CANADA ECONOMICS

US TARIFFS ON STEEL AND ALUMINIUM IMPORTS

The Globe and Mail. 12 Jun 2018. Quebec backs aluminum, steel companies hit by U.S. tariffs
STEVEN CHASE, OTTAWA

Canadian Foreign Minister Chrystia Freeland, seen in Quebec City on Sunday, will visit Washington on Wednesday to accept Foreign Policy magazine’s Diplomat of the Year award.

Quebec is offering $100-million in loans and guarantees to steel and aluminum companies hit by recent U.S. tariffs, raising the possibility of trade complaints against Canadian firms.

Dominique Anglade, Quebec’s Economic Minister, told reporters in Montreal that the program came after aluminum and steel companies received feedback from clients who are not willing to pay the tariffs. “What they’re telling us is some of their contracts were cancelled,” she said, adding some had already slowed production.

Ten days ago, the United States imposed hefty tariffs on Canadian steel and aluminum imports, characterizing shipments from Canada as a threat to national security.

Over the weekend, the President threatened to impose 25-per-cent import taxes on foreign car and truck imports, a move that would devastate Canada’s auto industry.

Ms. Anglade said the impact of the tariffs on metals was felt more quickly than when the United States announced tariffs on softwood lumber in 2017.

The Quebec assistance could very well draw the ire of U.S. industry and trigger allegations of unfair subsidies, one veteran cross-border trade watcher said.

Daniel Ujczo, an Ohio-based trade lawyer with Dickinson Wright who has worked for both the Canadian and U.S. governments, said it’s possible U.S. metal companies could use the loan guarantees as the basis to ask for a new investigation of Canadian trade practices.

The Quebec aid to steel and aluminum firms is the first step by a Canadian government to make good on promises to help afflicted companies and workers since punitive U.S. import taxes took effect on June 1.

Unlike primary producers such as Rio Tinto, Alcoa and Aluminerie Alouette – which operate nine aluminum smelters in Quebec – smaller processors say they are not strong enough to absorb the 10-percent tariff.

Some small and medium-sized companies say that U.S. customers have already warned they will not pay the increased cost from the surtax.

The Trudeau government has said it will also support the two industries, but has yet to unveil any concrete measures.

Meanwhile, Ottawa is redoubling efforts to win friends and build influence in Washington despite threats and insults from U.S. President Donald Trump on the weekend that have roiled cross-border relations.

Foreign Affairs Minister Chrystia Freeland is visiting Washington on Wednesday and Thursday, where she will seek support in Congress to get talks on the North American free-trade agreement back on track and spare Canada from the tariffs on steel and aluminum and autos made in Canada.

Ms. Freeland will accept Foreign Policy magazine’s Diplomat of the Year award on Wednesday in Washington. She will also meet with members of the U.S. Senate Committee on Foreign Relations. It’s possible Ms. Freeland could end up meeting with U.S. Trade Representative Robert Lighthizer, as well. As of Monday, however, no get-together was scheduled, her office said.

Ms. Freeland talked to Mr. Lighthizer by telephone on Sunday and they both agreed they want to continue talking, a Canadian official said.

Fisheries Minister Dominic LeBlanc repeated the Liberal government’s pledge to offer assistance to affected Canadian steel and aluminum manufacturers and their workers. “We have been unequivocal. These tariffs imposed by the United States are unacceptable,” he said. “We will not stop working to support these sectors so vital to the economy of the whole country.”

Separately, Canada is taking steps to diversify trade beyond the United States.

International Trade Minister François-Philippe Champagne told the Commons on Monday that the federal government will introduce legislation before the House rises for the summer break to formally ratify the Trans-Pacific Partnership accord between 11 countries in the Pacific Rim including Canada, Japan, Malaysia and New Zealand.

NAFTA negotiators have not been meeting regularly for weeks and have no plans to resume regular talks. Late last month, Canadian officials told the Trump administration there were two U.S. demands they would never agree to in NAFTA: a sunset clause that would automatically terminate the deal in five years, and the abolition of the Chapter 19 disputeresolution panels. Ottawa is willing to negotiate on every other contentious area, including automotive content rules, government procurement and Canada’s protectionist supply-management system for dairy.

The Globe and Mail. 12 Jun 2018. OPINION. Not everyone is a fan of Trudeau. But when a bully tries to push our guy around, we know which side we’re on. We’re a peaceable people – until someone tries to push us around. Conservative and Liberal leaders alike are rallying behind Mr. Trudeau after U.S. President Donald Trump called him ‘very dishonest and weak.’
MARGARET WENTE

Mr. Trump and his trash-talking lackeys in the White House are like the schoolyard bullies who pick on the littlest kid because they think he’ll be the easiest to beat up.

We Canadians are a peaceable lot. But Donald Trump has finally made us mad. He came to Canada for the weekend, arrived late, left early … and slagged us on the way out the door. He called our Prime Minister “very dishonest and weak” and said he “acts hurt when called out.” That is not the way you treat a host.

Not everyone in Canada is a fan of Justin Trudeau. But he’s our guy. And when the biggest bully on the block tries to push our guy around, we know whose side we’re on. Even people who normally revile everything that Mr. Trudeau stands for have rallied to his side.

“Canada’s Conservatives continue to support the Prime Minister’s efforts to make the case for free trade,” tweeted Conservative Leader Andrew Scheer.

“I’m in complete agreement with the Prime Minister’s statement,” tweeted Alberta’s usually belligerent Jason Kenney.

“We will stand shoulder to shoulder with the Prime Minister and the people of Canada,” tweeted Doug Ford, the Liberal-loathing premier-designate of Ontario.

Mr. Trudeau is my guy, too. He asked “in what universe” Canada’s steel and aluminum could be considered a national-security threat. He pointed out that it’s “kind of insulting” to be called a threat to America, in a world when Canadian soldiers have fought side-byside with the United States. Canadians “are polite and reasonable,” he said, “but we also will not be pushed around.”

Mr. Trudeau’s wardrobe misadventure in India may have made him look pathetic and pandering, but today he looks like Captain Canada. The more that Mr. Trump insults him, the more popular he’s bound to get – for now, at least.

