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December 7, 2017

CANADA ECONOMICS



CANADA - CHINA



PM. December 7, 2017. Prime Minister successfully concludes second official visit to China with keynote address at Fortune Global Forum Guangzhou, China

The Prime Minister, Justin Trudeau, today wrapped up a successful second official visit to China. Over the last five days, the Prime Minister visited Beijing and Guangzhou, where he met with leaders in government and business, and focused on growing the Canada-China relationship through trade and investment.

The Prime Minister met with several government leaders, including His Excellency, President Xi Jinping of the People’s Republic of China, and His Excellency, Li Keqiang, Premier of the State Council of the People’s Republic of China. Together, they agreed to move forward on several initiatives to deepen bilateral ties, including continuing exploratory discussions towards a comprehensive trade agreement, issuing the Joint Statement of Climate Change and Clean Growth, and increasing market access for Canadian producers of beef and pork. Leaders also addressed important regional issues, including North Korea and Myanmar, and had a respectful discussion on continuing efforts to improve human rights and the rule of law in their respective countries.

The Prime Minister wrapped up his visit to China in Guangzhou at the Fortune Global Forum, which brought together multinational CEOs and the heads of China’s most important companies to discuss issues related to international commerce. At the forum, the Prime Minister delivered the keynote address, participated in an armchair discussion, and held several bilateral meetings with global business leaders. As the forum wrapped up, the Prime Minister announced that Canada will host the 2018 Fortune Global Forum. Throughout these engagements, the Prime Minister reiterated the importance of pursuing progressive trade deals and encouraged international investments in Canada.

The Prime Minister also visited the Sina Corporation’s new headquarters where he highlighted the 2018 Canada-China Year of Tourism through a live event with Weibo, one of the largest social media platforms in Asia, and promoted Canada as a premier tourism destination.

The Prime Minister also participated in a roundtable with the Canadian founder and alumni of Educating Girls of Rural China, where they discussed the organization’s work to support the education of young girls in China. The Prime Minister took the opportunity to reaffirm Canada’s commitment to gender equality and the empowerment of women and girls around the world.

The Prime Minister also joined business leaders from major Canadian and Chinese companies from diverse sectors, including agriculture, finance, energy and natural resources, for a roundtable discussion on Canada-China Economic Relations.

The Prime Minister, along with members of the Canadian delegation, also took a moment to remember the victims of the École Polytechnique Montreal and reflect on the importance of eliminating gender-based violence in all its forms.

Quote

“A stronger relationship between Canada and China is essential to creating good jobs and new opportunities for middle class Canadians to succeed. We have made a lot of progress during this trip, and we will build on this momentum and continue exploratory discussions towards a comprehensive trade agreement between our two countries. We are committed to pursuing trade deals that benefit everyone and put people first.”

—Rt.  Hon.  Justin Trudeau, Prime Minister of Canada

Quick facts

  • China is Canada’s second-largest trading partner, largest and fastest growing source market for international students, and third-largest source of tourists.
  • Canada’s merchandise exports to China were almost $21 billion in 2016, an increase of four percent over 2015, with top exports being forest and agricultural products, copper and iron ores, and motor vehicles.
  • In 2016, Canada and China agreed to designate 2018 the Canada-China Year of Tourism, which includes initiatives to increase the flow of tourists and promote cultural activities.
  • The Fortune Global Forum attracted more than 45 CEOs from around the world, in addition to senior level executives, ambassadors, and current and former senior government officials.

See also:


Canada-China Relations: http://www.canadainternational.gc.ca/china-chine/bilateral_relations_bilaterales/index.aspx?lang=eng&_ga=2.56003307.1168694504.1511191876-108037952.1511191871

THE GLOBE AND MAIL. DECEMBER 7, 2017. CANADA-CHINA TRADE. Trudeau leaves China with a defence of Western media, but no progress on free trade
STEVEN CHASE AND NATHAN VANDERKLIPPE
GUANGZHOU AND BEIJING

Prime Minister Justin Trudeau offered a parting shot in defence of Canadian media as he wrapped up a frustrating trip to China where Chinese anger at coverage of their country intruded on failed efforts to launch free trade talks.

China, which heavily censors its own press, has been emboldened by President Donald Trump's attacks on "fake news" to grow more open in denouncing international media it sees as impeding its agenda. And as Beijing flexes its economic strength and rising political sway, it has succeeded in muting unwanted criticism from many foreign leaders.

Mr. Trudeau himself could have easily ducked the topic at a final news conference in Guangzhou – or offered an anodyne comment that his job is not to be a media critic.

Instead he used his answer to defend Canadian journalism in a country critical of Western commentary, going out of his way to "thank members of the media" for doing their job even as news outlets struggle to reinvent themselves in shifting advertising markets.

The Prime Minister's comments appeared aimed more at Chinese critics than Canadian journalists. The Canadian media, he said, plays "an essential role, a challenge function."

"I really appreciate the work that you do … We [government] make your job difficult. External factors make your job difficult," he added in a lengthy response.

"But it's an essential role that you play in the success of the society. That is my perspective. That is a perspective shared by many and it's one that I am very happy to repeat today."

Mr. Trudeau is going home having failed to launch free-trade talks between Canada and China. The Prime Minister had been widely expected to kick off formal negotiations during what was his second official visit to China; China's ambassador had publicly forecast the start of negotiations as recently as late October.

China offered soothing words Thursday, with foreign ministry spokesman Geng Shuang saying "the negotiations have achieved some progress."

"We will take a pragmatic attitude to work with the Canadian side to promote the building of the Canada-China [free-trade agreement]," he added.

But the Chinese government appears to have resisted the Liberal leader's attempt to impose Canadian-style labour and environment standards and gender rights through a trade pact.

One business leader privately expressed frustration Tuesday, saying he had not been led to believe that these stipulations for "progressive" standards would be so stubbornly pursued by the Liberals. (Mr. Geng declined comment on areas of difference.)

For this, Mr. Trudeau was unapologetic, saying he does not believe countries can keep signing trade deals that don't carry specific benefits and supports for ordinary citizens. Those sort of accords will trigger backlashes from the public, the Prime Minister said, as has happened around the world in recent years.

"The rise of nationalism, the rise of protectionism, is a concern amongst citizens and ordinary folks around the world that pro-growth polices like trade haven't been good for them," he told reporters.

"That's why pushing for trade deals that benefit citizens and not just multinationals or a country's bottom line – but the actual citizens – is the only way we are going to continue to move forward constructively and effectively in an increasingly globalized world," he said.

"The alternative to trade deals that focus on citizens is no trade deals at all because the rising forces of inward thinking, of fear, of protectionism and nationalism will prevent the public confidence that is required for governments to move forward on trade deals."

After a deal failed to materialize Monday or Tuesday during Mr. Trudeau's meetings in Beijing with China's leadership, International Trade Minister François-Philippe Champagne was left behind in the capital city to keep trying to agree on the scope of talks.

