Trump protectionism ‘worth watching’

But economist plays down fears in Canada

CALGARY • A prominent economist on Thursday pushed back against fears over the impact of a Donald Trump presidency on Canada, saying protectionist trade policies could instead serve to hobble U.S. growth in the long term.

RBC Global Asset Management chief economist Eric Lascelles said during an event in Calgary that the impact of trade tariffs and renegotiations on Canada is likely to be more muted than some have feared.

“Our strong suspicion is we won’t see tariffs on the scale of what has been discussed in campaign platforms and in tweets,” he said. “However, that’s not to say there won’t be any whatsoever. It will likely just be a scaled-down version.”

Lascelle’s comments come following a flurry of executive orders during U.S. President Donald Trump’s first week in office aimed at re-establishing Trump’s long-held “America first” stance on trade and domestic policy.

The orders include the approval of TransCanada Corp.’s Keystone XL pipeline, subject to renegotiations, and the building of a wall along the Mexico-U.S. border. On Monday Trump formally dropped out of the Trans-Pacific Partnership trade deal signed under former president Barack Obama, and has stated an interest in renegotiating the terms of NAFTA with Canada and Mexico.

“I think it certainly is worth watching protectionism, and indeed being concerned about it,” Lascelles said. “But we do know also there are a quite a number of successful business people on the Trump cabinet, and quite a lot of negotiation involves bluffing and issuing threats that perhaps are not delivered upon.”

Canada is among the countries most heavily dependent on the U.S. for exports. In 2015, Canadian exports to the U.S. as a percentage of GDP was 20 per cent.

Trump’s intention to revisit certain agreements under NAFTA threatens to have major impacts in Canada, potentially putting Prime Minister Justin Trudeau in a challenging negotiating position.

This week Trump’s head economic adviser Stephen Schwarzman moderately eased those concerns when he told reporters Canada should not be “enormously worried” about NAFTA renegotiations.

Lascelles also said that Trump’s policies are likely to boost U.S. GDP in the near term, but could begin to gradually erode the American economy by around 2020 or 2021.

“Populist governments do tend to grow less quickly, they do tend to suffer from higher inflation. It doesn’t tend to be an immediate proposition, but it builds over the span of a number of years.”

Despite viewing Trump’s proposed protectionist policies as having a more muted impact than other economists, Lascelles reiterated that it added a new level of uncertainty.

“The big one really is protectionism, trade impediments and tariffs, all of what is the central threat. It is in my mind the biggest source of uncertainty for the world this year.”