Mr. Trump and his trash-talking lackeys in the White House are like the schoolyard bullies who pick on the littlest kid because they think he’ll be the easiest to beat up.

“There’s a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump,” his trade adviser, Peter Navarro, said, sounding like some cutrate hit man. Mr. Navarro is outraged that the media only write about the steel tariffs imposed by the United States and ignore the outrageous tariffs that Canada plans to put on maple syrup. Seriously.

“It was a betrayal,” Larry Kudlow, the President’s chief economic adviser, said of Mr. Trudeau’s remarks. “He really kind of stabbed us in the back.” He even blamed Mr. Trudeau for undermining the summit with North Korea by making Mr. Trump look “weak.” That was ridiculous bluster. The truth is that Mr. Trump simply decided to get mad after the fact, because … because he felt like it.

In Mr. Trump’s reality-distortion field, facts mean nothing. All that matters is exerting dominance. “He’s like a velociraptor,” one former U.S. ambassador told The New Yorker. “If you don’t show him deference he kills you.” Mr. Trudeau didn’t show enough deference, so he decided to kill him.

As The New York Times’s top reporter Maggie Haberman explains, Mr. Trump is increasingly acting on instinct alone. His stronger aides have left, and the replacements are unwilling and unable to keep his instincts in check.

Chaos and conflict are exactly what Mr. Trump likes, and exactly what we can expect even more of. As Steve Bannon, his former adviser, told The Times, “This is how he governs, and this is his ‘superpower.’ ”

This unfortunate reality leaves Canada – and Captain Canada, as well – in a bind. The strongest bilateral relationship in the world is in a ditch and there’s no clear way to get out. Reasoning and logic won’t help. You might as well try to reason with a two-tonne two-year old with a tantrum.

Yet, getting into a full-blown trade war would be even worse. For most of the United States, it would be a minor inconvenience. But it would be a catastrophe for us.

The two main challenges of any prime minister are national unity and U.S. relations. It’s ironic that as U.S. relations collapse to the lowest point that anyone can remember, national unity has soared. But Canadians’ refreshing sense of solidarity probably won’t last forever. Mr. Trudeau has to find a way to pull the relationship out of the ditch without making it worse – preferably before the next election. It is now the toughest and most urgent assignment on his plate.

Meanwhile, we can slap all the tariffs we like on gherkins, maple syrup and bourbon. They might make us feel good. But they won’t make a difference.

The Globe and Mail. 12 Jun 2018. Globe Investor’s in-house market strategist, writes exclusively for our subscribers at Inside the Market. A trade war would be bad news for the loonie
SCOTT BARLOW, Columnist

International investors would look less favourably on Canada if further tariffs become likely.

Spat between Canada, U.S. could dramatically affect foreign investment at home and how BoC views monetary policy

Domestic bond markets, and by extension the loonie, are likely to provide the most accurate reflection of global investor concerns about a Canada/U.S. trade war.

The accompanying chart highlights the close relationship between Canadian and U.S. bond yields, and the Canadian dollar. The blue line represents the spread between two-year government of Canada and Treasury yields – the Canadian two-year yield minus the U.S. two-year yield. The loonie has tracked this spread extremely closely in recent years, more so than with oil prices.

Intensifying market fears of an economically damaging Canada/ U.S. trade war will change this chart dramatically by affecting foreign investment in Canada and also Bank of Canada monetary policy.

On May 18, Reuters reported that “foreign acquisitions [of Canadian assets] hit a quarterly record of C$60.7-billion in the first three months of the year.” In March alone, foreign investors bought $15.1-billion in Canadian securities, $8.9-billion of which was bonds.

This sizable influx of capital helped support the loonie as non-Canadian buyers of domestic assets exchanged their local currency into Canadian dollars to complete the transactions, providing a bid for the loonie on foreign exchange markets. Foreign buying also has a limiting effect on bond yields by supporting the price of bonds.

International investors would look less favourably on Canada if further tariffs become likely. Toyota Motor Corp., for instance, would be forced to rethink its planned $1.4-billion investment in Canadian manufacturing facilities when signs of trade sanctions on auto exports appear.

Using bond yields and derivative markets, Bloomberg calculates a 76-per-cent probability of a Bank of Canada interest rate hike on July 11. To a significant extent, this policy move is already reflected in higher domestic bond yields.

Bank of Canada Governor Stephen Poloz has mentioned traderelated uncertainties as a deterrent for broader Canadian investment previously, and as a reason for the central bank to remain cautious regarding the pace of monetary tightening. Any heightening of trade tensions would underscore this concern, potentially delaying rate hikes, putting downward pressure on Canadian bond yields and the loonie.

The good news is that Monday’s markets are almost completely ignoring the post-G7 political acrimony. The Canadian twoyear bond yield was lower by a meagre two basis points to 1.91 per cent at midday Monday and the loonie was exactly flat at 77 US cents.

I’m surprised at the lack of movement in the domestic dollar. I would have thought that the mere mention of “auto tariffs” by a U.S. president would send bond yields lower − as they price in the possibility of slower future economic growth − and a weaker loonie. The lack of volatility is likely a sign that markets believe the threat of further trade sanctions on Canadian goods is more bluster than substance.

Things are stable now despite the weekend’s cross-border bickering and petulance. Predicting the random policy initiatives of the current White House, however, has become an exercise as pointless as equity market return forecasts so a resumption of trade issues is a distinct possibility.

Canadian investors can expect that, by deterring both foreign investment and central bank rate increases, a rekindling of the border spat with our southern neighbour will have a weakening effect on yields and the Canadian dollar.

REUTERS. JUNE 12, 2018. Trump, in trade feud with allies, say won't let them take advantage of U.S.
Matt Spetalnick, David Brunnstrom

SINGAPORE (Reuters) - U.S. President Donald Trump on Tuesday kept up his feud with America’s closest allies over trade, saying he could not allow them to continue taking advantage of the United States.

Although he insisted he had a good relationship with Justin Trudeau, just days after blowing up a G7 summit the Canadian prime minister had hosted, Trump took another dig at him, saying the United States had a big trade deficit with Canada and that “a little balance” was needed.

Trump’s comments after a historic summit in Singapore with North Korean leader Kim Jong Un were the president’s most extensive on the matter since he tweeted that Trudeau was “very dishonest and weak” and raised the prospect of tariffs against auto imports, a move that would imperil the Canadian economy.

