Why Poloz is keeping a cool head over trade
One key player who’s not losing his head over escalating trade tensions is Stephen Poloz, governor of the Bank of Canada.
Certain industrial leaders are speaking apocalyptically about potential U.S. tariffs in the auto sector, for instance. Their alarms are justified. But we don’t know if, when or how that damage will manifest itself.
In the meantime, the Canadian economy is performing at close to full capac- ity. The national rate of unemployment continues to test modern-day lows. And the inflation rate has closed in on 2 per cent, the Bank’s target level.
Poloz might appear sanguine about escalating trade tensions. But the greatest fear of central bankers is that once inflation gets out of hand, it is exceedingly difficult to rein it in. So Poloz will raise borrowing costs yet again on July 11.
For Poloz, it’s almost absurd that after three central-bank rate hikes, starting last July, the Bank’s key rate is a mere 1.25 per cent — still low by historic standards. Raising the key rate strengthens the loonie, creating a buy- ing opportunity for investors in Canadian-denominated investments, as earlier noted in space.
Of course, Poloz may yet relax or reverse the Bank’s tight money policy. But that would require that he first see signs of looming severe unemployment, plant closings, declining export volumes and a sharp drop in consumer spending.
For now, Canada’s economic vital signs remain healthy enough to require the Bank to apply downward pressure on wages and industrial costs. Mere threatening outbursts from U.S. President Donald Trump won’t suffice.
“We’re data dependent, not headline dependent” at the Bank of Canada, Poloz reminded reporters last week. “We’re not going to make policy on the basis of political rhetoric.”
EI2 is a rebuke to both NATO’s control by the U.S. and Donald Trump’s harassment of NATO members, including Canada
ACanadian role in EU defence policy? An element of French President Emmanuel Macron’s blueprint for an ambitious reinvention of the European Union became a reality early last week. Nine EU countries large and small, including France, Britain, Germany, Denmark and Estonia, signed on June 25 to a more effective rapid-response capability to deal with European natural and man-made disasters. This scheme, so-far dubbed the “European intervention initiative,” or “EI2,” is intended merely to create a “common strategic culture,” in Macron’s words, “to ensure Europe’s autonomous operating capabilities, in complement to NATO.”
EI2 is said to be a mere linking of EU general staffs and shared training and planning exercises.
Actually, EI2 bears the markings of a parallel institution to NATO. As such, it is a more than subtle rebuke to both NATO’s control by the U.S. and Donald Trump’s harassment of NATO members, including Canada, to boost their funding for the organization. And by coaxing Britain into the nascent EI2, continental Europe’s two leading economic powers, Germany and France, are signalling in yet another way their ardent desire that Brexit not happen.
For Washington, EI2 is a shot across the bow about EU unity and sovereignty in the face of U.S. trade threats. And for U.K. Prime Minister Theresa May, EI2 — an EU outreach to Britain in recognition of the U.K.’s muscular military — is cause for even further division in May’s caucus about the wisdom of Brexit.
While EI2 might seem a European affair, Ottawa would be wise to encourage it, on the same grounds of sovereignty and as a means by which Canada can more nimbly participate in missions of mutual benefit. Canada already has NATO troops stationed in the Baltics, and a long tradition of European warplane pilots training on the Prairies.
The humbling of an industrial colossus General Electric Co. got a stay of execution last week, even as it was booted from the Dow Jones Industrial Index, of which it had been one of 30 component firms for more than a century. GE turnaround CEO John Flannery planned it that way, to pair the Dow Jones humbling with his announcement of a long overdue effort to break up Thomas Edison’s legacy in order to save it.
In what shows signs of becoming a case study for MBA mills, GE has embarked on a dismantling of the GE that once ruled the commanding heights of corporate respect worldwide. GE went south soon after the 2001 departure of then-CEO Jack Welch and his smoke-and-mirrors financial engineering. GE stock has since lost more than threequarters of its peak value — an episode of shareholder value destruction with few equals in history.
Flannery, CEO since August, is trying to dump businesses accounting for about one-third of total revenues. GE will now focus on core businesses where it has global leadership. But this work in progress will require still more layoffs and dividend cuts.
One hopes GE will long stand as a repudiation of incompe- tent celebrity CEOs such as Welch, also the godfather of ubiquitous excessive executive pay from stock options; and a lesson in the fateful seductions of size and sprawl.
The best moment in the history of Canadian Pacific was its 2001 “starburst” breakup into several businesses that fared much better on their own than they had as hostages to an unmanageable conglomerate. GE has been about two decades late in adopting that strategy. But there’s still time for mega-conglomerate Berkshire Hathaway Inc. to get its breakup plans in place.