CANADA ECONOMICS

StatCan. 2017-04-26. Retail trade, February 2017

Retail sales — Canada
$47.8 billion
February 2017
-0.6% decrease
(monthly change)
Source(s): CANSIM table 080-0020

Retail sales declined 0.6% to $47.8 billion in February, following a 2.3% increase in January. Sales were down in 5 of 11 subsectors, representing 67% of total retail sales.

Lower sales at motor vehicle and parts dealers and gasoline stations were the main contributors to the decline. Excluding these two subsectors, retail sales were up 0.5%.

After removing the effects of price changes, retail sales in volume terms edged down 0.1%.

Chart 1   Chart 1: Retail sales decrease in February
Retail sales decrease in February

 

Motor vehicle and parts dealers and gasoline stations lead the decline
Sales at motor vehicle and parts dealers (-1.8%) were down for the first time in seven months, largely reflecting weaker sales at new car (-1.7%) and other motor vehicle (-5.5%) dealers. Following gains in January, sales were 1.3% lower at used car dealers.

Gasoline stations (-3.6%) posted their first sales decline in three months, largely reflecting lower prices at the pump.

Following an increase in January, receipts at food and beverage stores decreased 0.4% in February. Lower sales at beer, wine and liquor stores (-1.7%) was the main contributor to the decline. Sales at specialty food stores (-0.6%) also declined, while supermarkets and other grocery stores sales were relatively unchanged from January.

Building material and garden equipment and supplies dealers (-0.8%) posted their first decline in six months.

Receipts at electronics and appliance stores edged down 0.2%, following a 5.4% increase in January.

Sales at health and personal care stores (+2.0%) rose for the second month in a row.

Clothing and clothing accessories stores reported a 2.2% sales gain in February. Higher sales at clothing (+3.4%) and shoe (+2.0%) stores more than offset the 6.2% decline at jewellery, luggage and leather goods stores.

Sales down in eight provinces
Retail sales were down in eight provinces in February.

Ontario (-0.6%) reported the largest decrease in dollar terms, led by lower sales at new car dealers.

In Nova Scotia (-4.5%), lower sales were reported at motor vehicle and parts dealers as well as building material and garden equipment and supplies dealers. Severe winter weather events were a factor.

Sales in Quebec were down 0.5% on lower sales at used car dealers and gasoline stations.

In Saskatchewan (+0.6%), retail sales advanced for the seventh consecutive month on higher sales at new and used car dealers.

Retail sales in New Brunswick (+0.3%) rose for the sixth time in seven months.

E-commerce sales by Canadian retailers
The figures in this section are based on unadjusted (that is, not seasonally adjusted) estimates.


On an unadjusted basis, retail e-commerce sales were $939 million in February, accounting for 2.4% of total retail trade. On a year-over-year basis, retail e-commerce increased 27.4% while total unadjusted retail sales rose 3.2%.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170426/dq170426a-eng.pdf

TD Economics. April 26, 2017. Analysis of economic performance and the implications for investors. The analysis covers the globe, with emphasis on Canada, the United States, Europe and Asia. Canadian Retail Sales

FULL DOCUMENT: https://www.td.com/document/PDF/economics/comment/CanadianRetail_Feb2017.pdf

RBC Economics. April 26, 2017. Canadian retail sales eased lower in February after strong January gain

FULL DOCUMENT: http://www.rbc.com/economics/daily-economic-update/CA%20Retail%20Sales_Feb2017.pdf

StatCan. 2017-04-26. Dairy statistics, February 2017

The volume of milk and cream sold in February was 233 741 kilolitres, an increase of 2.2% from February 2016.

Sales of milk increased 0.6% from the same month a year earlier to 201 860 kilolitres in February, while cream sales increased 14.1% to 31 881 kilolitres.

Cheddar cheese stocks on March 1 were at 49 403 tonnes, up 9.0% from the same day a year earlier.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170426/dq170426f-eng.pdf

TD Economics. April 26, 2017. Analysis of economic performance and the implications for investors. The analysis covers the globe, with emphasis on Canada, the United States, Europe and Asia. U.S. Announces Countervailing Duties on Canadian Softwood Lumber
FULL DOCUMENT: https://www.td.com/document/PDF/economics/special/SoftwoodLumber_Apr2017.pdf

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BLOOMBERG. 26 April 2017. Lumber, Nafta and Mexico Signal Long Canada-U.S. Trade Spat
by Josh Wingrove  and Greg Quinn

• Next U.S. duties due in June; finalization expected by January
• No ‘easy fix’ with litigation likely in softwood dispute

A long road remains after Donald Trump fired the starting pistol in yet another softwood lumber fight, one of several trade disputes the U.S. and Canada are set to spend years sorting out.

The U.S. president announced countervailing duties of up to 24 percent on softwood lumber from Canada on Monday, drawing rebuke and a threat of legal action from the northern neighbor. While it could have been worse -- Canadian lumber shares surged Tuesday because the tariffs turned out to be less severe than some expected -- it won’t be quick. The last softwood spat ran from 2001 to 2006.

