PM’s actions say more than trade talk
A good way to separate trustworthy journalism from less-reliable reporting is by assessing whether you are being shown something or told something. It works for politics, too.
Prime Minister Justin Trudeau often tells us that he is really keen on doing more business with China. Then he shows us what he really thinks by blocking state-owned China Communications Construction Co. Ltd. from purchasing Toronto-based Aecon Group Inc.
Keep that in mind the next time a federal official tells you about all the great things they want to do with China. If Trudeau doesn’t trust Beijing enough to pour concrete, how is he ever going to negotiate a freetrade agreement with President Xi Jinping ? Answer: He’s not.
That means the job of nudging Canadian companies to look seriously at places other than the United States will continue to rest with people like Benoit Daignault, the chief executive of Export Development Canada, the Crown agency that returned $1 billion to the federal treasury at the end of its latest fiscal year.
The reason that trade diversification in the short term will be shaped by people like Daignault is because Daignault himself won’t be around for much longer.
He decided to use a rare interview to reveal that he will retire when his five-year term ends in February, ending a two-decade career at the export-finance agency. “Five years was just perfect,” he said when I asked if he considered seeking a second term. “I did quite a lot on the CEO front and moved the company in the right direction on a lot of initiatives. I feel very good about where things stand.”
I assumed the good feelings about what he’s accomplished at EDC — increasing the number of clients to about 10,000 from 7,000 might be the most impressive — would be offset by the most uncertain trading environment since at least the 1980s.
When Daignault took over from Bank of Canada governor Stephen Poloz as the head of EDC in 2014, the Group of 20 nations still were making regular pledges to support free trade. They failed to keep their resolve and protectionism is back with a vengeance. Trudeau’s decision to block the Aecon purchase is only the latest example. It will trouble free traders because it reinforces an emerging tendency around the world to interfere with trade and investment under the guise of national security.
Last month in Washington, the International Monetary Fund’s David Lipton told an audience that he was concerned about this trend because virtually any investment in modern technology could be described as a security threat, as much of it involves sensors and data gathering.
The security excuse also is problematic because the reviews are opaque and governments tend not to disclose the specific threats that prompted their decisions to reject international takeovers. Navdeep Bains, the minister responsible for the decision, is very chatty on social media, but his Twitter account hadn’t uttered a character on the Aecon decision, which took officials three months to make.
I talked to Daignault before Trudeau’s tilt in the direction of protectionism, and before U.S. President Donald Trump triggered a security review of his own on whether imports were endangering the U.S.’s ability to remain self-sufficient in the production of automobiles. Still, the story was the same: the uncertain future of the North American Free Trade Agreement, the possibility of a trade war between the U.S. and China, and concerns about Canadian competitiveness raise lots of questions about where we’re headed over the next few years.
To my surprise, Daignault wasn’t all that troubled by any of these things.
He handed me a chart that showed purchasing managers in every major economy plan to increase spending in the months ahead. While politicians thunder, and observers fret, most executives and entrepreneurs are going about their business — and global business is as good as it’s been in more than a decade, including in North America, the region most affected by the chaos in Washington.
“You have a lot of volatility represented in the papers, but we also have to realize it’s not all trade between Canada and the U.S. that happens under NAFTA, and No. 2, NAFTA 1.0 is still happening and it is still a very good deal,” Daignault said.
Of the threat represented by the overhaul of NAFTA? “It’s there, no doubt about it,” he said. “But it might not be as bad as we think it is, depending on where you are. If it takes more time for NAFTA to conclude, it’s not necessarily a bad thing for companies. They are exporting to the U.S. They are at full capacity.”
Of course, trade uncertainty is more about the future than the present. Michael Sabia, president of the Caisse de dépôt et placement du Québec, told me and a couple of other journalists at the C2 Montreal business conference this week that the unknowns around NAFTA are hurting investment, so the sooner talks end, the better.
Daignault has been talking to lots of executives who are spooked by NAFTA. His message to them is rather blunt: Stop making excuses. Only a handful of industries are facing dramatically new rules, and the new trade agreement with the European Union offers lots of ways to hedge against NAFTA risk. And waiting for perfect clarity means the competition will be more intense because all the other Nervous Nellies will be making their moves.
“We need to find ways to highlight the opportunities and not just the risks and the costs,” he said. “If you own a business, and you don’t necessarily see the opportunity, you are going to hesitate.”
That’s why Trudeau’s decision to kill the Aecon deal without a credible explanation was so problematic: it highlights only the risks and costs.
“If you want to diversify trade, engagement with China is the right one,” Daignault said.
How many companies were scared off this week from ever doing so?
(The Aecon move) reinforces an emerging tendency ... to interfere with trade and investment under the guise of national security.