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International trade in 2019: getting worse before it gets better

No question, 2018 was a stunning and often frustrating year for everyone engaged in international trade. However, 2019 seems to be looking at all that conflict and disruption and saying: "hold my eggnog."

Ratifying the new NAFTA, dealing with Brexit, de-escalating Chinese conflicts ... where to begin?

Janyce McGregor · CBC News · Posted: Jan 01, 2019 4:00 AM ET | Last Updated: 6 hours ago

No question, 2018 was a stunning and often frustrating year for everyone engaged in international trade.

Now, 2019 seems to be looking at all that conflict and disruption and saying, "Hold my eggnog."

CBC News asked Canadian and American researchers, lecturers, lawyers and business advocates what they expect the new year to bring. Here's some of what they told us.

NAFTA 2.0 ratification: Will they or won't they?

The trade agreement that's the most important for Canada's economy is still the one that brings the greatest uncertainty, said Meredith Lilly, the Simon Reisman chair at the Norman Paterson School of International Affairs.

"Watch the congressional calendar" and President Donald Trump's reaction to signs of foot-dragging on Congress's part, she said. "There is no promise this is going to get ratified."

There's going to be panic in the media every time a congressman burps.- Carlo Dade, Canada West Foundation

Debra Steger, a former Canadian trade negotiator now at the University of Ottawa, is braced for "a rocky ride" in Congress, particularly now that the House of Representatives is controlled by Democrats.

"2019 might be the more important year [for NAFTA] in that respect, if it all goes up in smoke," she said.

"The new NAFTA has a lot more hidden landmines than what people understand and believe," said trade lawyer Cyndee Todgham Cherniak. "There will be disputes well into the future."

The key issue, according to Brian Kingston of the Business Council of Canada, is what the Democrats want in exchange for their votes. "Are they asking for things that can actually be done in a relatively short period of time?"

"Watch what [Ohio Senator] Sherrod Brown says and does," said Todd Tucker of Washington's Roosevelt Institute, a liberal American think tank. "We're in this phase where Democratic politics are going to matter a lot, and internal caucus politics is going to matter a lot."

Brown — arguably the party's leading progressive populist on trade issues (inclined to skepticism on trade agreements, in other words) — could be a presidential candidate. Far from opposing protectionism, he may say Trump isn't going far enough.

"Other presidential candidates won't want to put a lot of light between themselves and him on trade policy," Tucker said.

Senator Sherrod Brown from Ohio is expected to be an influential player in the Democratic presidential race. He might argue Donald Trump hasn't been protectionist enough with his trade policies. (Aaron Josefczyk/Reuters)

"We tend to look at Congress as if it's Parliament, where leaders command their flock," said trade lawyer Mark Warner. That's not how Washington works.

By Warner's reckoning, about 20 Democrats need to join Republicans in voting for ratification. If enough are persuaded, it won't matter if the Democratic leadership wants to send Trump a message by opposing it.

"Watch for signs as to whether (incoming House Speaker Nancy) Pelosi can keep Democrats together on trade," he said.

The timeline for ratification in the spring could also be thrown off if Congress pursues Trump's impeachment.

"I'm ever-hopeful the business community is going to get its act together, especially with a Democratic Congress, and use their leverage on them," said Susan Aaronson from George Washington University.

Republican Party donors unhappy with current trade policies are starting to revolt too, she said.

"There's going to be panic in the media every time a congressman burps," said Carlo Dade of the Canada West Foundation.

There's a lot of unresolved discontent out there over Trump's trade policies (U.S. farmers didn't get what they wanted on grain grading, for example), so expect cross-border trade skirmishes to continue.

"Eventually it's going to dawn on people: 'Holy s--t, this is just the new normal,'" Dade said.

Are 'national security' tariffs here to stay?

The Trump administration's steel and aluminum tariffs were supposed to be lifted once the new NAFTA was signed.

There are no signs of them going away soon.

"The U.S. doesn't care if Canada is or is not a security threat," Dade said; if the administration believes there aren't enough Americans making steel and aluminum, they'll say they have a security issue.