No deal was apparent as of midafternoon Thursday and Mr. Champagne himself was preparing to head home without an agreement. "There was good progress made and we expect that work to continue in the weeks ahead," his director of communications Joe Pickerill said in a statement e-mailed to reporters.

Mr. Trudeau also left China adamant that not only did he raise the plight of five imprisoned Canadians with senior Chinese leaders, but that he felt very strongly about the need to protect the rights of citizens travelling abroad.

Those detained include: Huseyin Celil, a Uyghur dissident, imprisoned since 2006; Falun Gong practitioner Sun Qian, in jail since February; Xiao Jianhua, a billionaire abducted to mainland China from Hong Kong; and British Columbia wine merchants John Chang and Allison Lu. The Richmond, B.C., couple have been detained since May, 2016, over a customs dispute involving shipments of ice wine that Beijing says were undervalued for duty purposes.

Mr. Trudeau played down the slow pace of efforts to agree on a scope of trade talks with China. Such negotiations would be the first bilateral trade talks that China has undertaken with a Group of Seven country.

"There were never any illusions this would be quick and easy," Mr. Trudeau said.

He rejected the notion that Canada is losing control of its trade agenda after being accused by other countries of "sabotaging" the Trans-Pacific Partnership talks in Da Nang, Vietnam last month.

"We're taking this seriously because we know – both sides know – this is something that has far-reaching and long-lasting repercussions and implications, positive for our citizens and we have to ensure that they remain positive for our citizens," Mr. Trudeau said.

In China, however, the lack of an agreement to formalize trade talks pointed to frictions in the relationship, as middleweight Canada seeks to push China into accepting Western norms on delicate issues such as workers rights.

Liu Dan, a researcher at the Center for Canadian Studies at Guangdong University of Foreign Studies, played down the differences.

"Both countries hold different opinions in some aspects, like values, mindsets, and political system. But they've existed all along, and our bilateral relationship continues smoothly," she said.

Still, Mr. Trudeau's China visit was marked by state media anger at views about Beijing presented in the Canadian media; Ms. Liu faulted both sides for stirring confrontation, but acknowledged that "the scale of this media war is slightly greater than in the past."

On Wednesday, the Communist Party-run Global Times newspaper faulted the Canadian media for its "superiority and narcissism."

In that context, Chinese officials "must have been quite surprised" with Mr. Trudeau's defence of Canadian reporting, said Willy Lam, an expert on Chinese elite politics who is a former editor of the South China Morning Post.

China has been "trying very aggressively to influence how China is being portrayed in the Western media," he said.

"In the Western world, there doesn't seem to be anybody, any heavyweight person who is ready to tell the Chinese to their face directly that the situation with human rights, with civil society has deteriorated," he said. What Mr. Trudeau said "stands out. Perhaps to the credit of the Prime Minister."

THE GLOBE AND MAIL.DECEMBER 6, 2017. OPINION. Trudeau’s China setback was a self-inflicted wound
DAVID MULRONEY, CONTRIBUTED TO THE GLOBE AND MAIL

David Mulroney is president of the University of St. Michael's College in Toronto and a former ambassador to China.

Although official Ottawa almost certainly believes that it has nothing to learn from the current U.S. President, somebody, preferably in the Prime Minister's Office, should pick up a copy of Donald Trump's The Art of the Deal. We seem to have a hard time getting one done.

In the space of just over a month, we have generated confusion and consternation in two Asian countries due to our last-minute reservations about trade deals. In the APEC meetings in Vietnam in November, Canada was the spoiler at what was to have been the announcement of agreement in principle on the Trans-Pacific Partnership. This deal involves the key players in the Pacific Rim, with the exception of China, which wasn't invited, and America, which dropped out. It was hoped that leaders could use the announcement to send a much-needed sign of support for continuing trade liberalization. What they got, after Canada's case of cold feet, was a somewhat grumpy undertaking to keep trying.

This week in China, Canada's cold feet were again the problem. After weeks of speculation that the Prime Minister would join his counterpart, Premier Li Keqiang, in announcing the launch of formal talks, we were treated instead to an icy press conference that featured, well, a somewhat grumpy undertaking to keep trying.

If anything, what happened in China is even more puzzling than what happened in Vietnam. By the time a document is to be signed by China's Premier, it has already been the subject of much consultation within the Chinese system, culminating in approval of the text by the State Council, China's cabinet. Chinese officials assume that their foreign partners have been similarly diligent in briefing their leaders and securing high-level sign-off.

That doesn't seem to be happening on our side. What's going wrong?

For one thing, trade negotiating, once an elite art in Ottawa, is now a more mundane bureaucratic function. Back when the Canada-U.S. free-trade agreement and NAFTA were negotiated, we fielded a team of deeply experienced negotiators, giants in a discipline in which Canada then wielded global influence. They worked closely, often directly, with ministers and with the prime minister. There were few – if any – surprises.

Today, the distance between the people who negotiate the deal and the person who signs it – the prime minister – is far greater, and many other people, among them congenitally cautious mandarins from Ottawa's "central agencies" and legions of hyperpartisan political staffers, stand between negotiators and the PM. That makes us more susceptible to second-guessing and last-minute surprises.

We're also losing that most valuable of negotiating skills: the ability to listen. Good negotiators listen carefully, taking note of what the other side wants and, equally as important, doesn't want. But these days, when the Prime Minister talks as he so often does about a "progressive trade policy agenda," it can sound like a lecture. Smaller states that need our largesse have to listen. China doesn't.

We do need to raise issues with China relating to human rights, labour and the environment. But before trying to shoe-horn them into our trade agreement, we should build them into our broader engagement strategy. Instead, the government's failure to address legitimate Canadian concerns about these issues has undermined the popular support needed to get a trade deal done. Knowing this, it's no wonder that the Prime Minister and his team are skittish.

This is a self-inflicted wound. The government seemed naive about security risks when it failed to subject China's takeover of Vancouver high-tech firm Norsat to higher scrutiny. They seemed flatfooted when asked how they could consider closer economic engagement with a country that capriciously imprisons foreign business people, such as Canadian John Chang of British Columbia's Lulu Island Winery.

The Prime Minister's 11th-hour reversal has cost us in terms of credibility and goodwill in Beijing. But opting out of a process for which we are not ready is not the worst possible outcome. The government should now take the time to consult Canadians and craft a more comprehensive and sophisticated China policy. Being clear about objectives, enumerating risks as well as opportunities, and cultivating the lost art of listening can help us negotiate a deal that is well worth doing.

THE GLOBE AND MAIL. DECEMBER 6, 2017. CANADA-CHINA RELATIONS. On Trudeau’s rocky China trip, Communist newspaper lashes out at Canadian media
NATHAN VANDERKLIPPE, BEIJING

Justin Trudeau's rocky trip to China has spilled onto the pages of the country's nationalist state press, which lashed out at Canadian media for their "superiority and narcissism," and warned that China is in no rush to step closer to Canada.