“We are being taken advantage of by virtually every one of those countries,” Trump told a news conference on Tuesday. “Look, countries cannot continue to take advantage of us on trade.”

Trump left a weekend Group of Seven summit in Canada early, then immediately announced he was backing out of a joint communique, torpedoing what appeared to be a fragile consensus on the trade dispute between Washington and its main allies.

The escalating clash cast a shadow over the Trump’s nuclear talks with Kim and led critics to question why the president was bashing U.S. partners while appearing to cozy up to one of Washington’s bitterest long-time foes.

Trump took time at his news conference to explain a photo that went viral from the G7 summit. It showed a seemingly glowering German Chancellor Angela Merkel and several other leaders appearing to confront a seated Trump.

“We finished the meeting, really everybody was happy, and I agreed to sign something,” Trump said. “And in fact the picture with Angela Merkel, who I get along with very well, where I’m sitting there like this ... we’re waiting for the document because I wanted to see the final document as changed.

“I know it didn’t look friendly,” Trump said. “I know it was reported sort of nasty both ways – I was angry at her, or she. But actually we were just talking, the whole group, about something unrelated to everything, very friendly.”

Trump said he decided to back out of the G7 communique after watching Trudeau’s closing summit news conference, at which he warned that Canada would not be pushed around on tariffs - a point the Canadian prime minister had made several times before.

“He’ll learn that’s going to cost a lot of money for the people of Canada. He’ll learn, he can’t do that,” Trump said.

Trump fired off a volley of tweets on Monday further venting anger at NATO allies, the European Union and Trudeau. Some of Trump’s aides also lashed out at the Canadian prime minister.

Trump’s extraordinary outburst in recent days appeared aimed at striking a chord with voters who support his “America First” agenda. “Not fair to the people of America! $800 billion trade deficit,” he tweeted on Monday.

In the same set of tweets, Trump said: “Justin acts hurt when called out!”

On Tuesday, Trump said: “We have a big trade deficit with Canada ... it’s close to $100 billion a year deal loss.”

However, the office of the U.S. Trade Representative has said the United States ran an $8.4 billion trade surplus with Canada in 2017.

Canadian officials have stressed the two countries’ extensive trading relationship and pointed out that Canada is the top export destination for 35 U.S. states and that 9 million jobs in the United States depend on trade with its northern neighbor.

Reporting by Matt Spetalnick and David Brunnstrom, Editing by Robert Birsel, Miral Fahmy and Gerry Doyle

G7

The Globe and Mail. 12 Jun 2018. U.K.’s May praises Trudeau for G7 summit. British PM commends ‘skillful chairing’ of Quebec meet-up, but dodges condemnation of U.S. trade adviser’s ‘place in hell’ comment. Ms. May said on Monday that the event ‘was a difficult summit with, at times, some very candid discussions.’
PAUL WALDIE LONDON

British Prime Minister Theresa May offered some support for Canadian Prime Minister Justin Trudeau in the fallout from the Group of Seven leaders meeting in Quebec, but she stopped short of condemning critical comments made by U.S. President Donald Trump’s trade adviser.

In a statement to the British House of Commons on Monday, Ms. May paid tribute to Mr. Trudeau for “his leadership and skillful chairing” of the G7 and added that the United Kingdom “fully intends to honour the commitments we have made” in the final communiqué. She added that “this was a difficult summit with, at times, some very candid discussions.”

However, Ms. May did not respond when Labour Party Leader Jeremy Corbyn asked her to condemn “the comments of President Trump’s trade adviser saying that, and I quote, there’s a special place in hell for Justin Trudeau?” During a television interview on Sunday, White House trade adviser Peter Navarro said that “there was a special place in hell for any foreign leader that engages in bad-faith diplomacy with Donald J. Trump and then tries to stab him in the back on the way out the door and that is what Justin Trudeau did.”

Ms. May ducked Mr. Corbyn’s question and when later asked by Conservative MP Crispin Blunt, “Trudeau or Trump?” she smiled and replied, “I’m not sure what activity he’s asking me to undertake with either of them.”

In her statement, Ms. May pointed out the importance of maintaining a dialogue with the United States and Mr. Trump. Britain and the United States continue to enjoy a special relationship, she said, which means that “when we disagree with the United States, and with the President, we’re able to tell them.”

And while she joined with Mr. Trudeau and other European leaders in opposing the U.S. decision to slap import tariffs on steel and aluminum, she urged continued dialogue.

“We need to avoid a continued tit-for-tat escalation,” she said. “That is why it was right that we had such an open and direct discussion at this summit. … As long-standing allies, we do not make progress by ignoring each other’s concerns, but rather by addressing them together.”

The British government has been eager to sign a trade deal with the United States after Britain leaves the European Union next year. Mr. Trump is also slated to visit London next month for a meeting with Ms. May and the Queen.

However, on Monday, several MPs expressed concerns about Britain reaching any deal with the United States given Mr. Trump’s recent trade actions against Canada, the EU and other countries.

Ms. May said the United States has already asked about negotiating a trade agreement postBrexit and she expressed confidence that the British government will be able to negotiate a fair arrangement. She also said that during the summit the leaders discussed Mr. Trump’s proposal for complete free trade among G7 member states, but said the issue was “fair trade. That means not just tariff-free, but also dismantling barriers to trade and it also means ensuring that there are no anti-competitive unfair subsidies,” she told MPs.

Ms. May also rejected Mr. Trump’s suggestion that Russia should be brought back into the G7. “There was a good reason the G8 became the G7 and that was because of Russia’s illegal annexation of Crimea,” she told MPs. “Any conversations about whether or not Russia will come back around the table cannot take place until Russia has changed its attitude.”

The Globe and Mail. 12 Jun 2018. OPINION. How Canada must manage Trump and trade. We need to stick together, act in tandem with like-minded countries and push back against protectionism
COLIN ROBERTSON, Former Canadian diplomat and current vice-president and a fellow at the Canadian Global Affairs Institute

So U.S. President Donald Trump wants a trade war. After the diplomatic disaster of the Group of Seven summit in Charlevoix, Que., it is now clear that for Mr. Trump it is not about leading – the traditional role of the U.S. President – but about winning at any cost. Relationships are not for cultivating, but only for using to Trumpian advantage.