"There's been a huge misreading" of the situation by Canadians, Dade said, abetted by people imploring Prime Minister Justin Trudeau to "fix the tariffs."

"God help him, the only one who can restrain the president is the Senate, and they've shown no willingness to take the power back," he said.

Finance Minister Bill Morneau, seen here with Bank of Canada Governor Stephen Poloz, left, imposed surtaxes on specific types of foreign steel in October. Manufacturers and construction companies will argue to have these extra tariffs lifted during hearings scheduled for January. (Chris Wattie/Reuters)

And there are still the ripple effects from the American tariffs to cope with, including Canada's most recent steel safeguards.

Lawyers like Todgham Cherniak are busy preparing their case against Canada's extra surtaxes on certain foreign steel products — arguments scheduled for the Canadian International Trade Tribunal in January.

In addition to being a "very big issue" for the manufacturing and construction sectors (their costs are up and they're facing supply shortages), other countries may bring safeguard cases against Canada in response.

All this is happening as World Trade Organization panels prepare to hear arguments that both the initial U.S. tariffs and the retaliatory tariffs imposed by countries like Canada broke the rules.

But can the WTO sort this out? By the end of 2019, its appellate body won't have enough judges to hear cases, thanks to U.S. objections.

Discussions on WTO reforms are underway; the upcoming World Economic Forum in Davos, Switzerland may see another meeting of a group of "like-minded" countries first convened in Ottawa last fall.

While the U.S. hasn't withdrawn from the WTO, "there really doesn't seem to be a willingness to engage in a real discussion," said Inu Manak of the Cato Institute, a Washington-based libertarian think tank. "It really is challenging some of the fundamental, foundational aspects" of the WTO, she added.

Kingston said he doesn't see an end to the WTO gridlock this year. "Things are going to get worse before they get better."

U.S. vs. China

Monica de Bolle of the Peterson Institute for International Economics said that, at first, she thought Trump's trade confrontation with China was "going to be all bluster."

"I thought it was a completely transactional thing that was going to go away," she said.

While a recent Chinese promise to buy more American soybeans and other goods could mitigate the American trade deficit with China, the Trump administration wants more, including a rollback of key Chinese industrial development policies.

Pro-China protesters chant slogans against U.S. President Donald Trump outside the U.S. Consulate in Hong Kong last fall. Although both countries have agreed not to raise their tariffs further during the current 90-day truce, it's unclear a resolution to their trade disputes is at hand. (Bobby Yip/Reuters)

Meanwhile, trade experts and the American public are embracing the idea "something needs to be done" to keep China from dominating economically, especially given recent cases of commercial espionage, de Bolle said.

It's become a geopolitical problem, she said. "The fallout will pretty much define this period."

Lilly isn't optimistic Trump's 90-day truce with China will resolve much. Continuing uncertainty serves the president's interests, she said.

"It encourages American companies to stay home," she said, calling uncertainty one of Trump's weapons. "We continue to marvel at what we think is a dumpster fire, but I think there is perhaps more intention behind it than we give credit."

Brexit and everything after

Speaking of chaos ... let's consider what's happening in the United Kingdom just weeks from now. It's supposed to be leaving the European Union soon — but no one's sure how.

"The U.K. is Canada's third-largest export goods market and second-largest services export market," said Mark Agnew of the Canadian Chamber of Commerce. Canadians should pay attention "in light of that deep commercial relationship."

The Brexit confusion "clouded" the opportunities Canadian companies now enjoy in Europe under the Comprehensive Economic and Trade Agreement (CETA), the Business Council's Kingston said.

"I hope that changes in 2019 and we start to see some positive trade and investment as a result," he said.

Early indications were that European Union exports were growing faster than Canada's in the first year under the new deal. But Kingston said he thinks you can't really evaluate an agreement until it's been in place for about five years.

Pro-Brexit and anti-Brexit demonstrators faced off outside the British Houses of Parliament last month. Canada does a lot of trade with the U.K., but it's unclear whether the favourable terms in the current Canada-EU trade deal will continue without interruption. (Henry Nicholls/Reuters)

Meanwhile, CETA's future is not secure — something that discourages major investments.