“This isn’t an easy fix,” Derek Nighbor, chief executive officer of the Forest Products Association of Canada, told Bloomberg TV Canada Tuesday. He said Canada can’t appeal duties until they’re finalized early next year. In the meantime, the duties could mean an extra C$500,000 ($370,000) or more a month for a single Canadian mill. “These are very significant costs, and businesses are going to have to figure out: How do you manage through this? How do you cash-flow through this?”

Among the next steps the U.S. may take are anti-dumping duties, with a decision due June 23, and finalized duties expected by January of 2018.

’Be Nice’

Canada Foreign Minister Chrystia Freeland said Wednesday the country wanted a good lumber deal, but not just any deal, and that a negotiated settlement is the best approach. “I would say to my American friends: Be nice to your clients,” Freeland said in a Bloomberg Television interview in Berlin.

Canada has always won its legal fights with the U.S. on lumber, Freeland said. Whereas Canadian officials had stopped short Tuesday of guaranteeing a legal challenge, Freeland did on Wednesday. “We’re going to take it to court and we’re confident that, as has been the case every single time in the past, we’re going to win," she said.

Trump, who last week pledged to fight Canada’s dairy quotas, is igniting tension between the two countries just as the U.S. is expected to trigger a 90-day notice period to start talks over the North American Free Trade Agreement. Negotiations look sure to run into Mexico’s presidential cycle in 2018, with U.S. midterm elections due later that year and a Canadian election due in 2019.

‘Huge Mistake’

The lumber spat has been simmering a long time, and it’s not just a fight between Trump and Canadian Prime Minister Justin Trudeau. U.S. industry needs to approve any deal.

“The Obama administration was essentially acting as a go-between” in talks between Canada and industry, former U.S. ambassador to Canada Bruce Heyman said in a Bloomberg TV interview. Trump is hurting the chances of a deal by stoking rhetoric, he said. “It’s just a huge mistake, to take your best friend and next door neighbor and start poking at them really hard,” he said.

Canada’s government was coy on what its next steps would be, particularly on any challenge through the World Trade Organization or through Nafta itself, as it has done in the past.

“Canada always wins these,” James Blanchard, a former U.S. ambassador to Canada and ex-governor of Michigan, said on a panel Tuesday at the Great Lakes Economic Forum in Detroit. “Hockey is not our favorite pastime,” he said, referring to Americans. “Litigation is.”

Phone Call

Trudeau -- who had spent months courting the U.S. president -- spoke by phone with Trump Tuesday evening. The Canadian leader “refuted the baseless allegations” by the U.S. in its “unfair duties,” according to a statement from the prime minister’s office. They also discussed Trump’s recent pledges to press Canada for changes to its dairy market which “heavily favors the U.S.,” according to the statement. In his own summary, Trump said only that they "discussed lumber coming into the United States" during a "very amicable call."

Canada is considering an aid package aimed in particular at Canadian workers to help offset the impact of the U.S. measure. But the tariffs may hurt Americans, too. Canada’s government circulated a memo from the Washington-based National Association of Home Builders that estimates the measure will increase the cost of U.S. homes and eliminate 8,241 full-time U.S. jobs.

Natural Resources Minister Jim Carr said Tuesday it was too early to say what the domestic aid package could look like. He’s in a bind because the core of the U.S. lumber complaint is that Canadian producers are already subsidized, so any new Canadian measures could buoy a U.S. argument.

“Government is in a tough spot on this, there’s no doubt,” Nighbor said.

NAHB. National Association of Home Builders Discusses Economics and Housing Policy. APRIL 25, 2017. Impact of the Duty on Canadian Lumber Announced April 25
BY PAUL EMRATH

On April 25, the Department of Commerce levied a 19.88% duty rate against Canadian softwood lumber exports to the United States. Due to “special circumstances,” the duties will be retroactive 90 days from the date that the rates are officially published in the Federal Register, likely back to the beginning of February. Five Canadian lumber producing companies will face specific duty rates, the highest of which (24.12%) will be levied on West Fraser Timber (Random Lengths Special Report 4/24/2017).

NAHB estimates that the annual impact of the 19.88 percent duty, if in effect throughout 2017, would be a loss of

• $498.3 million in wages and salaries for U.S. workers,
• $350.2 million in taxes and other revenue for governments in the U.S., and
• 8,241 full-time U.S. jobs.

Many of the jobs are in construction, but the effects are not limited to a single industry, as wages and jobs are also lost in businesses that sell and transport building materials, provide architecture and engineering services, etc. Some jobs are gained in the U.S. sawmill industry, but this is almost entirely offset by losses in other manufacturing industries.  In total, 25 or more jobs are lost in 31 different detailed (6-digit NAICS code) industries.

The losses of wages, jobs and taxes shown in the above bullets are net losses, that take the increases in wages, jobs and taxes in the domestic sawmill industry into account.  Jobs are measured in Full Time Equivalents (enough work to keep a worker employed full-time for a year).

The analysis is for calendar year 2017, assuming that some of the impacts have already occurred as markets have anticipated the Commerce Department’s announcement.

The 2017 baseline that would prevail in the absence of the duty is based on 2016 lumber production and consumptions statistics, mid-2016 prices adjusted for inflation, and construction spending in 2016 adjusted for inflation and anticipated real increase, and wages per job adjusted for inflation. The adjustment factors are taken from NAHB’s 2017 forecast for the Consumer Price Index, Residential Fixed Investment, and Housing Starts for 2017.  In addition, wages per job are inflated using HUD’s estimate of Median Family Income for 2017.