Canada and like-minded countries need to stick together, act in tandem and push back against Trumpist protectionism. It means taking it to him where it hurts and targeting his base: in particular, the farm community. At the same time, we need to tell Americans, who will suffer job loss and higher prices, that they have only their President to blame.

For more than 500 days now, Justin Trudeau has made nice to Mr. Trump. The advice from former prime minister Brian Mulroney was correct – that the relationship with the president is the most important relationship for a prime minister and that Canada-U.S. relations, alongside national unity and national security, are the files that require a prime minister’s constant attention.

Among liberal democratic leaders, Mr. Trudeau was seen as the one who had the best relationship with Mr. Trump. He was the Trump whisperer. But Mr. Trump’s behaviour in Charlevoix, Que., was abominable.

The tweets before Charlevoix, Que., took personal shots at both Mr. Trudeau and French President Emmanuel Macron, the other leader who has cultivated Mr. Trump. The tweets afterward, insulting Mr. Trudeau, are beyond the pale. As Mr. Trudeau said, we are a polite people but we are not pushovers.

Canadians are justly outraged, but we have deep interests at stake, so we need to proceed with care and planning.

First, we need to get our act together domestically. Mr. Trudeau needs to consult with the premiers and business to get their advice on our retaliation list.

What is their assessment of increased protectionism on their province and industries? What about life after the North American free-trade agreement? We will be hurt. We will need to provide adjustment assistance for the afflicted.

But how would Americans like it if Canadians began to spontaneously boycott American goods, especially U.S. farm produce, and stopped travelling south for holidays?

Second, we need to take advantage of the free-trade deals that we already have in place and put real effort into matchmaking; business with business. As a matter of our national security (two can play this game), we should quickly pass the implementing legislation to bring the new Comprehensive and Progressive Trans-Pacific Partnership into effect.

With Canada’s implementation, the agreement would immediately come into force.

If this means keeping parliamentarians at work into July, so be it. Provincial legislatures may also have to be recalled. While they are at it, they should pass their enabling legislation for the Canada-Europe Comprehensive Economic and Trade Agreement. This is a matter of grave national economic urgency. Canadians need to see that their legislators are acting in the national interest.

Third, we need to act in tandem with our G7 partners and like-minded countries, such as Mexico, as we collectively retaliate to the recently imposed steel and aluminium tariffs.

Canada and Mexico learned the value of acting collectively when they worked together to persuade the U.S. Congress to rescind its protectionist countryof-origin labelling requirement in 2015.

American legislators respond to local pressure. They need to feel the heat of retaliation. Canada has a lot of allies, especially in the Republican congressional caucus. They don’t like Mr. Trump’s direction and are already moving to curb the trade powers that were ceded to the executive branch during Franklin Roosevelt’s administration. Hopefully, we will see then the beauty of the checks and balances at work. The U.S. founding fathers designed their system to prevent a president from becoming a king.

The more Mr. Trump attacks his fellow G7 and fellow democratically elected leaders, the more difficult it makes it for them to go along with him when it counts. That includes, however unlikely, a deal with North Korea.

The road that Mr. Trump is going down makes no economic sense. George W. Bush reluctantly imposed limited steel tariffs in 2002 (Canada was exempt) and lifted them a year later because it was costing American jobs, not creating them.

Canadians are used to compromise and consensus, especially in how we handle the relationship with Uncle Sam. Manage it well and we can tell them when their breath is bad.

Mr. Trump has a bad case of halitosis. We need to tell him so and serve him the bitter medicine he has brought on himself.

NAFTA

The Globe and Mail. 12 Jun 2018. Explained: How auto tariffs would devastate the industry. What’s at stake if the U.S. slaps tariffs on Canadian auto exports?
GREG KEENAN, AUTO INDUSTRY REPORTER

The imposition of U.S tariffs on Canadian-made vehicles and auto parts would blow apart the tightly integrated business model the North American auto sector has used for decades – putting tens of thousands of jobs at risk and striking a devastating blow to the industry.

The U.S. government is examining such tariffs, and fears that they will come to pass are rising in the wake of this weekend’s G7 Summit. President Donald Trump threatened again to impose duties on Canada’s auto sector after Prime Minister Justin Trudeau reiterated that new U.S. levies on Canadian steel and aluminum are unacceptable.

The United States is considering an auto tariff of 25 per cent, which would match the new U.S. tariff on steel from a number of countries, including Canada. But the auto sector is far more important to the Canadian economy – and there is an open question as to whether Canada would retaliate with a levy of 25 per cent on vehicles imported from the United States.

Tariffs on autos and auto parts would represent a major escalation of the trade battle and “could be the death blow to the [Canadian] auto industry,” said Kristin Dziczek, vice-president of industry, labour and economics at the Center for Automotive Research, an industry think tank in Ann Arbor, Mich. “If your major market puts a 25-per-cent barrier up, it’s just not tenable.”

Even if it’s not a death blow, the tariffs are sure to cause chaos: If a piston from Toronto or Guelph, Ont., is shipped to a U.S. engine plant then the engine is sent back to an assembly plant in Canada and the vehicle is transported back across the border, how many times is the tariff applied?

Prices of vehicles could soar. About 130,000 Canadians are directly employed in vehicle assembly and auto-parts making, thousands more at auto dealerships across the country; and two-way trade accounts for $140billion annually.

Mr. Trump could announce tariffs under the 1962 Trade Expansion Act as early as October, said Dan Ujczo, an Ohio trade lawyer.

At the heart of the issue is how the auto industry is structured in North America, which goes back to the 1965 Canada-U.S. auto pact, when the two governments agreed to free trade in vehicles and parts made in the two countries. That deal rationalized the industry so that vehicles no longer needed to be made in Canada solely for the Canadian market, which is about 10 per cent of the size of the U.S. market.

The industry was further rationalized on a continental basis through the North American free-trade agreement, which took effect in 1994. So now, vehicles and parts are made in each of the three countries for any or all of the Canadian, U.S. and Mexican markets and are shipped duty-free within the continent.