In November, the U.K. became the 11th country to ratify CETA, even though future Brexit terms may or may not grandfather its measures.

Most of the remaining 17 EU countries, including major economies like France, Germany and Italy, have been slow to bring the deal to its final vote in their legislatures, as legal arguments continue over the EU's jurisdiction.

Populist movements and trade skepticism continue to complicate European politics.

"The deal is not yet finished," said Lilly. "There's a real risk moving forward that we could see the unravelling of CETA."

 

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Weren't we lead to believe that Justin's new trade deals were winners and of course OIL was BAD, note also the decline in other exports.

January 8, 2019 8:17 am

Oil-price rout doubles Canada’s trade deficit to $2.1B in November

168a5358-e1518894734150.jpg?quality=60&s By Erica Alini National Online Journalist, Money/Consumer  Global News

Canada's trade deficit more than doubled in November compared to October, following a steep decline in crude oil prices.

THE CANADIAN PRESS/Jason Franson
 

Canada’s trade deficit more than doubled in November, widening to $2.1 billion from a revised estimate of $900 million in October, Statistics Canada said on Tuesday.

The increasing spread between imports and exports was driven by a 14 per cent drop in crude oil prices. Lower export volumes compounded the price effect, resulting in a decline of nearly 18 per cent in crude oil exports for the month.

READ MORE: Record amount of Canadian oil exported by rail raises safety concerns

The bigger trade deficit was “fully expected given what happened with oil prices in the month,” BMO senior economist Robert Kavcic wrote in a note shortly after the release of the data.

WATCH: Assessing the impact of Alberta’s move to cut oil production

But the bad news for Canada’s trade sector extends beyond the energy industry.

Overall, exports were down 2.9 per cent, with volumes falling by 1.8 per cent and prices dipping 1.1 per cent. Despite an upward revision to the October trade deficit (now estimated at $850 million from a previously reported $1.2 billion), November was the fourth consecutive month of declines, with exports down in eight of 11 sectors tracked by StatsCan.

Imports also slipped, although less than exports, falling by 0.5 per cent.

READ MORE: No plans to discuss lifting U.S. steel, aluminum tariffs after Trudeau-Trump chat

“Oil production curtailments in Alberta, the GM plant shutdown, and slower real wage growth are indications that Canadian economic activity slowed at the end of 2018,” wrote TD senior economist Fotios Raptis.

Moreover, he added, the oil production cuts mandated by the Alberta government starting in 2019, coupled with slower export demand from foreign countries, “are likely to continue to weigh on Canadian exports and economic growth in the months ahead.”

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To be fair, there appears to have been some positive results from our Governments trade deals>

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Canadian farmers chart gains in Japan as tariffs fall in Asia-Pacific markets

With a new Asia-Pacific trade deal slashing tariffs, Canada's pork and beef producers see even more potential in a lucrative Japanese market.

Beef and pork producers see growth in sought-after Japanese market as Canada gains edge on U.S.

Tony Seskus · CBC News · Posted: Jan 18, 2019 4:00 AM ET | Last Updated: 6 hours ago
 
asia-trade.jpg
Trade ministers from CPTPP nations pose for a pictures after the signing ceremony in Santiago, Chile, last March. (Esteban Felix/Associated Press)

 

It was the 1990s when a pair of Japanese butchers climbed aboard an airplane and travelled some 8,000 kilometres to visit a family-owned pork plant in rural Alberta.

The local owners of Sunterra Farms hosted the men because, to crack one of the world's most desirable markets, their staff needed to see exactly how Japanese consumers liked their meat.

The swift, precise blade work of the meat cutters left quite the impression.

"One of the guys that was on our [production] line said, 'These guys aren't butchers — they're artists,'" recalled Ray Price, president of Sunterra Farms.

From those early days, Sunterra's Japanese exports have grown to become the majority of their processing business. And with a newly minted trade pact among Asia-Pacific nations, Price can see even better things ahead.

"It's really good," said Price, assessing the impact of the deal — called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — on his business with Japan.

"We see it as an opportunity to continue to grow that market." 