Starting from this baseline and applying average measures (elasticities) of the way markets respond to price changes taken from a  2011 technical article by Baek produce estimates that, in 2017, the average 19.88 percent duty would result in a

• reduction of 1.2 billion board feet in Canadian imports,
• increase of 834.4 million board feet in output of U.S. producers for the domestic market, and
• 6.4 percent increase in the price paid by U.S. customers.

It is well known that home builders are among the major U.S. consumers of softwood lumber. The effect of the increased price the duty would cause them to pay for lumber (assuming the conventional price elasticity for housing demand of -1) include a

• $1,236 increase in the price of an average single-family home
• $424 increase in the market value of an average multifamily home
• $945.1 million reduction in investment in single-family structures, and
• $146.1 million reduction in investment in multifamily structures.

NAHB’s National Impact of Home Building model can then be used to translate the reduced investment in residential construction into net impacts on the U.S. economy. The resulting impacts by major industry group and type of tax (or other government revenue) lost are shown in the following table:




Note: the above considers only the impacts of increased output by U.S. sawmills and reduced investment in new residential construction. It does not include any upstream impacts of inputs used by U.S. sawmills, such as timber; nor does it include negative impacts of higher prices on other industries that use lumber, such as residential remodeling.

REUTERS. Apr 26, 2017. Canada reports progress with U.S. on lumber, 'but not there yet'

OTTAWA (Reuters) - Canada and the United States have made progress in recent days on a dispute over Canadian lumber exports "but we are not there yet", Canadian Foreign Minister Chrystia Freeland said on Wednesday.

Freeland, speaking to reporters on a conference call, also said the United States should treat Canada with respect, given that Canada is a major supplier of softwood.

U.S. Commerce Secretary Wilbur Ross on Monday announced tariffs on Canadian lumber exports, which U.S. producers complain are unfairly subsidized. The move triggered the fifth formal bilateral dispute over Canadian lumber in less than 40 years.

Freeland said she had had long conversations with Ross on Sunday and Monday about lumber.

"We have made progress ... but we are not there yet," she said. "We do believe a negotiated deal is achievable. There is a deal to be had ... but we are also absolutely prepared to fight this out in the courts."

Freeland, who described the tariffs as "punitive, unfair and just plain wrong", said Canada would strongly defend its domestic industry.


(Reporting by David Ljunggren; Editing by Chizu Nomiyama)

The Globe and Mail. Apr. 25, 2017. Canada braces for lengthy softwood battle as Trump gets tough on trade
ADRIAN MORROW, STEVEN CHASE, LES PERREAUX AND BRENT JANG
WASHINGTON, OTTAWA, MONTREAL and VANCOUVER

Canada and the United States are digging in for a protracted fight over softwood lumber in what threatens to be the most bitter battle of the three-decade-old trade dispute.

U.S. President Donald Trump is tying softwood to his promised renegotiation of the North American free-trade agreement, colliding with Canada’s efforts to deal with the two matters separately.

“People don’t realize, Canada’s been very rough on the United States. People always think of Canada as being wonderful – so do I, I love Canada – but they’ve outsmarted our politicians for many years,” Mr. Trump said at the White House on Tuesday while signing an unrelated executive order. “We don’t want to be taken advantage of by other countries. That’s stopping, and that’s stopping fast.”

Campbell Clark: Why Trump is tweeting about lumber and dairy instead of tweaking NAFTA

Explainer: NAFTA, dairy and softwood: What’s going on with Trump? A guide to the trade file

Barrie McKenna: Serial lumber litigation is a game of ‘heads I win, tails you lose’ for the U.S.

Mr. Trump has unexpectedly put Canada in his crosshairs in the last week after spending the better part of two years sparing the country from his trade rhetoric.

The President has seized on two disputes – softwood and dairy protectionism – to get tough on trade.

The rising trade tensions prompted a phone call between Prime Minister Justin Trudeau and Mr. Trump on Tuesday, in which they discussed the softwood-lumber dispute, as well as the U.S. dairy industry’s complaint about Canada’s sheltered dairy market.

The Prime Minister’s Office used tough language to describe how Mr. Trudeau handled it, saying in the call he “refuted the baseless allegations by the U.S. Department of Commerce and the decision to impose unfair duties.”

Monday’s decision to slap tariffs averaging nearly 20 per cent on Canadian softwood wasn’t made by Mr. Trump. It was part of an independent trade-dispute process at the Department of Commerce. But his administration has expanded the importance of the fight by putting it on the table with NAFTA.

“How are [Canadians] blocking U.S. exports of milk to them? How are they dumping lumber down here? It just shows what a terrible arrangement NAFTA has been,” Commerce Secretary Wilbur Ross told CNBC Tuesday. “NAFTA is a mess and NAFTA is also an obsolete deal.”

During Tuesday’s phone call between Mr. Trump and Mr. Trudeau, the PMO said “the two leaders agreed on the importance of reaching a negotiated agreement, recognizing the integrated nature of the industry between Canada and the United States.”