The result of that is that assembly plants in Canada supply mainly the U.S. market. It varies by manufacturer, but overall about 85 per cent of the 2.2 million vehicles made in Canada annually are shipped to the United States.

About $18-billion worth of parts made in Canada annually are shipped to U.S. assembly, engine or transmission plants.

About half the engine and transmission components made by Linamar Corp., Canada’s second-largest auto-parts company, are shipped to U.S. customers, chief executive Linda Hasenfratz said in an e-mail Monday.

Ms. Hasenfratz sounded an alarm about the impact of U.S. tariffs.

Consumers are hit with higher prices, which reduces demand and leads to significant job losses, she said.

“It is a downward spiral that has never resulted in prosperity. I agree trade should be fair; imposing massive cost onto industry and ultimately the consumer is not the way to get there.”

A tariff would be imposed at the factory level − or on average about $25,000 of the cost of a vehicle sold in the Canadian and U.S. markets − industry analyst Dennis DesRosiers said.

A 25-per-cent tariff would amount to $6,200 a vehicle on average, he noted.

As studies on steel tariffs have shown, Mr. Trump will be punishing his own voters. “It’s the American consumers that are going to have to pay this,” Mr. DesRosiers said.

But Canadian consumers would be affected if Canada responds with tariffs on U.S.-made vehicles. The manufacturers’ suggested retail price of the XLT version of the Ford F-150 pickup would rise to $37,649 from $31,449 if the $6,200 were added to the top line.

The F series is the best-selling vehicle in Canada and all versions of the truck are imported from U.S. assembly plants.

Doug Porter, chief economist of Bank of Montreal, said there’s little doubt that all vehicle prices will rise in the U.S. market in the worst-case scenario and investment in the auto sector in Canada would be hit hard.

The potential impact on U.S. consumers could be what stays the hand of the Trump administration, Mr. Porter said.

“The threat of tariffs and the uncertainty it would create for producers may alone achieve what the administration is aiming for − to prompt more investment to flow back into the U.S.,” he said.

The Globe and Mail. 12 Jun 2018. Bernier renews attack on Canada’s supply management system
LAURA STONE, PARLIAMENTARY REPORTER OTTAWA

[The uploaded chapter] is the same chapter that led Mr. Bernier to postpone his book indefinitely.

Conservative MP Maxime Bernier has renewed his call to end Canada’s supply-management system amid a heated trade dispute between the Trudeau government and U.S. President Donald Trump.

Mr. Bernier, a former Conservative leadership contender, uploaded to his personal website last week his book chapter criticizing supply management, which Mr. Trump has demanded be dismantled in trade talks.

The 27-page chapter chronicles Mr. Bernier’s fervent opposition to the supply-management system, which he calls “the total opposite of a free market.” It is the same chapter that led Mr. Bernier to postpone his book indefinitely in April after he suggested Conservative Leader Andrew Scheer won the party leadership with the help of “fake Conservatives” from the Quebec dairy lobby.

The move comes as the House of Commons unanimously agreed to an NDP motion on Monday to condemn the U.S. administration’s “illegitimate” import duties on steel and aluminum and pledging support for supply management, the system that regulates prices and production on dairy, eggs and poultry in Canada.

Mr. Bernier, who was in Ottawa on Monday, left the Commons for the vote. “I was not in the House at that moment,” Mr. Bernier wrote in a message to The Globe and Mail. “That is why it was unanimous.”

Mr. Bernier’s chapter was posted online just days before the Group of seven summit in Quebec, after which Mr. Trump blasted Prime Minister Justin Trudeau as “very dishonest and weak” and took aim at Canada’s dairy industry. “Our Tariffs are in response to his of 270% on dairy!”

Mr. Trump tweeted on Saturday. The chapter was posted for download on MaximeBernier.com on June 5, after the United

States imposed punishing tariffs on Canada’s steel and aluminum industries and the day after Mr. Trump accused Mexico, Canada and China of treating American farmers unfairly. “Canada has all sorts of trade barriers on our Agricultural products. Not acceptable!” Mr. Trump wrote on Twitter on June 4. The chapter was also uploaded the same day that Mr. Scheer, who supports supply management, accused Mr. Trudeau in Question Period of making concessions in trade talks with the Americans and being “incapable of standing up for our farmers.”

Mr. Scheer’s spokesman Jake Enwright wouldn’t comment on Mr. Bernier’s chapter.

The Prime Minister’s Office also had no comment. A spokesman pointed to previous statements saying the Trudeau government is strongly committed to supply management, although the Prime Minister’s recent comments in U.S. media that Canada was moving toward “flexibility” on U.S. access to certain agricultural products in Canada, including dairy, rattled the industry. As a show of support, Mr. Trudeau is set to meet with the Dairy Farmers of Canada on Tuesday.

MPs from all sides said Mr. Bernier’s decision to repost the chapter is not helpful during the Canada-U.S. trade spat.

Liberal MP Wayne Easter, who co-chairs the Canada-U.S. inter-parliamentary group, said it’s “inappropriate” for Canadians “to attack anything within Canada that would give Trump any credibility.”

NDP MP Charlie Angus said it is not the time for Canada to give into threats on supply management. “I would say to Maxime, just put a lid on it while we deal with this unprecedented attack from Donald Trump,” Mr. Angus said.

The Globe and Mail. 12 Jun 2018. EDITORIAL. Trump’s sour milk shakedown

Canada’s agricultural supply management system is an outdated, protectionist racket that uses tariffs and quotas to limit the country’s supply of dairy, eggs and poultry, and sets prices for them based on production costs instead of demand. If it survives to this day, it is due to the disproportionate political clout of a relatively small number of dairy farmers in Ontario and Quebec.

As a trade-related measure, it is now in the crosshairs of President Donald Trump. He has complained repeatedly in recent days about the high tariffs Canada charges on imported milk. He even blamed them for the recent U.S. decision to impose tariffs on imported steel and aluminum.

“Our Tariffs are in response to [Justin Trudeau’s] of 270% on dairy!” the President tweeted, in complete contradiction to his previous claim that the U.S. tariffs on steel and aluminum were imposed on Canada, the European Union and Mexico to protect national security.