As the Canadian prime minister left Beijing Tuesday night without an expected agreement to formally launch free-trade talks, the Communist Party-run Global Times published a sharp-tongued editorial directed at Canada, and in particular the Canadian press.

It pilloried The Globe and Mail as "irritating" for a Monday Globe editorial that called China an "absolute dictatorship" and said Ottawa should "be in no hurry to conclude" deliberations on whether to move forward with trade talks.

"The superiority and narcissism of the Canadian media … is beyond words," the Global Times wrote. It added that China "is also not in a rush to develop its relations with Canada. Let it be. This is the most genuine attitude of Chinese society."

The Global Times is a nationalist publication that often voices outrage more openly than other state outlets seen as more official messengers.

But the op-ed forms part of an continuing offensive against Canadian media, including numerous barbed statements by the Chinese embassy in Canada, an outburst by China's foreign minister at a reporter in Ottawa last year and, on Wednesday, publication of a biting video from Hu Xijin, editor of the Global Times.

It also comes amid difficult government negotiations over free trade, in which Mr. Trudeau ​​wants Beijing ​​to submit to "progressive" chapters on labour, the environment and gender that would impose changes​ on China.

China has not agreed to those demands, although Industry Minister François-Philippe Champagne remained in Beijing Wednesday in hopes of salvaging a deal.

In the midst of tough political talks, Canada's media have become a "surrogate" for frustrations in China, which is loath to directly attack a foreign leader, said Yuezhi Zhao, a scholar of communication in China at Simon Fraser University in B.C.. "They don't want to critique Trudeau as much," she said.

But the Chinese media offensive should serve as a warning that "the road to clinching a free-trade agreement will be treacherous," said Lynette Ong, a political scientist who studies China at the University of Toronto.

Beijing is keenly aware of its economic might, and believes "Canada should count itself lucky to have an FTA with China," she said. "The Chinese will not easily give in to Canada's demands."

The Global Times' Mr. Hu made that explicit in a video commentary posted Wednesday morning. By late afternoon, it had attracted 140,000 views.

"If Canada is really so tough, why doesn't it just completely stop trading with China?" Mr Hu said.

Talking over screen shots of recent Globe articles, he made a sarcastic reference to the idea of Canada X-ray scanning every imported Chinese shoe to "check if it is produced democratically." Or should China, he asked, check every grain of imported Canadian wheat to see "if it is so rich in capitalism that we might choke to death eating it?"

Canadian media should understand "how little influence their country has in China," he said. And to Canadian authorities, he added: "If you continue to trade with China and benefit from it, you shouldn't let your foul-mouthed media continue their deeds."

The abrasive tone is not unusual for Mr. Hu, a controversial figure in China.

But it may also indicate "that China's honeymoon period with Justin Trudeau is at an end, and that he'll be viewed more like other foreign leaders," said David Mulroney, former Canadian ambassador to China. "That's not necessarily a bad thing."

The barrage of Canada criticism also comes amid a surge of confidence in China's leadership, buoyed by its ability to avoid the 2008 financial crisis and subsequent unrest that has plagued other countries in recent years. The Communist Party has accomplished that in part through savvy management, and in part through authoritarian rule that intervenes in markets and forcibly quells dissent.

Though that can mean disregarding human rights, China has also successfully maintained stability and improved living conditions – and is increasingly unwilling to broker criticism of its methods.

"Inside China there's this saying that early on we were beaten. Then we were hungry. And now we are being blamed," said Prof. Zhao, who has studied Chinese media for two decades. Now, there is a feeling that "we don't want to be blamed any more."

China under President Xi Jinping has openly posited its system "as an alternative to the liberal-democratic values that have underpinned the Western world for decades," said J. Michael Cole, a senior fellow at the University of Nottingham's China Policy Institute.

He counselled caution for leaders drawn to the rapid rise of what is now the world's second-largest economy, pointing to "the often corrosive ramifications, for our own cherished values, of closer ties with authoritarian China."

Criticism of China's system is shared by some in China, among them critics of Mr. Hu who took to social media after he posted his video.

"I really think you should shut up," one person wrote. "Has it ever occurred to you why foreign media all love to criticize China 'unfairly'? I think there's a lesson you need to learn for yourself," wrote another. "How can you say China is a dictatorship? China is just a nation where 'the leader's orders outweigh the law'," added another, sardonically.

As prime minister, Mr. Trudeau has refrained from stern public rebukes of China, but said this week he believes a "free, informed independent press is something necessary to support for a society to thrive." He offered as evidence the fact he conducted a news conference in Beijing. No Chinese media were in attendance, and only reporters travelling from Ottawa were allowed to ask questions.

Asked for comment Wednesday, the prime minister's officer referred to Mr. Trudeau's Tuesday remarks.

China heavily censors both traditional and social media. It ranks fifth from the bottom in the Reporters Without Borders World Press Freedom Index, ahead of Syria, Turkmenistan, Eritrea and North Korea.

For the Global Times, though, unleashing colourful insults against foreign media has become something of a sport. It has called the BBC "disgusting," accused the Washington Post of "sour grapes" and labelled other British media "gossip fiends" and "barbarians."

The Canadian media, the paper added in a Chinese-language commentary this week, suffer "narrow-mindedness," and live in a country that looks to the world like "America's 'semi-colony'."

With reporting by Alexandra Li

The Globe and Mail. 7 Dec 2017. Senate ethics watchdog probes China trip by three Conservative senators. The Senate ethics watchdog is investigating an all-expenses-paid junket to China by three Conservative senators and their spouses to determine whether it should have been declared as a gift or sponsored travel.
ROBERT FIFE, OTTAWA
STEVEN CHASE, BEIJING
XIAO XU, VANCOUVER