On dairy, the PMO said Mr. Trudeau told Mr. Trump that “Canada would continue to defend its interests.” The Prime Minister also pointed out the lopsided trade in dairy between Canada and the United States, where Canada imports more than $550-million in dairy products from the U.S. but exports around $110-million to the United States.

The Canadian government is preparing for a long battle. It’s widely expected Ottawa will challenge the tariffs at the World Trade Organization – the referee on global trade – as well through a NAFTA dispute-settlement panel. But this could take years and the government said on Tuesday it won’t be able to take such action until final duties are confirmed by the United States in November or December.

Natural Resources Minister Jim Carr sounded exasperated when asked whether the tough ride from the U.S. government was a surprise. “I would not use the word ‘surprised’ to characterize reactions to politics in the United States right now,” he told reporters.

Mr. Trudeau also held a conference call with Canada’s premiers Tuesday to update them on how Ottawa is addressing the burgeoning lumber war – a discussion that sources say broadened to discuss Mr. Trump’s attack on Canada’s sheltered dairy industry as well. The Trudeau government is mindful of the regional tensions underlying the softwood dispute – with different provinces seeking different solutions – and the call was an effort to try to keep premiers on the same page.

Raymond Chrétien, the former Canadian ambassador to the United States who is now Quebec’s negotiator on the softwood file, noted that previous softwood disputes have usually taken four or five years to settle.

“If I learned one thing, it’s that Americans are very tough in business and they never give you a break,” Mr. Chrétien said. “But Mr. Trump is a deal maker. Mr. Ross is a deal maker. There may be a deal to be had in coming months. But nobody knows exactly when those negotiations will start.”

The United States has long argued that Canadian lumber is unfairly subsidized by provincial governments. That’s because most of the trees are on publicly owned land, allowing the provinces to decide how much to charge companies for cutting them down. In the United States, meanwhile, most timber is on private property, and companies pay market rates to harvest it.

Canada needs the U.S. market because 75 per cent of its $8-billion annual softwood exports go the United States to serve its housing and home-renovation needs.

The two countries have fought over the issue at trade tribunals and signed various deals temporarily resolving the dispute. The last such deal expired in 2015. Since then, the United States and Canada have tried unsuccessfully to negotiate a new one. In negotiations last year, the Americans made it clear they want a managed trade deal that limits softwood imports, so the Canadian share of U.S. lumber consumption is capped at about 22 per cent. That is much lower than Canada’s 2015 market share of 30 per cent.

The U.S. lumber industry launched the complaint process that led to the tariffs. In June, the Commerce Department will announce preliminary anti-dumping duty rates for Canadian producers, which will hike the combined penalties paid likely into the 30-per-cent to 40-per-cent range for most Canadian lumber exporters. The final, combined sets of punitive U.S. duties – after Commerce has finished its investigation – won’t be announced until late 2017 and will take effect in 2018.

Canadian officials sought to put distance between the recurring lumber dispute and the bigger threat of protectionist trade action by the Trump administration, emphasizing that this fight would be occurring regardless of who occupied the White House. Any resolution requires the U.S. lumber industry to withdraw its complaint.

“This is Lumber 5. It began a couple of centuries ago, but we believe that the relationship is so important and so consequential for both Canada and the United States that we will work through this as well,” Mr. Carr said Tuesday.

But the Trump administration has already indicated Canada will not be able to separate the two issues easily. In a draft of NAFTA negotiating objectives circulated to Congress earlier this month, the White House said it would seek to gut Chapter 19, the NAFTA provision that allows for panels to settle trade disputes. The panels have ruled in Canada’s favour on softwood in the past, and the United States accuses them of failing to correctly apply the law.

Matthew Gold, a senior trade negotiator in the Obama administration, said Chapter 19 is the only likely way that the NAFTA and softwood issues would intersect, as a bilateral deal on softwood would be too long to easily incorporate into NAFTA.

“If Trump can get rid of Chapter 19 – or if he can get softwood carved out from Chapter 19 – problem solved,” Mr. Gold said. Still, he said, it wasn’t clear that Chapter 19 is really a problem for the United States: Just because trade tribunals have ruled in Canada’s favour in the past does not mean they will again.

Using the softwood dispute as leverage at the negotiating table, however, would be very difficult for Mr. Trump, as the tariffs are set by an independent process that he does not control. And the U.S. lumber industry, which brought the dispute, would have to sign off on any deal between the two countries.

“I think this dispute is really driven by a fairly small number of very influential lumber producers and timber barons in the United States who have basically captured key members of Congress,” said David Emerson, B.C.’s special envoy on the softwood file.

And as the war rages, Canadian producers will likely press governments for compensation. But any assistance Ottawa provides could risk triggering further trade action. Mr. Carr said he will reconvene a federal-provincial task force to consider help for the industry but he made no promises.


The Quebec government announced it is prepared to spend up to $300-million to support the softwood lumber industry. That’s the amount of impact the 20-per-cent tariff will have on 178 companies in the province, according to Dominique Anglade, the provincial minister of the economy. She said the aid will come as loans and loan guarantees.

BLOOMBERG. 26 April 2017. This Canadian Auto-Parts Maker Is at Center of Trump's Nafta Clash
by Gerrit De Vynck

• Borders may thicken but CEO Hasenfratz keeps going global
• ‘We need to break down barriers in how we work together’

Linamar Corp. is a perfect poster child for globalization. Founded by a refugee fleeing Soviet aggression in his native Hungary, the Canadian auto-parts maker has 24,500 employees spread around 12 countries. Its supply chain weaves in and out of dozens of nations -- a single part can cross seven borders before finding its final home in a completed vehicle.

