Market shrugs off trade jitters

Continued from FP1

Ski-Doo maker BRP Inc., which has plants in Canada, the U.S. and Mexico, is up 59 per cent and both major Canadian railways have seen doubledigit gains.

Of the Canadian companies that could be hit if Trump follows though on his threats, only dairy producer Saputo Inc. is down since the U.S. election. The Montreal-based company has been hurt by U.S. demands to dismantle dairy quotas and tariffs.

It’s unlikely NAFTA will be blown up because the U.S. would “instantly put itself at a disadvantage,” said Brett House, deputy chief economist at Bank of Nova Scotia. Even if the trade deal was scrapped, the average tariff that the U.S. would charge outside of NAFTA would be about 3.5 per cent, while Canada’s would be 4.3 per cent and Mexico’s would be 7.1 per cent, meaning U.S. exporters would have to pay more than their Canadian and Mexican counterparts.

What’s more, Canada and the U.S. may be able to fall back on a bilateral trade agreement that was in place before Mexico was added via the NAFTA deal 23 years ago. That would lessen the blow for Canadian companies in a postNAFTA world.

Investors in Canada and Mexico have been shrugging off “every tweak, every hiccup, every inflammatory outburst from Washington,” House said. Most of Canada’s export-oriented manufacturing sectors are operating at capacity and could divert their products to other markets if needed, he added.

Even if NAFTA fell apart, investors need only look at lumber stocks for reassurance that life goes on without free trade.

The U.S. slapped duties of as much as 31 per cent on softwood lumber imports from Canada this year in a move to protect its domestic industry. Shares of producers have surged to all-time highs since then as a shortage of timber, exacerbated by several devastating hurricanes in the southern U.S., boosted demand for Canadian wood even with the higher tariffs.

“There’s such a shortage of supply of this stuff in the United States that the price can get pushed up by tariffs and it’s not going to reduce the demand for Canadian goods at all,” House said in an interview. “It just makes things tougher on American consumers.”

Still, some analysts are warning that investors may be overly complacent about the potential for Canadian stocks to fall if NAFTA is scrapped.

“We would expect both the currency and the Canadian equity market to sell off in such a scenario,” Ian de Verteuil, head of portfolio strategy at Canadian Imperial Bank of Commerce, wrote in a recent note.

JENS MEYER / THE ASSOCIATED PRESS Magna International, which relies on trade with the U.S. and Mexico, is one of the companies that has seen its stock rise despite concerns over the fate of the NAFTA trade deal. Above, a Magna worker in eastern Germany.