Trump talk takes toll on loonie
U.S. president’s threats on lumber, dairy and NAFTA impacting markets, experts say
While the fate of an expanding roster of U.S./Canada commercial disputes remains uncertain, U.S. President Donald Trump’s broadside attack on the trading practices of his northern neighbour is already taking a toll.
“The rhetoric/bullying are having a real impact on financial markets,” BMO chief economist Doug Porter said in a report.
The president’s triple threats to softwood lumber, the dairy industry and the North American Free Trade Agreement (NAFTA), he said, helped send the loonie 2 per cent lower to its weakest level in more than a year over the past two weeks — at a time when the currency is normally at a seasonal peak.
A decline in global crude prices and a liquidity crisis at alternative mortgage lender Home Capital Group contributed to the dollar’s drop, but Porter said Trump’s “cavalier” treatment of Canada has played a part.
And questions about whether the U.S. will remain in NAFTA following presidential tweets threatening to terminate the deal have also hit the country’s main stock index, which has struggled to find a footing amid the uncertainty and charged rhetoric.
“The rhetoric/ bullying are having a real impact on financial markets.” DOUG PORTER BMO CHIEF ECONOMIST
As well, experts say a claim by U.S. Commerce Secretary Wilbur Ross that Canada is “dumping lumber” and “subsidizing mills” — an assertion the prime minister refuted as baseless — amounts to a shot across the bow at Canada and its image as a fair trader and safe haven for global investment.
“Words matter. Words matter diplomatically. Words matter with leaders. And I think the words that have been used have been unfortunate, and have not been constructive,” said Bruce Heyman, former U.S. ambassador to Canada, during a discussion at a recent forum organized by the binational Council of the Great Lakes Region.
Trump in tweets and speeches has levelled accusations over trade prac- tices that could be the subject of constructive negotiations, said Alan Wolff, senior international trade group counsel at multinational law firm Dentons and a former senior trade negotiator in both Republican and Democratic administrations.
Concerns, for example, that Canada’s move to lower prices on ingredients for domestic dairy suppliers constitutes an unfair export barrier are evidently shared by the European Union, which on Monday joined the U.S. in targeting the practice.
Montreal’s Bombardier, moreover, faces a lengthy legal battle and the prospect of preliminary duties after U.S. aerospace giant Boeing petitioned Washington for an investigation into CSeries jets’ subsidies and pricing, news that sent Bombardier shares 4 per cent lower in late April.
But while lumber, dairy and aerospace disputes are not new, Wolff said Trump’s public excoriation of Ottawa is extraordinary.
He also said the tone could add fire to future disputes, particularly if Trump slaps a “buy American” provision on a planned $1-trillion (U.S.) infrastructure program, and if the U.S. fails to abide by rulings on lumber and other files.
Add in B.C. Liberal Leader Christy Clark’s proposed ban on U.S. thermal coal from the province’s ports as a retaliation for lumber duties — along with Canada’s patent and IP protections as possible targets for subsequent U.S. actions — and the elements appear in place for escalating, tit-for-tat trade disputes between the North American allies.
“When things start to deteriorate, people start scrambling and if this is an every-man-for-themselves kind of a world, then it’s going to be difficult for Canada to navigate these particular waters,” Dan Ciuriak, a consultant and former deputy chief economist at Foreign Affairs and International Trade said at the Great Lakes event.
Putting Trump’s bombast aside, however, Wolff said a public renegotiation of NAFTA could be positive.