Going global has paid off handsomely. The C$3.75 billion ($2.8 billion) company just posted its 22nd quarter of double-digit earnings growth and investors have been rewarded: shares have soared almost 30-fold since its low after the financial crisis in 2008.

Enter Donald Trump. The U.S. president’s election is the latest in a string of populist, anti-globalization events. On Monday he lashed out against Canada’s support for domestic lumber and dairy industries after calling the North American Free Trade Agreement a “disaster.” A re-negotiation of the free trade pact is looming and House Speaker Paul Ryan is pushing a 20 percent border tax.

Linamar Chief Executive Officer Linda Hasenfratz, 50, is undaunted.

“I continue to be a big believer in globalization and free trade,” she said in an interview at her headquarters in Guelph, Ontario, an hour’s drive west of Toronto where her father Frank first started machining parts in his garage in 1966. Hasenfratz took over from him in 2002, making the company even more global with a push into Asia. “Let’s tap into where the strengths are and not worry about where the borders are,” Hasenfratz said.



She told Trump as much herself during a visit to the White House in February with Canadian Prime Minister Justin Trudeau. Hasenfratz thinks cooler heads will prevail, and that any real changes to trade in North America won’t come close to the level of Trump’s protectionist rhetoric.

“The onus is on us in the automotive industry and other industries as well to illustrate the consequences of proposed actions,” she said. “We need to break down barriers in how we work together, not create new ones. I felt that there was a good understanding of that.”

That same day, Trump said Canada’s relationship with the U.S. within Nafta needed only a “tweak,” as opposed to more serious changes with Mexico. He targeted Canada last week however, calling the dairy trade a “disgrace” and on Monday slapped tariffs of up to 24 percent on Canadian softwood lumber. Trump needs to give Congress a 90-day notice about his intentions to open to up Nafta talks.

Free trade in North America has been the foundation of auto companies’ business plans for decades, said Tony Faria, director of the Office of Automotive Research at the University of Windsor, in Ontario.

Trade Damage

“If that value of merchandise is tariffed, taxed each time it’s crossing the border that would significantly increase the cost of autoparts and finished automobiles,” Faria said. “It would be hard to even try and identify in advance how much damage there would be.”

Even if a new Nafta leaves the Canada-U.S. relationship unscathed, changes on how goods cross the U.S.-Mexico border would hurt Linamar, which has several of its facilities there and sources many of the components that go into its products from the country.

A few buildings away from Linamar’s headquarters is Comtech Manufacturing, one of the company’s 28 facilities in Guelph. Rough aluminum blocks sent up from Mexico are being machined down into shiny cylinder heads, ready to be shipped to the U.S. and placed into high-performance engines.

Keeping the entire continent connected is key for the competitiveness of the U.S. auto-sector, Hasenfratz said. Her office is filled with gleaming metallic parts the company has produced in the past.

New Industries

“Eighty percent of the world’s automotive production and sales is outside of North America so it’s critical for us to maintain the very best cost, quality and technology of products here,” she said.

Even if borders thicken under Trump, Linamar will continue to push into new industries around the world. The company also builds parts for wind turbines, oil-drilling equipment and crop harvesters, as well as a line of construction lifts. That list could grow through acquisitions, Hasenfratz said, and she’s currently looking at healthcare and water as potential areas for purchases.

“Water for a growing world, fresh clean water is an issue and we think there could be some opportunities there,” she said.

The trend of outsourcing parts manufacturing is expanding, allowing Linamar to grow faster than the overall industry, Hasenfratz said. The company posted fourth-quarter earnings of C$1. 76 per share last month, besting the highest analyst estimate.


“It was our twenty-second quarter in a row of double-digit earnings growth,” Hasenfratz said. “That’s something we’re really proud of.”

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ENTERVIEW WITH PM JUSTIN TRUDEAU

BOOMBERG. BUSINESSWEEK. 26 April 2017. Is Justin Trudeau the Anti-Trump?. Canada’s prime minister talks trade, milk, marijuana, housing bubbles, and Donald Trump.
by John Micklethwait

On April 18, Donald Trump went to Wisconsin and promised he would protect the dairy farmers against unfair trade. And he cited Canada in particular. And he also said for good measure, “We’re going to get rid of Nafta once and for all.”

One of the challenges that we’ve seen in the rise of populist or nationalist politics around the world over the past years is a reflection that trade hasn’t always been great for everyone. Sometimes it has benefited only the top tier of any economy, certain multinationals, not smaller businesses. The issue, however, is if you end up going down a highly protectionistic route, if you end up creating barriers and tariff walls, you end up slowing down economic growth, and everyone ends up suffering, including and especially the middle class.

But in this particular case, he was trying to get rid of the milk subsidies that you give to Canadian dairy producers.

