It’s always hard to be sure whether U.S. President Donald Trump’s trade tweets are fits of pique or official policy.
But a brand new attack on trade with Europe, including threats by the U.S. trade office of tariffs on $11 billion US worth of European goods, could spell a trade advantage for Canada, although that is far from guaranteed.
The damaging worldwide effects of trade tension are beginning to pile up, leading to yesterday’s downgrade in global growth by the International Monetary Fund.
On North American trade, White House economic adviser Larry Kudlow played down Trump’s recent threats to put a 25 per cent tariff on cars from Mexico. The threats flew in the face of the recently signed North American trade deal. There is also concern that ratification of the freshly negotiated NAFTA 2.0 deal is now in doubt.
Alfonso Esparza, a Toronto-based currency and commodity analyst with online trading company OANDA, says fears for North American trade have already hit the Canadian dollar.
“The negative effect that had on the loonie is [based on] how bad it could go,” said Esparza, who monitors the effects of international trade spats.
Cooling effect on trade and the loonie
When the U.S. began its tariff battle with China there was some feeling that Canada could benefit. But recent trade tension with Beijing over the extradition case of Huawei executive Meng Wanzhou means Canada did not get the trade advantage it may have hoped for.
But just as the U.S. seems to be working out its differences with China, Washington has moved on to Europe.
“The EU has taken advantage of the U.S. on trade for many years. It will soon stop!” Trump tweeted yesterday.
But this time it was clearly more than a presidential tweet. On Monday evening, U.S. trade officials had rolled out a list of $11 billion US worth of imports from the European Union, including aircraft parts, motorcycles, wine and other agricultural goods on which they would impose tariffs.
The fight is ostensibly about European Union subsidies for its aircraft industry champion, Airbus — U.S.-based Boeing’s only serious global competitor.
It’s a long-standing dispute between the two trading giants going back more than a decade, and now Europe is looking to retaliate.
Retaliation and escalation
Some say aircraft subsidies are just an excuse for the U.S. to launch an attack on another of its longtime trade partners in hopes of winning the kinds of advantages it sees itself getting in its deal with China. But Esparza says Europe has also learned from the U.S.-China dispute — that it should fight back.
“OK, there’s going to be retaliation. There’s going to be escalation,” Esparza said.
According to Airbus, European officials are calling the penalties announced by the Office of the U.S. Trade Representative excessive and say the EU will impose much bigger trade countermeasures.
In some ways the battle could be good for Canada because it has a free trade agreement with Europe. If the U.S. and Europe get into a prolonged spat, more trade could be directed to and from Canada, including wine.
“The fact that they’re going to lose that big U.S. market means there might be more pressure to be more competitive in other world markets, including Canada,” said Terry Daniel, professor emeritus at the University of Alberta’s school of business.
Daniel says for the U.S. and Europe, and all the affected industries, it’s a “lose-lose,” as costs rise and tariffs impede the free trade that makes economies strong. The overall decline in business will inevitably affect Canada’s economy, too.
However, with the two sides at each other’s throats, Canadian businesses may have a unique advantage because they will have access to both markets.
Canada’s free trade access
“With zero tariffs, we can export duty-free and we have the guaranteed market access,” said Debra Steger, a longtime Canadian trade negotiator who now teaches law at the University of Ottawa.
Steger downplays the idea that Canada is in danger of losing trade access to the U.S., whether through NAFTA 2.0 or the original NAFTA that remains in force, meaning Canada will continue to have tariff-free access to both of the battling giants.
But she says smaller economies like Canada should be wary when their bigger partners start fighting over trade.
“These kind of fights between the big guys are not good for the world generally,” she said.
And rather than winning a trade advantage for Canadian exports, Canada, with its tariff-free access, could instead become a dumping ground for the products that the two trading countries normally sell to one another.