Mr. Trump has also lately tweeted that he may impose ruinously high tariffs on cars made in Canada if Ottawa doesn’t renegotiate the North American free trade agreement on his terms. Because the U.S. has long wanted Canada to open its agricultural markets, some in Canada are now asking whether this might be the moment to acquiesce.

It is not. You can count this page among the voices that want to see supply management end. But Mr. Trump’s sudden interest in the tariff rate on one particular product is no reason for Canada to lurch into a bruising and divisive domestic battle over this issue.

In fact, Mr. Trump’s decision to spotlight Canada’s dairy tariffs should only be relevant to observers for what it reveals about his lack of understanding of free trade, and the hypocrisy and fakeness of his protectionist rhetoric.

To start, he has repeatedly lied and said the U.S. has a trade deficit with Canada. In fact, the U.S. had an US$8.4-billion surplus with us in 2017, when you count both goods and services, which is the proper metric. Mr. Trump prefers to look only at the goods part of the equation, in which case his country ran a US$17.5 deficit with Canada in 2017.

No one else reads it that way. The conclusion by sane economists in both countries is that trade between Canada and the U.S. is essentially in balance, a remarkable accomplishment given that the U.S. is our biggest trading partner and we are their second biggest.

Mr. Trump also prevaricates when he says, as he did last week, that “Canada is charging massive Tariffs” on U.S. goods. Canada, in fact, has one of the lowest average tariff rates in the world. It sat at 0.85 per cent in 2016, according to the World Bank – half as much as that of the U.S.

For the most part, goods stream back and forth across the border largely unbothered by tariffs and duties.

Yes, there are a few exceptions, such as the 270-per-cent tariff on surplus milk. But every country has its special cases. The U.S., for instance, applies whopping great tariffs on tobacco, sugar, light trucks and, wait for it, dairy products.

The U.S. also subsidizes its dairy industry to the tune of billions of dollars every year. And then there is this: Canada imports twice as much in dairy goods from the U.S. as it exports there every year – a trade deficit in milk products.

So why has Canada, and dairy in particular, become Mr. Trump’s favourite target, when trade with us is balanced, highly interwoven and efficient?

No one should be fooled into thinking milk tariffs are the issue. This is about the Trump administration getting fed up that its allies in Europe and Canada are arguing effectively against his justification for tariffs on steel and aluminum, as they did at the G7 summit in Quebec.

It’s also about Canada pleading its NAFTA case to Congress, state governors and U.S. media, something Mr. Trump’s trade adviser, Peter Navarro, called “not playing fair.”

Mr. Trump is losing control of his trade narrative, and his overwrought reaction isn’t helping. His strident attacks on Canada, in particular, have many government leaders scratching their heads. A difference of opinion on tariffs is simply not a reason to insult a steadfast ally.

Canada will debate the future of supply management on its own terms. In the meantime, our government should continue to tell the truth about the mutual benefits of free trade to those in the U.S. who are not impervious to facts, and to speak frankly about the consequences of trying to hurt us with unjustified tariffs.

REUTERS. JUNE 11, 2018. As Trump attacks, Canada goes to Plan B: same as Plan A
David Ljunggren

OTTAWA (Reuters) - U.S. President Donald Trump’s blistering attack on Canadian Prime Minister Justin Trudeau has driven bilateral relations to their lowest point in decades and left Ottawa with few options for averting a trade war with its much bigger neighbor.

Trump blew apart a G7 summit in Canada over the weekend, blasting Trudeau as “very dishonest and weak” and raising the prospect of tariffs against auto imports, a move that would imperil the Canadian economy.

His unexpected and extraordinary attack flummoxed Canadian officials, who have waged an 18-month campaign designed to cultivate allies among U.S. policymakers and business leaders in defense of Canada’s interests.

People close to the situation said they were disappointed the outreach had not been as productive as they hoped. The dispute weighed on the Canadian dollar on Monday.

Ottawa has promised to retaliate against Washington’s imposition of tariffs on metals imports from Canada, the largest supplier of steel to the United States. But Canada would face long odds winning a trade war against a country 10 times its size economically and which takes the majority of its exports.

“There is a limit to what we can achieve in Canada. The only people capable of persuading Trump to stop this are in the United States, but they have not hit anything like top gear,” said one person close to the matter.

In a sign of how limited their options are, Canadian officials said they planned to press harder with their U.S. lobbying campaign, focused on potentially sympathetic lawmakers outside the White House, while relying on support from allied nations and hoping Trump does not carry out all his threats.

Officials have stressed the two countries’ extensive trading relationship and pointed out that Canada is the top export destination for 35 U.S. states and that 9 million jobs in the United States depend on trade with its northern neighbor.

On Sunday, White House economic adviser Peter Navarro, who said there was “a special place in hell” for Trudeau, criticized the government’s outreach campaign, saying the Canadians should “spend more time at the bargaining table and less time lobbying Capitol Hill and our press and state governments.”

Canada’s limited options mean “there is no magical Plan B,” said University of Ottawa international affairs professor Patrick Leblond.

NEED ALLIES

Trump and his deputies lashed out at Trudeau for telling a news conference at the end of the G7 conference that Canada would not be pushed around on tariffs - a point the Canadian prime minister had made several times before.

“This has to be a political play. They surely cannot be that upset about what the prime minister said,” according to a second Canadian official.

Trudeau himself sidestepped questions about the attacks from Washington.

“We are not going to get involved in insults,” said a person

close to the prime minister. “We will continue to reach out and find people to speak to.”

Senior U.S. policymakers such as House of Representatives Speaker Paul Ryan have raised concerns with the White House about fellow Republican Trump’s trade policies, most recently the decision to impose the steel and aluminum tariffs.

Republican Senator Bob Corker said legislation would be introduced this week that would force Trump to obtain congressional approval before imposing tariffs on national security grounds.

But the response by U.S. lawmakers, business executives and officials falls short of the concerted and effective nationwide pressure campaign Canadian officials had hoped would be launched if a major threat developed.

A spokesman for Canadian Foreign Minister Chrystia Freeland said the government had built “valuable relationships” in the United States, from the administration to organized labor and would continue its outreach.

One new reason for optimism in Ottawa is a new-found strength in numbers. Trump’s steel and aluminum tariffs united the European Union, Canada, Mexico and Japan, which all vowed retaliatory measures. The countries coordinated closely on their response, Freeland said.

