you say? 

Decent country. Decent people... A bit too libtardic, don't ya think?

 

And tell your soy boy preemie minister to shut her pie hole. Justina kisses Trump's ass to his face, then when the press shows up, she's all of a sudden a tough guy. 

Justina is no better than that hooker.. Stormy Daniels.

Canada, we aren't looking for trouble with you. Just want what's fair. You want that too, right?

 

Oh, Canada. Be quiet before we annex you.

Just kidding. We can't afford your welfare.

, but watch your mouth, ay?

 

Have a nice day, Canada. :-) XOXO

 

Truth Hurts

In reply to by Albertarocks

Hard Assets Albertarocks Wed, 06/20/2018 - 14:25 Permalink

Hey AR ! Nice post, accurate....yes, Alberta does rock ! 

 

I'm in Ottawa, the nations' capital (for the internationally challenged geography-tards)

 

I'm also sure, I fly my Canuck flag in my garage, boat, etc. the same way you do.

 

The only thing that Trudeau has said even remotely intelligent is that "we are polite, patient but won't get bullied around." That eyebrow business makes me wonder if the guy is a god-damn fruitloop.

 

Obama fucked us around with the Keystone Pipeline deal. Fracking going well (though some say no)... we don't need your stinking oil ! Then America pulls that stunt with Saudi Arabia to send oil production into orbit to screw Russia. Many say it didn't hurt Russia (after time) but we sure got it hard. From par currency to 80 cents.

 

So over these dozen years or so didn't we see the writing on the wall ? Canada is a sock-puppet, vassel state in the eyes of the US government. Why didn't we diversify, get that oil moving east-west. Get that fucking LNG port lined up in Vancouver.

 

Is  our federal government REALLY that daft ??

 

QBuddy. 

 

 

 

 

 

In reply to by Albertarocks