Chinese media have reported
that Senator Victor Oh and two Senate colleagues – Don Plett and Leo Housakos – travelled to China in April, 2017, at the invitation of a Beijing-based wealth management firm that recently opened up an office in Vancouver.
The two-week trip to Beijing and Fujian province was not disclosed to the Senate Ethics Office as either sponsored travel or a gift. Independent Senator André Pratte asked for an investigation last week after The Globe and Mail reported on the undisclosed travel to China.
At first, Mr. Housakos’s office said it was sponsored travel, partly paid for by China and a trade group based in Canada, and that a staffer had forgotten to inform the ethics office as required under Senate rules. Mr. Housakos then called The Globe in late November to say my “understanding by and large is [the
trip] was covered by two Canadian-Chinese associations,” but he could not remember their names.
But Mr. Oh later told The Globe and the Senate Ethics Office that he did not believe the senators had to declare the trip because his “family” picked up the tab for airline
tickets, hotels, meals and transportation. The purpose of the trip, he said, was to visit his ancestral home in Fujian province.
“It was my family who covered all the costs of this trip,” Mr. Oh wrote to Mr. Pratte and other colleagues in a Dec. 1 e-mail, obtained by The Globe. “As such, I did not believe it needed to be filed as sponsored travel.”
Mr. Oh, a Toronto businessman named to the upper chamber by Stephen Harper, did not mention in the e-mail that he was in China at the invitation of Pantheon Asset, a Chinese firm whose website says it is involved in the management of “high-networth families” seeking a safe place to put their money.
“Along with spending time with family, we also paid visits out of courtesy to officials and representatives of the local community and attended cultural activities,” Mr. Oh wrote.
An article on the Chinese website Hot China News Centre, however, said the three senators were “invited” to China to “engage in comprehensive exchanges” with members of Pantheon Asset in Beijing and Fujian province. The website said the senators were accompanied by more than 20 people including Canadian-Fujianese business people.
The article did not say if Pantheon paid any of the costs. The Globe made repeated calls to Pantheon’s office in Beijing but
the phone line was always busy. “The trip in April was paid for by my family and not the company you mentioned,” Mr. Oh said in a statement to The Globe. “It is is extremely concerning that you are putting my reputation and integrity into question based on accounts given by lessthan-reliable sources.”
Mr. Housakos said in an interview on Tuesday he never got details of who paid for the trip to China, but Mr. Oh later “explained to me that my end of the trip was paid for by a family member [because] he was returning to his ancestral home.”
Later, he called back The Globe to say Pantheon “did not invite me to China. I can tell you they didn’t pay for [the trip] and I can tell you they invited me to have dinner. That’s it and all.”
Mr. Plett said he has since sent all information about the trip, including the list of people who accompanied the senators, to the ethics office.
In his Dec. 1 e-mail, Mr. Oh said he “at all times acted in good faith” and added he had never “conducted any personal business in China or here in Canada since my appointment to the Red Chamber in 2013.”
Hot China News referred to Mr. Oh as “China-Canada’s People’s Ambassador” and noted that Pantheon set up a meeting with the senators and business delegation with Xiamen Chamber of Commerce and Quanzhou Federation of Industry and Commerce. It said the company also hosted a banquet for the senators in Beijing and they attended the Peking opera accompanied by Pantheon partner Ma Yi.
Mr. Oh has also declined to explain three other trips that he took to China that were not publicly declared to the Senate Ethics Office, but denied they were paid for by China.
“I want to make it perfectly clear that none of the trips to China that you have asked about have been paid for by the Chinese government or one of its entities,” he said in an e-mail to The Globe.
Mr. Oh visited China in early September, 2017, visiting Liaoning province and meeting Sept. 7 with Wang Zhaoxia, chair of the Federation of Returned Overseas Chinese Liaoning Province, according to reports in the mainland China press.
This trip was not registered as sponsored by a third party or as part of the activities of the Canada-China Legislative Association, which is funded by Parliament. When asked, Mr. Oh’s office said he was already in China as part of a taxpayer-funded trip by the Canada-China Legislative Association. That ended in late August. His office said Mr. Oh stayed in China and conducted his own
travel, which they say he paid for out of this own pocket before flying back to Canada on Sept. 10.
Chinese media also reported on a trip Mr. Oh made to Jiangsu Province in late December, 2016. They say he was invited to visit China by Qiaofeng Chen, president of a Canada-China lobby group, the Canada Suzhou General Chamber of Commerce, and president of Kent International Education. On Dec. 29, Chinese media report he was warmly welcomed by dignitaries with the provincial people’s congress.



NAFTA



The Globe and Mail. 7 Dec 2017. Trudeau, Tillerson meeting this month to discuss North Korea. Prime Minister Justin Trudeau will meet with U.S. Secretary of State Rex Tillerson in the next two weeks to begin mapping out a strategy for dealing with North Korea’s growing nuclear threat, says a senior U.S. diplomat.
STEVEN CHASE, GUANGZHOU, CHINA

Canada and the United States are preparing to co-host a meeting early in 2018 that will bring
together foreign ministers from a host of countries
to discuss whether a diplomatic solution can be found for North Korea, which has been expanding
the range of its ballistic-missile technology. The rogue North Korean state launched its most powerful intercontinental missile last week, which was capable of reaching targets as far away as 13,000 kilometres, putting Washington and some Canadian cities within striking distance.
Pyongyang’s tests, however, employ dummy warheads and experts caution a genuine nuclear payload would be significantly heavier and cut the distance that could be flown.
On Wednesday, Terry Branstad, the U.S. ambassador to China, revealed the Trudeau-Tillerson meeting during a gathering of business elite at the Fortune Global Forum in Guangzhou, China. He said it would take place Dec. 19.
Mr. Trudeau is in Guangzhou to promote doing business with Canada at the forum, which is a get-together of wealthy and powerful people similar to the annual summit in Davos, Switzerland. The Canadian Prime Minister’s Office said that Mr. Branstad and Mr. Trudeau met on briefly Wednesday.
Mr. Trudeau used his speech in Guangzhou to attack growing protectionism around the world. He didn’t mention U.S. President Donald Trump, who poses a threat to the health of Canada’s economy because of his continued proposals to tear up the North American free-trade agreement that gives Canadian firms preferential access to the U.S. market.
“We are at a pivot point in the world right now, where we decide whether we work together in an open and confident way and succeed or whether we all falter separately and isolated,” the Prime Minister told the Fortune Global Forum. This warning from Mr. Trudeau was not part of his scripted comments that had been released to media ahead of time.
“As that anxiety spreads, people start to turn inwards. They start to close off. They start to get fearful,” he added. “If that continues to happen, make no mistake about it, we will all lose.”
Mr. Trudeau lauded China as a defender of liberalized trade, saying Canada and China “share the belief that more openness and more collaboration is the right way forward.” His characterization of China as a proponent of unfettering trade is remarkable because it’s contradicted by China’s record. In fact, under President Xi Jinping, the state has taken an increasingly active role in the economy and has helped bankroll a global buying spree by Chinese corporations, including in sectors that Beijing forbids foreigners from buying in its own backyard.
According to a survey by the American Chamber of Commerce in China, 81 per cent of U.S. firms doing business in China reported feeling less welcome in 2016 than they did in 2015.
The early 2018 North Korea meeting will take place in Canada. Canadian officials have said
the point of the meeting would be to assess whether a diplomatic route exists to resolve the Korean crisis, even as talk of war escalates. This get-together would not include officials from North Korea.
Despite the increasing danger from North Korea, the Trudeau government remains mum on whether it’s now time for Canada to join the U.S. missiledefence program, something the opposition Conservative Party has been demanding.
Foreign Affairs Minister Chrystia Freeland told The Globe and Mail recently that it is still unclear whether the Hwasong-15 missile, carrying a superheavy nuclear warhead, could survive atmospheric re-entry and hit a target in North America.
“We don’t know for sure what the capacities and what the possibilities are. There are questions about what the weight of a nuclear warhead does to the trajectory of missiles,” she told The Globe’s editorial board on Dec. 1.
Ms. Freeland did not answer directly when asked whether Canada will join the U.S. missiledefence shield or whether the Trudeau government assumes the United States would protect Canada as part of the North American Aerospace Defence Command (NORAD).
In September, Canada’s deputy commander of NORAD, Lieutenant-General Pierre St-Amand, revealed that the current U.S. policy is not to intervene in the event of a ballistic-missile attack on Canada.
Ms. Freeland wouldn’t say what defensive and emergency safety operations are in place to protect Canadians in the event North Korea launches a nuclear warhead at North America, a capability experts say may be possible early next year.
The United Nations has already imposed harsh sanctions on North Korea, and even China’s urging for Pyongyang to pull back on its ballistic-missile testing has failed to persuade the regime to abandon its nuclear ambitions.
Late last month, Mr. Trudeau said Ottawa could possibly work with Cuba, which has full diplomatic relations with North Korea, while Canada does not, to find a diplomatic solution. Mr. Trudeau said Canada could “pass along messages through surprising conduits” but Ms. Freeland said Cuba is not acting as a conduit for Canada and provided no other details. Ms. Freeland was unclear about what role Cuba is playing behind the scenes in defusing the standoff.
“Cuba is a country that Canada has good relations with and so we have conversations,” she said. “That is all I am going to say about our conversations.”
North Korea has conducted dozens of ballistic-missile tests under its leader, Kim Jong-un, in defiance of UN sanctions.
North Korea has said its weapons programs are a necessary defence against U.S. plans to invade the country. The United States, which has 28,500 troops stationed in South Korea as a legacy of the 1950-53 Korean War, denies any such intention.