“Our economy is much smaller than that of the United States, which is why it was so important that other allies signed on,” said the second official.

Domestically, Trudeau has also received support from all corners, and is backed by all opposition parties.

Trump’s unpredictability and his history of not following through on all his threats lead some in the Canadian government to believe he might pull back from the auto tariffs threat.

“He talked about a border tax and didn’t impose it. He’s talked about pulling out of NAFTA but hasn’t done so,” noted the first source. “So we can always hope.”

Reporting by David Ljunggren; Editing by Peter Cooney

US INTEREST RATES

The Globe and Mail. BLOOMBERG. 12 Jun 2018. Blowback from U.S. trade wars poses threat to Fed forecasts
TIM DUY

The U.S. economy is charging through the second quarter at a growth rate that currently looks to be faster than 3 per cent, and I have argued that an interest-rate increase by the Federal Reserve this week and in September are basically a lock. What could go wrong with this forecast? Plenty.

For example, there’s the potential contagion from either an emerging-market or European financial crisis. Also, the economy faces an imminent threat from the Trump administration’s decision over the weekend to escalate an already ill-advised trade war. These events could roil the Fed’s plans, possibly leading to an early pause in the tightening cycle.

But we can’t rule out the possibility that a trade war has the opposite effect on monetary policy with toxic outcomes for financial markets. Currently, the Fed looks on course for three – and maybe four – rate hikes in 2018 of 25 basis points each. With economic growth sufficient to put downward pressure on an already low unemployment rate, central bankers will seek to push policy rates to a neutral level. Otherwise, the Fed believes the economy faces a risk of overheating.

Escalating trade battles potentially affect this forecast by causing demand to contract and supply shocks. An example of negative demand shocks are retaliatory tariffs on U.S. manufactured goods and farm products. If the United States’ trading partners focus primarily on tariffs that narrowly target companies in Republican leaning states – such as levies on Tennessee whisky, Harley-Davidson motorcycles and cheese – the overall impact on economic activity will be fairly minimal.

Narrowly targeted retaliation by our trading partners will thus induce more political and local pain than aggregate weakness. And note that some of the overall damage on manufacturing will be mitigated by the rebound in oil prices and associated increase in drilling activity. If the overall economic impact of such retaliation is minimal, so too will be the Fed’s response. To be sure, if the negative demand shock is stronger than I expect, the Fed will see diminishing risk of overheating and change policy in a more dovish direction.

More interesting than demand shocks, which have straightforward implications for policy, is the possibility that the Trump administration’s approach yields an escalating supply shock that restricts the productive capacity of the United States. Such shocks both constrain economic activity and raise prices. The U.S.-imposed tariffs on steel are a perfect example. Indeed, the possibility of a broad-based disruption from such tariffs is exactly why a country should be wary of targeting intermediate goods in a trade war.

It is tempting to conclude that the Fed will react to a negative supply shock via tighter policy, especially when central bankers already face the prospect of an overheated economy. This, however, will not be the case as long as the Fed believes inflation expectations remain well-anchored. Rather than shift to a more hawkish position, the Fed will look through any spike in prices as temporary and instead focus on the negative effects on economic activity. If they conclude that those negative effects will continue even after the price shock fades, central bankers might even shift to a more dovish position.

The Fed would be driven in the opposite direction if the economy faced a series of negative supply shocks, global trade conflicts escalate and those shocks trigger a change in consumer behaviour such that inflation expectations become tilted to the upside. That kind of shift occurred in the late 1960s, leading to the Great Inflation period. With that episode still looming large in the Fed’s psyche, policy makers would respond with a more hawkish policy position.

The last case represents a worst-case scenario for financial markets, in that it’s a toxic combination of faster inflation, weaker growth and tighter monetary policy. It would also put the Fed in the Trump administration’s crosshairs. I very much doubt U.S. President Donald Trump would sit quietly and respect the Fed’s independence if economic growth faltered. To be clear, this is not my baseline scenario. My baseline is that the scope of the trade effects in aggregate are too limited to change the direction of policy. But market participants should remain wary of risks to this baseline.

INVESTMENT

StatCan. 2018-06-12. Canadian portfolio investment abroad, 2017

Canadian holdings of foreign securities increased 15.2% to $2,042.7 billion at the end of 2017, the ninth consecutive year of growth following the 2008 global financial crisis. Gains on foreign stock markets as well as strong acquisitions of foreign equities by Canadian investors during the year led the increase in the value of these assets.

The growth was moderated, however, by an overall downward revaluation effect resulting from the fluctuation of the Canadian dollar against foreign currencies. The Canadian dollar appreciated against the US dollar (+7.0%) and the yen (+3.2%) in 2017, lowering the value of assets denominated in these currencies once converted back into Canadian dollars. The Canadian dollar depreciated against most other foreign currencies.

Canadian holdings of foreign securities were predominantly denominated in US dollars (64%) at the end of 2017, followed by the euro (9%), British pound (5%), Japanese yen (5%) and all other currencies (17%).

Chart 1: Canadian holdings of foreign securities

On an instrument basis, holdings of foreign equities were up $266.6 billion to $1,626.5 billion, mainly on higher foreign stock prices. These assets accounted for about 80% of Canada's total holdings of foreign securities and one-third of total international assets at the end of 2017. Meanwhile, holdings of foreign debt instruments edged up $2.6 billion to $416.2 billion.

Holdings of US securities rise sharply

On a geographical basis, the top three destinations of Canadian investment remained the United States, the United Kingdom and Japan, which together represented 71% of total portfolio assets at the end of 2017.

Canadian holdings of US securities were up 17.1% to $1,251.6 billion, led by gains in US stock prices and by strong purchases during the year. Canadian investors acquired $56.8 billion of US shares in 2017, coinciding with the strongest annual growth in US stock prices since 2013.

Chart 2: Canadian holdings of foreign securities, by major geographic area

Holdings of European securities were up 11.5% to $407.6 billion at the end of 2017. The value of investments rose in every major European country in the year, notably in France (+19.1%). Higher stock markets explained most of the gain.

Holdings of securities in Asia and Oceania were up 15.2% to $268.4 billion in 2017. Holdings have risen sharply in China, South Korea, India and Taiwan for five consecutive years, with the overall value of these investment growing by 22.9% in 2017.