Canadian beef producers are hoping to make big gains in Japan thanks to the new CPTPP trade agreement. (Jeff McIntosh/Canadian Press) The CPTPP is a free trade agreement involving Canada and 10 other countries in the Asia-Pacific region. Among the group are Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

It does not include the United States, which backed out after Donald Trump became president.

The deal lifts, cuts or phases out tariffs involving a variety of industries but there's also more to it than that, said Carlo Dade, a trade expert with the Canada West Foundation in Calgary. For one, it also harmonizes regulatory practices.

"Even in places where the tariffs don't come down, we have an advantage over the Americans, in that we now have formal agreements to deal with all the non-tariff stuff that drives farmers and exporters crazy," Dade said. 

For many in Canada's agrifood sector, and beef and pork producers in particular, the jewel in the deal appears to be Japan.

Canadian farmers for years faced their share of challenges to make inroads into the country, often competing against the heft of American exporters while lugging the expense of trade levies. 

Now, armed with the trade pact, some are setting their sights on carving out a bigger piece of that rich market, especially with the United States sitting on the sidelines.

This may be good for canola and wheat growers, but it's those in the meat business that might be happiest of all.

"Exports of pork and beef products should benefit most from the absence of the United States," according to one federal economic analysis issued last year.

dennis-laycraft.pngDennis Laycroft is with the Canadian Cattlemen's Association. (Radio-Canada)

Japan is one of the largest meat importers in the world, with the United States and Australia the biggest suppliers. Australia has benefitted from having lower tariffs, while the U.S. has competed on price and with marketing.

With tariffs on Canadian fresh beef being phased down from 38.5 per cent to nine per cent, Canadian producers feel like they can make a bigger mark.

"It's levelling the playing field for us with with Australia and it's putting us head and shoulders above our competitors in the U.S.,"  said Stan Blade, dean of the faculty of agricultural, life and environmental sciences at the University of Alberta.

Canadian beef represents about two to three per cent of the market in Japan, said Dennis Laycraft of the Canadian Cattlemen's Association, but they'd like to get to around 10 per cent. 

"It's just simply one of the largest, high-quality beef markets in the world," Laycraft said.

The trade agreement "clearly makes Japan a more attractive market to move our product in there," he added.

There's a lot of money on the table.

japan-politics.jpgJapan Prime Minister Shinzo Abe will be the host as the first meeting of the CPTPP Commission is held in Tokyo this weekend. (Eugene Hoshiko/Associated Press)

Under the CPTPP, according to the federal analysis, Canada's annual beef exports to Japan are projected to nearly double, climbing $378 million, once the tariffs have been phased down.

"We have a real big opportunity here for our producers to increase their market share at the expense of U.S. producers that have a significantly larger presence than us," said University of Calgary economist Trevor Tombe.

Pork exports are expected to eventually climb by more than third, or $639 million, according to the same analysis.

Price doesn't think Canadian growth will come at the expense of the U.S. pork producers, however.

"We were actually selling almost as much or a little bit more chilled pork into Japan as what the Americans were already without this [trade deal]," Price said. 

"It'll help expand our marketplace [but] I don't see us eroding much of the U.S. market share." 

jim-carr-on-diversifying-trade.jpgJim Carr, minister of international trade diversification, will meet this weekend with Japanese industry representatives to discuss market access for Canadian products. (John Woods/The Canadian Press)

 

 

Japanese consumers are fastidious in their food choices and the market is highly competitive. The beef rivalry between the U.S. and Australia in Japan has been referred to as an "arms race."

While tariff reductions are helpful, price alone likely won't win the day. Both Laycraft and Sunterra's Price say quality is critical and so are relationships, something both have been working on for years.

International Trade Diversification Minister Jim Carr will likely try to forge some of his own this weekend when he sits with Japanese industry representatives to discuss market access for Canadian products. Those discussions will follow the first meeting of the CPTPP Commission in Tokyo on Saturday.

The University of Alberta's Blade said the fact Canadian agriculture has an established reputation in Japan built up over the years is another reason for optimism about the trade pact.

"Japan wants to do business with Alberta, with Canada, and they have done so even when there have been these these you know fairly tough tariff regimes," Blade said.

"Now, from a just purely cost point of view, we're becoming much more competitive."

 

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