I understand that certain politicians are speaking to certain constituencies, that it’s politics. At the same time, the U.S. has a $400 million dairy surplus with Canada. So it’s not Canada that is the challenge here. And the way we approach our very constructive relationship with the United States on trade and on other things is to base it around the facts of the issues and a shared desire to see citizens on both of our sides of the border succeed. We know that trade, Nafta, the free and open trade between Canada and the U.S. creates millions of good jobs on both sides of the border. So we’re not going to overreact.

Every Canadian family pays several hundred dollars more in their annual milk bill because of the measures you have to support your dairy industry. Surely as a protector of the middle class, on this one thing you would admit that Donald Trump has a point.

Let’s not pretend we’re in a global free market when it comes to agriculture. Every country protects, for good reason, its agricultural industries. And you know, we have a supply management system that works very well here in Canada. The Americans and other countries choose to subsidize to the tunes of hundreds of millions of dollars, if not billions of dollars, their agricultural industries including dairy. Different countries have different approaches. And we’re going to engage in a thoughtful, fact-based conversation on how to move forward in a way that both protects our consumers and our agricultural producers.

Do you think it’s a legitimate subject to bring up the North American Free Trade Agreement?

Nafta has been improved a dozen times over the past 20 years, and we’re always looking for ways to improve the benefits for all of our citizens. One of the things with Canada is we’re of a modest enough size that we never feel that the ideal outcome of any given deal is, we win and you lose. I mean, I think we’re always looking for ways where there is mutual benefit. And I think we’ve been able to demonstrate time and time again that trade can benefit both partners.

Your ambassador in Washington said he thinks the proposed border tax will never happen.

I’m not going to make any predictions about what’s going to come forward on the U.S. side. I know that we have made a very clear case that adding taxes or a regulation to a given part crisscrossing the border six times before ending up in a finished automobile—the amount of bureaucratic red tape, the amount of layers of impediments to jobs on either sides—would be really problematic. And I don’t think that people who are promoting that border tax within the American Congress have fully thought through some of the consequences.


Do you think this is an area where Trump may have overreached and actually he’s going back? That this is an area that’s all hat and no cattle?

The issue facing President Trump is that he made a promise to do things that were good for the middle class. And that he was going to help people who felt like they weren’t part of the economic success of their country. Killing jobs because of thickening borders between Canada and the U.S. isn’t something that Mr. Trump is particularly interested in.

What have you learned about Donald Trump so far?

I’ve learned that he listens. He is a little bit unlike many politicians. That might be enough. Leave that sentence right there. As politicians, we’re very, very much trained to say something and stick with it.

Whereas he has shown that if he says one thing and then actually hears good counterarguments or good reasons why he should shift his position, he will take a different position, if it’s a better one, if the arguments win him over.

There’s a challenge in that for electors. But there’s also an opportunity for people who engage with him to try and work to achieve a beneficial outcome.

Do you think in a strange way he’s helped you define yourself more clearly? You’re often cited as the anti-Trump now, because you are a liberal in the Anglo-Saxon world being pro-free trade but also socially liberal. And that’s not a popular place to be.

If you’re seeing a rise of populism and nationalism, it is in response to the kinds of fears that people are feeling. So my economic approach is very much to allay those fears. How are we going to help the little guy? How are we going to help people who feel left out of success?

Do you have any idea why populism of that sort hasn’t really taken off in Canada?

I think we can just look at what some of the narratives coming out of the leadership campaigns of the other two major Canadian parties are, and you can see that there is a strong drive towards populism. Even in our election in 2015, I made a conscious choice to try to draw people together, to work on allaying fears rather than highlight them and exacerbating them. I was up against a government that ran on snitch lines against Muslims and headscarf bans and a fear-filled narrative that Canadians chose to reject, for the large part, because there was a positive, inclusive, solutions-based alternative on offer.

During the election, you said that you wanted to get rid of the deficit, and you talked about maybe halving $25 billion worth of deficit. This year alone you’re going to run a $28 billion one.

If you actually want to do the math, we talked about $10 billion worth of deficit in our first year. It became $30 billion. But there were still only about $10 billion or $11 billion worth of new spending. It was the economic situation that fell out. And we had to ask ourselves, “Do we stick with our plan of investing in infrastructure, in education, in research, in putting more money in the pockets of the middle class, because we think it’s all the more important now that the economy’s gotten a little worse than we expected? Or do we pull back and make cuts and not make those investments?” And I think it was very clear in the election that our proposal to invest in infrastructure, in research, was not just what Canadians wanted and chose, but what was the right solution to move forward. And we’re seeing positive signs in terms of employment numbers, in terms of growth, in terms of global investment that we’re drawing in.

You have an economy that is due to grow 2.6 percent this year, faster than anyone else in the Group of Seven. Isn’t that a chance, an opportunity in some ways, to return to dealing with the deficit? You don’t need a stimulus for that.

We are in an extremely healthy situation. And we’re doing well because we are back investing in the kinds of things that are making a difference in people’s lives, not because it’s a stimulative effect, but because they’re smart things to do, both in the short term and for the long term in terms of pathways to growth.

What happens to the general long-term rate of growth in Canada? When you look at the Western world at the moment, everyone’s sort of struggling with this. There is a suspicion that we suffer from secular stagnation. What are the ideas you’ve got that will make Canada outdo that?

