Blame Canada: The investors’ edition

America’s affable neighbor is the latest ally to run afoul of President Trump’s ire

It finally happened: U.S. President Donald Trump picked a fight with the nicest people on earth.

Mr. Trump’s Twitter tirade against Canadian Prime Minister Justin Trudeau following this weekend’s contentious Group of Seven industrial nations summit helped push the Canadian dollar down nearly half a per cent in Asian trading hours on Monday, coming as fraught negotiations over the future of the North American Free Trade Agreement (NAFTA) appear to be at an impasse.

Mr. Trump is correct that certain Canadian sectors — particularly dairy — enjoy unfair protection that was grandfathered into NAFTA. U.S. farmers, however, have been some of the biggest winners from NAFTA: Agricultural exports to Canada have nearly quadrupled since it launched nearly 25 years ago.

If the broader agricultural sector gets sucked into NAFTA renegotiations, U.S. farm sector investors could get dragged through the mud — and the biggest winner will be China, which will find its leverage with American farmers much-enhanced.

Though you wouldn’t know it from the Twitter-verse, Canada is now the largest export market for U.S. farmers, with total shipments hitting $20.5 billion in 2017. In the years immediately after the global financial crisis, rising incomes in China — and its ever-growing army of hungry pigs — had helped it claim the top spot.

But Beijing has spent the last five years actively diversifying imports to ensure it won’t be too dependent on any one trading partner — particularly a strategic rival. U.S. agricultural exports to China in 2017 were worth nearly 25 per cent less than they were in 2012.

Falling prices for many farm products have pushed down the value of U.S. agricultural exports to Canada, too, but only marginally: Shipments in 2017 were still at 93 per cent of their 2014 peak. It’s difficult to argue that Canada in aggregate is giving American farmers short shrift — egregious protection for Canadian dairy farmers notwithstanding.

Ironically, there’s one key sector where Canada represents a real competitive threat to American industry — oil and gas. Ottawa has long been a significant petroleum exporter, and would love to grab a big piece of the rapidly-growing Asian liquefied natural gas market, where China is a dominant buyer.

Mr. Trump’s policy mix is simultaneously raising construction costs for American oil and gas infrastructure by pushing steel prices higher and alienating both of America’s largest trading partners—one of whom is a major energy and agricultural exporter, and the other the world’s largest energy and food consumer.

Don’t be surprised if U.S. energy producers and farmers end up holding the bag.