BLOOMBERG. 6 December 2017. Canada-U.S. Trade Deal Possible If Nafta Fails, Trudeau Says
By Chris Fournier

  • ‘We’re willing to entertain next steps forward’ with Trump
  • Canada, China trade talks include state-owned enterprises
  • Nafta Talks Bogged Down as Canada, Mexico Hold Firm

Canadian Prime Minister Justin Trudeau said he would consider one-on-one talks with the U.S. on trade, if negotiations to update the North American Free Trade Agreement fail.

“We will always look at different opportunities,” Trudeau said Thursday in response to a question about a two-way U.S. trade deal at the Fortune Global Forum in China. “We’re ready for anything, when things come forward. The new administration has shown a willingness to disrupt the patterns of past behavior and look for new models, and we’re willing to entertain next steps forward.”

The prime minister, who was in the southern Chinese city of Guangzhou to wrap up a five-day visit, said the 23-year-old Nafta “needs to be updated” and warned that canceling the pact would harm Canadians. His comments followed the unexpected breakdown in Canada’s efforts to launch free-trade talks with China, with officials saying the two sides would continue discussions.

While Trudeau reaffirmed his desire to save Nafta, which underpins $1.2 trillion of trade, his comments will likely fuel speculation that Canada is preparing to move ahead without Mexico. The remarks come just weeks after other members of the Trans-Pacific Partnership criticized Canada for upending efforts to resurrect the trade pact without the U.S.

‘Very Confident’

The Canadian government has repeatedly said it was committed to working with Mexico to renew Nafta, but officials have sometimes signaled a willingness to consider a two-way pact of the kind U.S. President Donald Trump prefers. Trump has threatened to scrap Nafta, if the other two signatories don’t accept proposals that the administration argues will reduce U.S. trade deficits.

“We’re still very confident in the kinds of support and response that we’ve gotten from friends, partners, colleagues in the U.S. who recognize that trade is a powerful driver of growth and benefit to citizens,” Trudeau said Thursday.

Canada and the U.S. had a bilateral trade deal that was superseded and suspended by Nafta. Canada’s chief Nafta negotiator told lawmakers this week that the old agreement would kick in again if Nafta failed, although it would have to be re-implemented.

China Talks

Starting talks with China could strengthen Trudeau’s hand in Nafta negotiations, demonstrating that the U.S.’s second-largest trading partner has other options. But a personal visit to Beijing -- the second in as many years for Trudeau -- wasn’t enough to overcome Chinese concerns about the “progressive” trade provisions Canada insists must be part of any deal.

Another issue under discussion was the role of state-owned enterprises, Trudeau told reporters later Thursday. In 2012, former Prime Minister Stephen Harper imposed restrictions on the acquisition of oil-sands companies by SOEs after Cnooc Ltd. bought Nexen Inc., of Calgary. Trudeau said the Chinese government’s involvement in strategic industries was “characteristic of their approach.”

“That has particular implications when you have state-owned enterprises competing in the same sphere as private enterprises,” Trudeau said. “Any discussion on trade as we move forward needs to reflect on the challenges, the opportunities, the advantages and the inconvenience when two systems that are different are trying to collaborate, so we can create benefits for both groups of citizens.”

Next Steps

As of midday Thursday, it appeared that Trudeau would be leaving China without a breakthrough. Trade Minister Francois-Philippe Champagne spent two extra days in Beijing to pursue talks about the eventual framework of the agreement with Chinese Commerce Minister Zhong Shan and other officials, a Canadian government spokesman said.

Champagne was expected to head back to Ottawa with Trudeau on Thursday evening, as the Liberal government regroups on its next trade move.

“We believe a free trade deal will benefit both Canada and China,” Gao Feng, a spokesman for the Chinese Commerce Ministry, told reporters Thursday in Beijing. “China will keep working with the Canadian side in practical and open attitude to promote the China-Canada free-trade zone, creating conditions to begin the trade talks as early as possible.”

— With assistance by Josh Wingrove, and Miao Han

 The Globe and Mail. REUTERS. 7 Dec 2017. Mexican auto exports surge despite sales slump in the U.S. Auto sector has become a growth engine for the economy and an export hub because of NAFTA

Mexican auto exports rose 12 per cent in November compared with last year despite lower U.S. sales, the country’s main auto industry group said on Wednesday, in a sign of the growing importance of alternatives to Mexico’s main foreign market. Despite the rise in exports, it was the lowest growth rate since August, when exports fell 0.8 per cent. Exports were driven by increased demand from Canada, Europe and Asia, compensating for a 1-per-cent decline in shipments to the United States.
Eduardo Solis, president of the Mexican Automotive Industry Association, said it was too soon to say companies were looking for alternatives to exports to the United States, but that the numbers were evidence of Mexican industry’s diversified markets.
Domestic sales slumped 8.5 per cent, although they are expected to stabilize next year, said Guillermo Rosales, deputy director of the Mexican Association of Automobile Distributors (AMDA).
Mexico produced 332,449 light vehicles in November, a record for that month. Overall production was up 4.5 per cent. Mexico’s auto exports, which are primarily bound for the United States, rose to 274,520 vehicles in the month.
The auto sector has become a growth engine for the Mexican economy and an export hub because of the North American Free Trade Agreement (NAFTA). Manufacturers have been lured to the sector by cheaper labour and numerous free-trade agreements.
But the industry has been plunged into uncertainty by U.S. President Donald Trump’s threats to pull out of NAFTA if he cannot secure more favourable terms for the United States, particularly in the auto sector.
The Trump administration wants half of the content of all North Americanbuilt autos be produced in the United States and that the regional vehicle content requirement be increased to 85 per cent from 62.5 per cent.
Association president Mr. Solis criticized the proposal as “unachievable.”
“We are going to the next round with the conviction that we should maintain firm our position on rules of origin,” he said at a news conference.