Chart 3: Canadian holdings of foreign securities, selected Asian countries, 2013 to 2017

International comparisons

The composition of Canada's portfolio investment abroad in favour of equities also occurred in the United States. Canadian and US investors are therefore more exposed to fluctuations in global stock markets than debt markets. In contrast, countries such as Japan, Germany and France all have a higher share of their portfolio investment abroad in the form of debt securities as opposed to equities.

Canada is also among the top 10 holders of foreign equities in the world, with a level of assets comparable to Germany, Ireland and Hong Kong but well below the United States—by far the largest holder of foreign equities.

FULL DOCUMENT: https://www150.statcan.gc.ca/n1/en/daily-quotidien/180612/dq180612a-eng.pdf?st=ZHIV0-vh

ENERGY

StatCan. 2018-06-12. Crude oil and natural gas: Supply and disposition, March 2018

• Production of crude oil and equivalent products: 22.5 million cubic metres, March 2018, 10.7% increase (12-month change)
• Exports of crude oil and equivalent products: 17.9 million cubic metres, March 2018, 7.8% increase (12-month change)
• Source(s): Table 25-10-0063-01: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2510006301

Canada produced a record 22.5 million cubic metres (141.8 million barrels) of crude oil and equivalent products in March, surpassing the previous high of 22.4 million cubic metres (141.1 million barrels) in December 2017.

Crude oil production

In March, production of crude oil and equivalent products was up 10.7% from the same month a year earlier, as most facilities were operating near full capacity.

Production of non-upgraded crude bitumen (+10.7%), synthetic crude (+14.3%), light and medium crude (+8.7%) and equivalent products (+24.4%) was up compared with 12-months earlier. Meanwhile, heavy crude oil production was down 3.3%.

The increase of non-upgraded crude bitumen was primarily driven by higher mined production, up 26.7% to 7.4 million cubic metres. In-situ production edged up 0.4% to 7.7 million cubic metres, while crude bitumen sent for further processing increased 13.2% to 6.2 million cubic metres.

Chart 1: Production of crude oil and equivalent products

Crude oil extraction and oil sands extraction

Crude oil production (excluding equivalent products) totalled 20.7 million cubic metres in March, up 9.7% from the same month a year earlier. Oil sands extraction (formerly non-conventional oil extraction), which consists of non-upgraded crude bitumen and synthetic crude oil, increased 12.1% year over year to 14.3 million cubic metres. Oil extraction (formerly conventional oil extraction) of light, medium and heavy crude oils rose 4.7% to 6.4 million cubic metres.

Chart 2: Crude oil and oil sands extraction

Provincial production

Alberta produced 18.3 million cubic metres of crude oil and equivalent products in March, up 12.8% from the same month a year earlier. Alberta (81.2%), Saskatchewan (10.9%) and Newfoundland and Labrador (5.4%) accounted for the vast majority of Canadian production of crude oil and equivalent products.

Exports and imports

Exports of crude oil and equivalent products were up 7.8% to a record 17.9 million cubic metres in March. The increase was largely attributable to exports leaving Manitoba by pipeline (+5.2% to 12.8 million cubic metres), while exports from Newfoundland and Labrador (via marine tanker) surpassed 1.0 million cubic metres for the third consecutive month.

In March, exports transported via pipelines to the United States were up 4.9% from the same month a year earlier and accounted for 86.9% of total exports. Meanwhile, exports by other means (including rail, truck, and marine) to the United States, which accounted for 8.1% of total exports, were down 13.3%. This was only the second year-over-year decline in 12 months. The remaining 5.1% of exports went to countries other than the United States.

Imports of crude oil to refineries, which tend to be volatile, were down 15.6% to 2.6 million cubic metres.

Chart 3: Exports and imports of crude oil and equivalent products

Closing inventories

Closing inventories of crude oil and equivalent products totalled 19.1 million cubic metres in March, down 1.2% from the same month a year earlier. A drop in inventories held at refineries (-18.0% to 3.4 million cubic metres) offset higher inventory levels held by transporters (+3.2% to 12.8 million cubic metres) and fields and plants (+4.1% to 2.9 million cubic metres).

Crude oil production rises in the first quarter

For the quarter ending March 31, 2018, production of crude oil and equivalents totalled 64.4 million cubic metres, up 5.8% compared with the same quarter of 2017. The increase was largely due to higher production of non-upgraded crude bitumen and equivalent products.

During the quarter, exports of crude oil and equivalents increased 5.3% to a record 51.2 million cubic metres. First quarter exports averaged 80.0% of total production from 2016 to 2018, up from 75.3% in the first quarters from 2011 to 2015.

Natural gas increases in March

Canadian marketable natural gas production continued its upward trend, rising 4.3% from the same month a year earlier to 15.1 billion cubic metres in March. Production of natural gas was concentrated in Alberta (69.1%) and British Columbia (28.9%).

Closing inventories of natural gas decreased 13.2% from the previous March, primarily due to a 16.4% increase in industrial consumption. A 4.3% decline in exports partially offset the overall increase in distributed natural gas.

Additional information on natural gas is available in "Natural gas transmission, storage and distribution," published in The Daily on May 29, 2018.

Natural gas reaches record high in the first quarter

Marketable production of natural gas rose 5.6% year over year to a record high 43.9 billion cubic metres in the first quarter.

FULL DOCUMENT: https://www150.statcan.gc.ca/n1/en/daily-quotidien/180612/dq180612b-eng.pdf?st=Uh9KqfZu

Natural Resources Canada. 2018-06-11. Minister Carr to Attend G20 Energy Ministers Meeting

BARILOCHE, ARGENTINA — Canada’s Minister of Natural Resources, the Honourable Jim Carr, will travel to Bariloche, Argentina, to represent Canada at the G20 Energy Ministers Meeting from June 12 to 16, 2018.

During his visit, Minister Carr will support Argentina as a co-chair, along with Brazil, at the G20 Energy Ministerial and participate in a panel at the World Energy Leaders’ Summit.

Minister Carr will hold bilateral meetings with key G20 government representatives and will highlight the importance of multilateral collaboration as we transition to a low-carbon economy.

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LGCJ.: