National Post (National Edition)
Canada caught in trade war between U.S.-China
SOME SECTORS WILL HAVE TO DEFEND TURF AGAINST U.S. COMPETITION
Mincing no words, Foreign Affairs Minister Chrystia Freeland warned Wednesday that the global trading order that Canada helped create faces its greatest threat since the Second World War, if the China-U.S. trade war escalates.
Freeland said the global trading order is now facing its most “fraught” moment since Canada helped establish it after the war.
And it appears that is exactly what is happening, as China Wednesday announced further tariffs to respond to U.S. plans to hit 106 imports from China with tariffs worth $50 billion.
While some Canadian industries, such as soybean and meat producers, are cautiously optimistic that the trade war could lead to more exports to China, other sectors are worried.
The potential slowdown could hit Canadian firms that rely on the construction and building activity that comes with economic growth, especially those with greater international exposure.
And prices for key industrial metals such as iron ore and copper have already dipped on fears of the trade war and could drop farther still as any slowdown in the global economy would hit at the margins.
Finally, slowing growth could have an effect on oil demand.
Rumblings of a China-U.S. trade war could boost the prospects of some Canadian industries, but would also cause global disruptions and force Canada to defend its markets against heightened American competition.
China announced tariffs Wednesday against U.S. plans to apply US$50 billion worth of tariffs on 106 imports by issuing a list of U.S. goods including soybeans, whisky, beef, industrial chemicals and small aircraft in the escalating dispute.
That’s on top of import charges announced Monday on 128 items including fruit, nuts, pork, ginseng, wine, steel pipe and aluminum scrap in retaliation for an estimated US$3 billion in U.S. tariffs on steel and aluminum.
Foreign Affairs Minister Chrystia Freeland warned on Wednesday the global trading order that Canada helped create faces its greatest threat since the Second World War, if the China-U.S. trade war escalates.
Freeland said the global trading order is now facing its most “fraught” moment since Canada helped establish it after the war — a development that laid the foundation for the peace and prosperity that much of the world currently enjoys, she said during a panel discussion in Winnipeg.
The trade spat had a “very muted effect on the (Canadian) market,” Derek Holt, analyst at The Bank of Nova Scotia said. The agricultural sector dealt with minor losses, with corn down 2 per cent, but the Canadian currency has not been too affected, which is where you would see the negatives, he said.
This is partly because “rate pressures are on hold and that’s providing a little bit of a safety valve,” Holt added.
When it comes to protecting its industry, Canada has a few tools to tinker with, according to Holt. It can manage trade policy risks with monetary policy, and absorb negative shocks that could emerge from adverse trade policy developments. That’s as long as “cooler heads prevail” in the market, he said.
Meanwhile, Soy Canada executive director Ron Davidson says the latest 25 per cent levy on U.S. goods could create some opportunities for Canadian exporters, but will also force Canada to fend off imports at home and defend sales to 69 other markets.
“What we’re looking at here is substantive instability in the world market while we try to sort out where everybody’s beans are going,” he said in an interview.
Davidson said Canadian exporters including Richardson International Ltd., Cargill Ltd. and Viterra Inc. wouldn’t want to hurt long-term connections with foreign markets just to sell more to China. See TARIFFS on FP2
Canada sold nearly five million tonnes of soybean products valued at $2.7 billion to China last year.
The group representing Canada’s beef and pork producers also sees big growth opportunities in China and Asia, but says a rampdown of American exports to China would boost competition with them in other markets.
“The tariff certainly changes the landscape a little bit, but China still remains a very viable market for Canadian exports,” said Marcus Mattinson, spokesman for the Canadian Meat Council.
Canadian red meat exports to China surged to $835 million in 2016, up from $334 million in 2010. The country accounts for about 13 per cent of total Canadian exports. On top of that, the rebooted Trans-Pacific Partnership could facilitate the enhanced penetration into other Pacific Rim countries.
Mattinson said meat producers are monitoring the trade dispute between the world’s two largest economies.
“But we will continue to work with our government stakeholders and partners to make sure that Canada’s meat supply chain continues to benefit from international trade.”
Corinne Pohlmann at the Canadian Federation of Independent Business, which represents more than 110,000 businesses, said she recommends small businesses diversify away from the U.S. market. Canada’s trade deal with the EU is another new area to explore, she said.
However, the potential slowdown could hit Canadian firms that rely on the construction and building activity that comes with economic growth, especially those with greater international exposure.
Meanwhile, prices for key industrial metals such as iron ore and copper have already dipped on fears of the trade war and could drop farther still as any slowdown in the global economy would hit margins.
Slowing growth could have a knock-on effect on oil demand, with crude prices dipping after the latest tariff announcement. Shares of smaller producers and service companies that rely on continued growth have been hit, while large producers which are focused more on steady production than growth have been more isolated from such dips.
With Chinese tariffs targeting U.S. agricultural products like apples and soybeans, Canadian producers are concerned that U.S. output will start flooding north in search of markets. Ontario apple farmers have already raised alarms at the potential effects on prices while Soy Canada says the tariffs will cause global disruptions and uncertainty.
Amid the disruption, Canadian consumers may end up paying more for U.S. products and less for Chinese goods. U.S. beer and automobiles would likely cost more as the Chinese tariffs reverberate through the U.S. industries, according to Jean Simard, president of the Aluminum Association of Canada.