THE GLOBE AND MAIL. DECEMBER 6, 2017. GROWTH & PRODUCTIVITY. If NAFTA dies, what happens to Canada’s trade with Mexico?
AUGUSTA DWYER, SPECIAL TO THE GLOBE AND MAIL

Almost 24 years ago, the North American free-trade agreement made Mexico an important low-cost investment location for companies from Canada and the United States.

Now President Donald Trump has put Mexico's key role in the North American supply chain in peril, tossing difficult new conditions into NAFTA negotiations and threatening to scrap the deal altogether. Not surprisingly, Canadian investors can't help but wonder whether Mexico is still a land of opportunity – or if the blush is coming off the rose.

All three of the ProMexico offices operated in Canada by the Mexican ministry of the economy have seen an uptick in visits, said Rodrigo Contreras, trade and investment commissioner in Toronto.

"They come in asking, 'What is the future of NAFTA?'" he said. "'Will my investment in Mexico be protected if NAFTA goes away?'"

Companies are also seeking advice from Export Development Canada, said Todd Evans, director of corporate research at the agency.

Canadian companies with operations in Mexico own assets worth $59-billion, said Mr. Evans, and employ more than 72,000 workers. Among them are Bombardier Inc., Magna International Inc. and DGB Canada Ltd. In 2015, foreign affiliate sales by Canadian companies in Mexico hit $17-billion.

Complex business relationships are at stake, "so there is a lot of angst and anxiety around it," he said.

Whether a Canadian company should invest in Mexico now depends entirely on why it wants to invest, said Robert Wolfe, professor of policy studies at Queen's University in Kingston, and an expert in trade policy. If it is to export to the United States, or to be part of supply chains involving the United States, "there is a degree of uncertainty at the moment," he said.

"If you are investing there because it is part of the strategy for serving the Canadian market, the Mexican market or other markets, then it is unaffected by NAFTA," he said. "So it's a complex picture."

Mexico has been making strides to ensure that foreign direct investment in the country is safe, according to a spokesperson for the Mexican ministry of the economy based in Ottawa. Should Mr. Trump trigger withdrawal from the treaty under Article 2205, the Mexican government has prepared a so-called Plan B to keep these investments secure.

As Mr. Contreras put it, "Our country relies on foreign direct investment, so it is in our best interest to protect the interests of our investors and to give them peace of mind."

In fact, Mexico has virtually transformed its investment climate over the past two decades, in large part thanks to NAFTA. It has improved its infrastructure, enhanced legal transparency and deregulated some sectors, such as telecommunications and energy.

These moves, along with the country's much lower labour costs, have enabled Canadian companies, by doing business in Mexico, to compete more effectively against those in Asia and Europe.

Mexico is still an optimal location for Canadian investment, Mr. Contreras says, particularly for companies diversifying away from a reliance on the U.S. market. Sectors such as agriculture and pharmaceuticals, he said, are looking at Mexico as a platform to export to South America, Europe and Asia.

Mexico already has 46 free-trade agreements with countries around the world and is busy setting up new ones with Japan, Jordan and Turkey.

With a population of more than 100 million, Mexico's domestic market also offers opportunities, said Mr. Contreras.

However, as Dr. Wolfe pointed out, there is no telling what will happen to the Mexican economy should NAFTA disappear. "It is hard to estimate the overall impact on the Mexican economy and, therefore, of the viability of any investment in Mexico," he said. "If the Mexican market is tanking, your investment may not be sensible."

In a post-NAFTA scenario, however, World Trade Organization protocols would kick in. Under the WTO's most-favoured-nation status, tariffs paid by most U.S.-based customers on most Canadian products are 1 per cent (2.5 per cent on auto parts).

And while many companies can handle that, Mr. Evans said, under a newly protectionist regime in the United States, "you might see more regulations around the border – for example, more countervailing duty, anti-dumping actions, safeguard actions."

Indeed, there is no escaping the fact that the demise of NAFTA would have serious repercussions on all three North American economies. For any company, the viability of its investments needs close and careful study.

"What we are telling companies – there is a lot of noise, a lot of rhetoric, a lot of uncertainty out there – is that it's important to look past that, to maintain that long-term, strategic viewpoint of their business," said Mr. Evans.

Mr. Contreras, however, said he remains optimistic. "We have been so focused on the United States, but the current scenario has been positive for our companies and for Canadian companies to start looking for connections so we can sell in global markets."

Global Affairs Canada. December 7, 2017. Modification – Statement by Canada on U.S. International Trade Commission vote on duties on Canadian softwood lumber

Ottawa, Ontario - The Honourable Chrystia Freeland, Minister of Foreign Affairs, today issued the following statement in response to the vote by the United States International Trade Commission finding material injury to U.S. industry from imports of certain Canadian softwood lumber products:

“Canada’s forest industry sustains good, middle-class jobs across our country, including in our rural and Indigenous communities. The Government of Canada will continue to vigorously defend our industry, workers and communities against protectionist trade measures.

“As we have said throughout this dispute, punitive U.S. countervailing and anti-dumping duties on Canadian softwood lumber are unwarranted and troubling. They are harmful to Canada and to lumber consumers in the United States.

“In recent weeks, Canada has begun legal challenges against the U.S. duties on Canadian softwood under NAFTA and before the WTO. We will continue to consult with the provinces, the territories and Canadian industry and workers on a durable solution to this vital issue.

THE GLOBE AND MAIL. DECEMBER 7, 2017. TRADE. Trade agency rules Canadian lumber shipments hurting U.S. producers
BRENT JANG, VANCOUVER

Canada's shipments of softwood lumber south of the border are injuring American producers, the U.S. International Trade Commission said in its final determination on Thursday.

The ITC's final ruling, in a 4-0 decision in favour of the U.S., comes amid deadlocked talks to overhaul the North American free-trade agreement, adding one more strain to the already tense relationship between Ottawa and the Trump administration.

In January, the ITC issued a preliminary ruling, saying Canadian softwood is harming the U.S. lumber industry.

The 2006 softwood-lumber agreement expired on Oct. 12, 2015. The U.S. lumber sector began flexing its muscles in November, 2016, petitioning the U.S. Department of Commerce to impose countervailing and anti-dumping duties on Canadian lumber shipments into the United States. That move turned out to be successful in 2017, with the Commerce Department deciding to penalize Canadian producers with preliminary tariffs, first with countervailing duties starting on April 28 and then anti-dumping duties beginning on June 30.

The final determination on Nov. 2 by the U.S. Department of Commerce resulted in a countervailing rate of 14.25 per cent and anti-dumping rate of 6.58 per cent against most Canadian lumber shipments south of the border, for a combined tariff averaging 20.83 per cent.

Preliminary countervailing duties averaging nearly 20 per cent lasted for four months, ending in late August.

The new anti-dumping rate – for what the Americans describe as Canada selling softwood below market value – kicked in on Nov. 8.

West Fraser Timber Co. Ltd., Canfor Corp., Tolko Industries Ltd. and Resolute Forest Products Inc. are the four mandatory respondents in the countervailing and anti-dumping cases. New Brunswick-based J.D. Irving Ltd., which is a voluntary respondent in the countervailing duty investigation, is not a respondent in the anti-dumping probe.

West Fraser faces a combined duty of 23.76 per cent, Canfor 22.13 per cent, Tolko 22.07 per cent, Montreal-based Resolute 17.90 per cent and Irving 9.92 per cent. West Fraser, Canfor and Tolko are based in British Columbia.

Other Canadian producers will pay 20.83 per cent.

The countervailing duties were imposed because the Commerce Department ruled provincial stumpage fees paid by Canadian lumber firms are too low and amount to subsidies. The antidumping duties arise from the U.S. contention that Canadian producers sell softwood below market value.

On Nov. 14, Canada took its battle over countervailing duties to one of the most contentious elements of NAFTA – Chapter 19, which sets up trade panels to settle disputes. Canada filed another letter on Dec. 5 to include anti-dumping duties as part of the Chapter 19 appeal process.

Ottawa is hoping a binational panel under NAFTA will strike down tariffs on Canadian softwood.

Canada also challenged U.S. lumber tariffs on Nov. 28 by taking its fight to the World Trade Organization.

REUTERS. DECEMBER 7, 2017. Canadian dollar to rise once NAFTA uncertainty clears: Reuters poll
Fergal Smith

TORONTO (Reuters) - The Canadian dollar is likely to strengthen over the coming year, a Reuters poll showed, on the assumption uncertainty over trade lifts and a stronger economy boosting inflation will prompt the Bank of Canada to resume raising rates.

The loonie is forecast to rise to C$1.27 per U.S. dollar in one month from around C$1.28 on Thursday, the poll of more than 40 foreign exchange strategists taken Dec 4-6 showed. The currency is then expected to climb further to C$1.25 in 12 months, matching the level projected a month ago.

For its part, the U.S. dollar, which is already on course for its worst calendar-year performance since 2003, is forecast in the same Reuters poll to lose a bit more ground against other major currencies next year.

“I think developments on the Canadian economy have been pretty constructive overall,” said Alvise Marino, director of FX strategy at Credit Suisse in New York, who had one of the most aggressive 12-month calls, to C$1.20.

“The kind of upward pressure that you are seeing on wages in the employment report does suggest that eventually you will see some pickup on the inflation front.”

Canada’s economy added nearly 80,000 jobs in November, much more than economists had expected.

Still, the Bank of Canada has turned more cautious on the outlook for the economy in recent months, after it raised interest rates for the first time in seven years in July and then again in September.

The central bank left its benchmark interest rate on hold at 1 percent on Wednesday and gave few hints about when the next hike will come, noting uncertainty over trade.

Canada, the United States and Mexico are in the midst of renegotiating the North American Free Trade Agreement (NAFTA), prompted by President Donald Trump’s administration in Washington. The outcome is important to Canada, which sends about 75 percent of its exports to the United States.

“We do think (NAFTA uncertainty) is having a very strong impact in the policy deliberation process,” said Mazen Issa, senior foreign exchange strategist at TD Securities. “It may be that the bank wants to wait until we have much better clarity on that front.”

The sixth round of NAFTA negotiations is due to take place in Montreal Jan. 23-28. President Trump has threatened to withdraw from the trade pact if it is not reworked in favor of the United States, and his negotiating team has set proposals that have alarmed their Canadian and Mexican counterparts.

But strategists say a deal is the most likely outcome and could open the door to further Bank of Canada rate increases. Money market traders currently expect the central bank to hike more than 50 basis points next year.

“Our forecast for the Canadian dollar assumes that the Bank of Canada will follow the Fed (U.S. Federal Reserve) in its monetary tightening,” said Hendrix Vachon, senior economist at Desjardins. “A slight increase in oil prices is also expected by the end of 2018.”

The currency has lost its tight link with the price of oil, one of Canada’s major exports, in recent months. But that relationship could be recaptured if the oil price rose enough to boost investment in Canada’s energy sector.

A separate Reuters poll on Wednesday showed oil analysts have raised their forecasts for crude prices next year after major producers agreed to extend output cuts.

Reporting by Fergal Smith,; polling by Sarmista Sen and Anu Bararia, editing by Ross Finley, Larry King



INTERNATIONAL TRADE



EDC. DECEMBER 7, 2017. WEEKLY COMMENTARY. Taking Stock of Country Risk in 2017
By Andrea Gardella, Senior Economist, Economic & Political Intelligence Centre
Research provided by Steven Gaffney

As we approach the end of 2017, let’s take stock of the Country Risk Quarterly’s country risk rating changes over the last twelve months. First a refresher: the CRQ covers 100 countries, with each country being assigned three risk ratings measuring different types of country risk. In a global environment that is never short of a country-agitating headline, our country risk ratings have moved in tandem. Throughout 2017, our analysis indicates that EDC country risk ratings experienced a balanced number of rating upgrades and downgrades driven by risks ranging from economic, political, and financial. Let’s breakdown some of the risk trends that piqued our interest.

Starting with the Americas, most of the rating movements were to the downside. Five downgrades to the sovereign’s probability of default and nine to our transfer and conversion of foreign currency risks. What led to these changes? Following a string of severe weather conditions, small Caribbean islands such as Antigua & Barbuda and Sint Maarten were downgraded due to limited government capacity to manage significant hits to physical infrastructure and economic activity. Additionally, the region continues to be weighed down by soft commodity prices causing a consistent drag on economic activity and investment in natural resource dependent country’s such as Bolivia and Trinidad and Tobago. Pressures on government finances and access to foreign currency remain the main risks in the region, particularly in those with limited sector diversification.

Moving over to Europe where country risk shifts in 2017 paint a rosier picture. Several western European countries have been reaping the benefits of a Euro Area recovery leading to sovereign rating upgrades for Croatia, Bulgaria and Cyprus. Cyprus is experiencing the green shoots predominantly from a domestic financial recovery while Croatia and Bulgaria move in tandem with the economic recovery of the Euro Area. Regionally, improving government finances and a stronger business climate will lead to a more stable outlook for most countries in the region.

Heading to the Middle East and Africa, we see several countries experiencing varying levels of turmoil. Weak commodity prices, shaky political environments and intra-regional tensions bleed into higher political violence and economic risks throughout the region. Algeria, Tunisia, and the Republic of Congo have felt the squeeze of lower oil prices and public discontent leading to downgrades to their sovereign probability of default ratings. EDC’s Global Economic Outlook expects crude oil prices to remain subdued hovering around $55/bbl over the few years causing further shrinkage of public and exports revenues. Governments’ ability to manage through the price downturn, attract financial flows as well as maintain social stability, will determine which countries will be able to maintain (or improve) their country risk ratings going forward. Debt sustainability risks in the region will also remain top of mind as global interest rates and financial flows normalize in conjunction with a US and Euro Zone consistent recovery. One bright spot in 2017 was Ghana which saw most of its risk ratings improve.

Finally, Asia. Political risks lead rating trends in the region. An ongoing Islamist insurgency and the government’s crackdown on the drug trade, which highlight some underlying risk factors, have led to a deterioration in the Philippines’ country’s political violence rating. On the upside, Indonesia saw a reduction of political violence and expropriation & government interference risks driven by improved governance and political stability, as well as a greater openness to foreign investment slowly leading to an ameliorated business climate.

The bottom line? 2017 was a year of many ups and downs. Weak commodity prices, political tensions and fundamental financial fragility balanced against recoveries in the world’s largest economies and structural improvements in those reaping the benefits of an increasingly globalized world. As we look forward to 2018, we know that volatility is here to stay but on the other hand, it looks as if recovery is as well, along with some countries’ better ability to withstand the storm.

Country Risk in 2017: https://edc.trade/country-risk-quarterly/?frompage=edm_2017_WC_e&elq_mid=2324&elq_cid=277296

EDC. 07/12/2017. Export Performance Monitor

The Export Performance Monitor is a monthly publication which tracks recent movements in Canadian exports by industry and geographic market. The insight also references our Global Export Forecast which is produced twice yearly.

FULL DOCUMENT: https://www.edc.ca/EN/Knowledge-Centre/Economic-Analysis-and-Research/Documents/export-performance-monitor.pdf



INTEREST RATE



The Globe and Mail. 7 Dec 2017. BoC stands firm on interest rates, keeping options open for 2018
BARRIE McKENNA, OTTAWA

Stephen Poloz is no closer to pulling the trigger on another interest-rate hike in spite of a run of good economic news.
The Bank of Canada Governor underscored the cautious tone as he kept the central bank’s benchmark overnight rate at 1 per cent on Wednesday – its final rate decision of 2017.
And Mr. Poloz offered no clear indication on Wednesday about when the bank might hike the rate again.
The Bank of Canada has already raised interest rates twice this year – in July and September – as it works to gradually return rates to more normal levels.
“While higher interest rates will likely be required over time, [the bank] will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation,” the bank said in a statement accompanying its rate decision. That sentence repeats nearly word for word the language of its statement in October, when the bank also left rates unchanged.

The Globe and Mail. 7 Dec 2017. BoC takes a cautious approach to rate increases
DAVID PARKINSON, Columnist

If you had read everything in the rate statement up to the appearance of “cautious,” you might have thought the Bank of Canada was ready to take a step toward another rate hike, not a step back.

Markets shouldn’t put too much weight into what they believe the bank is signalling ‘Cautious.” In a Bank of Canada interest-rate announcement that runs 385 words, that word – in the final sentence of
the statement – was the only one that really mattered to financial markets. To traders parsing the central bank’s latest communication, it not only justified the bank’s decision to hold its key rate steady at 1 per cent (which was universally expected), but signalled that the bank is also unlikely to raise rates at the next decision date, in mid-January.
It was the second time the Bank of Canada used “cautious”
to characterize its approach to future rate increases, after having raised rates twice in the summer. But it seems that the word is already considered, by
traders, at least, to be the bank’s shorthand for “no rates ahead until we stop saying this word.”
The evidence of that conviction was all over the markets on Wednesday. The bond market immediately reduced its pricing of the probability of a January hike to 25 per cent, from about 40 per cent the day before the announcement. The Canadian dollar duly tanked on the diminished interest-rate expectations; by late afternoon, it had lost eight-tenths of a cent against its U.S. counterpart.
Thing is, if you had read everything in the rate statement up to the appearance of “cautious,” you might have thought
the Bank of Canada was ready to
take a step toward another rate hike, not a step back. On most fronts, the central bank sounded more encouraged by economic developments. Global growth continues apace and the U.S. economy has been stronger
than expected. Business investment and government infrastructure spending are both
giving the Canadian economy a lift. Slack in the labour market is “diminishing.” Inflation has been rising – indeed, faster than previously anticipated, although
temporary factors are contributing. (When do they not?) The bank even squeezed in a sentence about the latest monthly
trade data – released just the day before, pretty much at the wire for inclusion in the rate announcement – to say the numbers support expectations
that export growth would bounce back from a tepid third quarter.
Yet “cautious” trumped all
that.
Usually, that’s the sort of
thing that would annoy the Bank of Canada. Its communications staff have been frustrated before by markets latching onto a single word or phrase, rather
than reading the entirety of its message and thus misreading
the bank’s intent.
But in this case, the bank has made it pretty clear that caution is quite central to its current
thinking. If anyone hadn’t
grasped the significance to the word when the bank introduced it to its rate statement in October, the bank’s second-in-command, Senior Deputy Governor Carolyn Wilkins, dedicated a substantial chunk of a speech last month to the need for a cautious approach to setting monetary policy amid uncertainty. Once you give a speech like that, you have to expect
that observers will be watching
that particular element of your communications especially closely – which, one has to conclude, was the bank’s intent.
And there are a few uncertainties that are approaching crunch time for Canada’s central bankers. They’re not entirely sure how the two rate hikes of earlier this year will affect economic growth, as the elevated levels of Canadian household debt may mean that higher rates will deliver a bigger-thanusual blow to consumer spending. They’re not sure how much slack remains in the labour market and to what degree it will
trigger wage inflation, which has been very slow to take hold in
this economic recovery. They’re not entirely confident how close
the economy is to full capacity –
the critical gauge for assessing how urgently rate increases are needed to keep the economy from overheating.
The granddaddy of all uncertainties is the threat of a NAFTA collapse. The Bank of Canada didn’t mention NAFTA by name in its rate announcement, but
there’s no doubt that it casts a shadow over its outlook for rate policy. If the central bank were
to get more aggressive in raising rates in the next few months and then the NAFTA talks were
to fall apart, it would almost certainly constitute an economic shock warranting a reversal of
those hikes – much the way the Bank of England cut rates in a rapid response to the Brexit vote. But Ms. Wilkins made clear in her speech that the bank has a distaste for reversing a ratehiking cycle once one has started.
Still, the markets need to use some caution in putting too much weight into what they believe the Bank of Canada is signalling. This is a central bank
that, in the past three years, has surprised markets not once but
twice with rate moves that were not foreshadowed in the bank’s communications. Governor Stephen Poloz has shown a willingness to act without sending advance signals, and has rarely allowed his policy to be defined narrowly by a specific word or phrase, or the absence thereof.
Mr. Poloz has spent much of his tenure in the governor’s office advising the markets to watch the economic data and

think for themselves. The next rate hike will come when the economic indicators have persuaded the Bank of Canada that it’s time – regardless of which word it uses to describe how it approached that decision.

________________

LGCJ.:
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