One of the things at the root of the worries or anxieties that so many people have is that they see their jobs being replaced by automation. By AI. By robots. By various innovations and improvements in the technology that surrounds our workplaces. Instead of saying, “OK, well, how do we slow down the pace of automation and protect—through various barriers—our workforce?,” what we’ve chosen to do, and it was at the center of the most recent budget we’ve put forward a month ago, was how do we prepare citizens, our workers, to be part of the revolution in how our workplace functions? How are we encouraging K-to-12 students to learn how to code? How are we encouraging access to university, to career colleges, to technical and vocational schools for our students? But also, how do we take people who are in the workforce already, who are looking at their industry saying, “Wow, I need to change my industry or I need to get significantly more skills if I’m gonna continue to have a job 10 years from now,” and get them back into school? We put an awful lot of money that is focused on retraining and upskilling workers.

You don’t think looking a long way forward that governments like yours or maybe your successors’ are going to have to start creating almost make-believe jobs to keep people employed who’re being pushed out by automation?

That’s a question a lot of folks are struggling with. Every time there was a big transformation, whether it was the Industrial Revolution and the steam engine, there was this worry that there were going to be no more jobs. …

There’s always a delay, though, isn’t there? At each time the jobs do come, but sometimes it’s 10, 20 years before they do.

But I think at the same time, looking at a delay that might have happened 100 years ago or 200 years ago is different from understanding that the pace of change is so rapid that if we start, and we tool up our workforce to be more flexible, more open, more skilled in seeing where the opportunities are, we’re going to be better positioned than anyone else in the world. I’m not saying there’s not going to be disruption.

Do you think Canada has moved away from the resource curse?

Canada will always have a tremendous amount of its wealth based on natural resources. We’re a country with great natural resources that the world will continue to need. And that’s a good thing. But what we’ve actually discovered is that how we draw on those natural resources has required and has engaged more and more innovative technologies, more and more creative thinking, more and more solutions that aren’t just good for here, but for around the world. How to continue to draw on the oil sands in an ever more responsible and efficient way. How to look at better agricultural and food production in a place where our winters are strong and our seasons are short. Being more innovative about how we create productivity gains in our agro-food industry. These are the kinds of things that actually show that a natural resource economy can be blended with a knowledge economy: a human capital economy.

You’ve taken steps toward legalizing marijuana. You’re pushing that forward next year. Is this going to be something you tax?

The reason we are choosing to legalize and control marijuana is because the current system is not protecting our kids. Right now it’s easier for an underage Canadian, a teenager, to buy a joint than it is for them to get their hands on a bottle of beer. And you know, whatever you may think about the relative harms of marijuana vs. alcohol or cigarettes, marijuana’s not good for the developing brain. It’s not good for our kids. We need to do a better job of making it more difficult, at least as difficult as it is to access alcohol. That’s the main part of our legalization strategy, along with recognizing that criminal organizations and street gangs are making billions of dollars every single year off of the sale of marijuana, which they then funnel into other criminal activities. Can we change it? Can we put the sale of marijuana through at least a regulated and overseen frame that the government will put forward to make sure there’s quality control, make sure that profits aren’t going into illicit corners?

Do you have any idea about what sort of industry may emerge? What seems to be happening in America is maybe a consolidation around a few big companies.

We’re at the very beginning of some thoughtful conversations with the provinces. If you look to alcohol as a model, you have big global players in beer in Canada. But you also have a lot of microbreweries. And there’s that capacity and consumer choice. If you know what you want, there are options out there. Ensuring there is a range of business opportunities for small, local producers and larger producers is not an unreasonable vision for what that industry could look like. But again, we’re looking at it from a public health and safety standpoint, as opposed to some other places that legalized it on a commercial basis. That will come later. We’re going to be public health and safety right first.

Can I push you on housing? Here in Toronto, home prices have gone up almost a third over the past year. You’ve got huge growth in Vancouver as well. And the Ontario government just announced a 15 percent tax on foreigners coming to buy houses here. Is this a bubble? And is this the way to fix it? What’s wrong with someone like me coming here to buy a house?

I encourage you to come and move to Canada and settle, and spend all your money and invest and hire more people. We are open to global investment.

You can’t with a straight face say you’re open to global investment on one hand and then charge people 15 percent if they want to buy a house.

It depends whether it’s speculation or whether it’s moving in to live. The challenge that we’re facing is a dearth of data on exactly who’s doing what and what’s doing what. We did a number of things around tightening some of the mortgage rules. But I think there’s a recognition that the levers that the federal government has cover the entire country. The housing market in Vancouver or Toronto is somewhat different from that in Halifax or Saskatoon or even Montreal.

Do you see the housing market in Toronto, say, as a bubble? It looks like one from the outside.

We’re looking at a time of pressures on housing that need to be alleviated, which is why we, instead of reacting in a short-term level, are reacting with a long-term, 10-year housing strategy that’s going to build more rental units, build more affordable housing. The federal government’s investing over $11 billion. And we’re going to work with cities to create stability. People need to be able to afford their homes in the cities that they work.

Which bit worries you most, the idea of this bubble suddenly popping and there being problems that way, or of it continuing to go along and maybe pushing ever more houses out of the reach of the affordability of people?

My focus is on making sure that for the medium and long term, people in Toronto and across the country can afford their homes. That means working on the supply side, making sure that we’re investing in more rental stock, making sure that we’re investing in new constructions of affordable housing, so that the market can adjust itself without either popping or crashing.

Let’s talk about the Trans-Pacific Partnership, the trade pact that Trump has abandoned. You haven’t said you want to continue with it, which sits oddly with your general pro-free-trade stance.

We’re in favor of trade deals. We’re in favor of progressive trade deals. When we came to office, the Canada-EU deal—CETA—was in big trouble. It was basically stalled. A whole bunch of significant parties in and across Europe had decided that it was a bad thing. We had to go back to the drawing board a little bit and make it slightly more progressive, make tweaks to it that would reassure people that there was still a capacity to protect workers, protect the environment, protect labor rights, protect health benefits. So we’re always looking for good trade deals for Canada.

As we move forward in what seems to be a post-TPP world, we’re very much interested in continuing to grow our relationships with Asia, to look at how we can pull things together.

But not through TPP itself?

I know there’s lots of discussions whether there’s going to be a TPP minus the U.S., whether there’s gonna be different clusters or clumpings or more bilaterals. We’re just happy to be engaged in these discussions, because we know that trade will benefit both Canadians and our trading partners.

It’s interesting to me that whilst you’ve been fairly outspoken on behalf of free trade and globalization, the one person who seems to have said more is Chinese President Xi Jinping, an odd ally for you.

China has played a very positive role around climate change. They have recognized a need for real leadership there and stepped up in a number of ways. They’ve showed themselves to be on the side of international players trying to fix the environment or improve the environment for the long term around the world.

Is there a possibility of a free-trade deal with China? How would that work?

We’re certainly sitting down with China to explore possibilities of free-trade deals. There’s a number of challenges, not least of all is the difference in scale between our economies. But also challenges around values and approaches and a recognition of the expectations that Canadians have around labor rights and health rights and environmental protections that aren’t necessarily quite aligned where China is, for example, or where many developing countries are.

Are you happy with the idea of China almost as a co-equal global leader with America?

Rather than trying to make grand pronouncements, we look at what we can do to bring people along and bring ourselves along in constructive ways. Are there ways to improve Chinese labor laws and behaviors through better engagement with Canada?

Are there ways of demonstrating to this new administration in the States that being climate leaders is actually really good for jobs and for the economic bottom line?

You know, that’s what we’ll do. Frankly, as we engage with the world and highlight what we have going on here, a lot of people are looking to invest in Canada. We’ve had a number of big companies come and say, “You know what, we want to be part of what Canada’s doing. Your emphasis on education, on training, on responsible economic development, on sustainable growth.” These are the kinds of things that in a world of tremendous uncertainty seem to be on a long-term path that is interesting for a lot of investors.

You have a third party in Nafta, which is Mexico. If America pulls out of Nafta, will Mexico and Canada begin to go it alone?

We’re always going to look through whatever structures exist on how we create better opportunities to trade and to work with our closest partners. And Mexico will always be an important and close partner for us. As we engage in Nafta discussions, we’ll see how it goes. But there’s certainly things on which Canada and the U.S. are uniquely compatible. Other things in which Canada and Mexico will be able to find common ground and common approaches. Other things in which it’ll be a U.S.-Mexico conversation. And this is all natural for moving forward in responsible, thoughtful ways.

You seem to be a champion of immigration, but you’ve also been happy for there to be caps on it. Where do you stand on that for things such as Syrian refugees?

There are 60 million-plus refugees around the world. Lots of countries can do more and will be doing more. But there are a lot of things that need to be done internationally to allow people to return home rather than just say the solution is to welcome in everyone. Canada can’t take in 60 million people, obviously. One of the things that is extraordinary about Canada is that we’ve managed to keep a tremendously strong public support for immigration. And that has happened over generations, whether it was welcoming Ismaili refugees from East Africa in the early ’70s, whether it was the Vietnamese boat people in the early ’80s, whether it was successive waves of refugees fleeing from Eastern Europe and Kosovo and elsewhere. Within a few years they get integrated, they get good jobs, their kids become full Canadian while still proud of their own culture. And Canadians know that that path works. And the limit we have on how many people we can bring in is related not to some arbitrary number, but how well can we support the newcomers and integrate them effectively and quickly. If we do a good job of making sure that there’s a path to success for people who come here, public support will continue for immigration.

You look at America, you look at Britain, they were both, at least statistically, fantastic examples of immigrant success stories. And yet they’ve both elected or supported people who have been less pro-immigrant.

Canada is a country that has always accepted, from the very beginning, English vs. French, that someone different from you was just as much and just as legitimately a Canadian as you were. So we’ve managed to make of this pluralism the core of our national identity, rather than a shared history or language or superficial identity that we all have to ascribe to. And that, combined with a sense that success also includes your neighbor, that when your neighbor is doing well, you’re likely to do well, and a zero-sum game is not part of the Canadian psyche.

Isn’t that the point where you’re the most anti-Trump? A lot of the new president’s rhetoric is exactly about “I win, you lose,” or vice versa.

I think what we’ve been able to highlight to the new administration is that with Canada, at the very least, it’s not a zero-sum game. That a lot of great jobs on both sides of the border depend on this great relationship and will continue to. It is a way of moving forward that is very much one of the things I’m trying to push.

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LGCJ.: