Trudeau either target or example as his play-nice Trump strategy yields a trade war over lumber

Justin Trudeau has always played nice with Donald Trump. The refugee-hugging liberal bit his tongue, flooded Washington with envoys, feted Ivanka Trump on Broadway and relentlessly talked up Canada-U.S. ties.

It hasn’t worked.

On Monday, Trump teed off a fresh trade war by slapping tariffs of up to 24 per cent on Canadian softwood lumber as battles brew over the North American Free Trade Agreement and the dairy industry. After winning praise for his Trump strategy, with Angela Merkel and others pressing the Canadian prime minister for advice, Trudeau finds himself a target — or an example.

“Think of this as the violin Trump gets to play and set the mood of the place,” said Eric Miller, a former Canadian diplomat who is now a Washington-based trade consultant with the Rideau Potomac Strategy Group. “It’s a great way to underline America First to the Europeans, Japanese and others, if you actually take a hard line with Canada.”

Canada is hardly a poster-child trade offender for Trump. It’s the number-one buyer of U.S. goods with a largely balanced trade relationship, a peaceful next-door neighbor and among the closest U.S. allies. Trudeau moderated his message, re-calibrated his domestic agenda to court Trump and even helped him dial back G-20 commitments on trade. Trump himself pledged only a “tweaking” of ties before turning on Canada this month.

Wooing the White House

Though Canada wasn’t an early Trump target and a softwood battle has long been expected, Trudeau’s government took nothing for granted. Trudeau appointed a new foreign minister, Chrystia Freeland, as his Trump lieutenant and set up a swat team in his office to manage ties. The core tenets of Trudeau’s strategy — revealed in multiple conversations with Canadian government officials — are simple enough: come to Trump’s doorstep, flatter him, court his top aides and find back-channel intermediaries. 

Those brokers included Fairfax Financial Holdings Ltd. Chairman Prem Watsa, Power Corp. Chief Executive Officer Paul Desmarais Jr., former newspaper magnate Conrad Black and former Prime Minister Brian Mulroney, according to the officials. “I said that Mr. Trump had nothing but goodwill toward Canada, and wished only slight changes to U.S.-Canada free trade, and that the two personalities would be entirely compatible,” Black said by email last month.

The early signs from the U.S. were positive. A Trump adviser flew to Alberta in January to preach calm to Trudeau’s cabinet. Canada’s ambassador, David MacNaughton, praised the White House, saying “they’ve been delightful to deal with.”

But it was early days. During one visit, MacNaughton arrived to a White House without staff, furniture or a full complement of televisions, according to two officials. He asked for a coffee and was told the White House didn’t have a coffee maker yet. So Canada took that early optimism cautiously.

Mark Wilson/Getty Images

Mark Wilson/Getty ImagesJustin Trudeau helps Ivanka Trump with her chair during a roundtable discussion on the advancement of women entrepreneurs and business leaders at the White House February 13, 2017 in Washington, DC.

The First Daughter

Even before inauguration, Trudeau had been dispatching chief-of-staff Katie Telford and principal secretary Gerald Butts for secret meetings with Trump aides including strategist Stephen Bannon, son-in-law Jared Kushner, chief-of-staff Reince Priebus and economic adviser Gary Cohn.

Rarely a day has since gone by without a Canadian minister in Washington. Trudeau’s office keeps an Excel spreadsheet of congressmen and governors, systematically aiming to meet each one to triangulate Canada’s case on trade — all while saying they live in fear they’ll wake up to a Trump tweet aimed north, as they did on Tuesday.

Even Trump rivals are being lobbied, to be safe. Marc Garneau, Trudeau’s transport minister, met with Jeb Bush last week at a Panera Bread outlet in Florida. “He said, ‘you’re doing exactly what you need to be doing,’” Garneau later said.

The Canadians have placed particular emphasis on the president’s daughter. When Trudeau visited the White House in February, Telford suggested holding a round-table of women business leaders with Ivanka Trump. She joined Trudeau again a few weeks later at a Canadian musical on Broadway — one, incidentally, based on the story of Canadians welcoming American travelers during the Sept. 11 attacks. Trudeau’s officials privately say Kushner and Ivanka Trump are their go-to White House officials. Merkel is now wooing the first daughter, too.

“You’re trying to build a relationship from scratch,” Richard Boucher, a senior fellow at Brown University and longtime U.S. diplomat, said in an interview last month. “It just shows how back to square one we are — everyone is — with this president.”

‘Bad Week’

Trump announced the countervailing softwood duties Monday to conservative media outlets, a key conduit to the base of Trump’s America First message. A week earlier, Trump blasted Canada’s system of protectionist dairy quotas — even though the U.S. still sells far more dairy to Canada than it buys.

In a Bloomberg interview last week, Trudeau said Canada is not “the challenge” for U.S. dairy producers — and that he finds Trump more flexible than some world leaders. “He will take a different position, if it’s a better one, if the arguments win him over,” Trudeau said.

Speaking in a radio interview Tuesday, the prime minister called the U.S. softwood spat “nothing new.”

There are reasons for optimism. Trump’s bark on trade is often worse than his bite, and some expected lumber duties to be higher. Monday’s move was largely predictable — “the rerun of a movie I have seen too many times,” former Canadian ambassador Derek Burney said. Canadian lumber stocks rallied in early trading Tuesday.

Meanwhile, Trump remains cool to Paul Ryan’s border-tax proposal, which would be devastating to Canada. A softwood standoff isn’t surprising — Trudeau got along famously with Barack Obama, but couldn’t extend a deal that expired in 2015. But the manner of its announcement is sure to rattle the Canadians. Commerce Secretary Wilbur Ross’s statement on Monday night wrapped lumber, dairy and NAFTA all into one.

“It’s been a bad week for U.S.-Canada relations,” said Ross, a friend of both Mulroney and Freeland. “This is not our idea of a properly functioning free trade agreement.” Despite the U.S. benefiting from the status quo — Canada often has a trade deficit with the U.S. outside of oil, its lumber makes U.S. homes cheaper, and the dairy market is tilted in the U.S.’s favor — trade tensions are near a boiling point.

T.J. Kirkpatrick/Bloomberg

T.J. Kirkpatrick/BloombergWilbur Ross, U.S. commerce secretary, says "It's been a bad week for U.S.-Canada relations."


‘Sleeping with an Elephant’

It’s also a cautionary tale for other world leaders such as Merkel, Theresa May and Shinzo Abe who have worked hard to strike up a good relationship with Trump after an election campaign that stirred fears about the president’s commitment to free trade and the western military alliance.

Canada pledged legal action while criticizing the “unfair and punitive duty,” saying it will raise the cost of U.S. homes. It’s also threatening to pivot away, responding to duties by highlighting efforts to sell more lumber to China.

“Canada will continue to press their American counterparts to rescind this unfair and unwarranted trade action,” Freeland and Natural Resources Minister Jim Carr said Monday night in a statement. “We remain confident that a negotiated settlement is not only possible, but in the best interests of both countries.”

Canada looks set to stick to its play-nice strategy, and Trudeau had fair warnings on all this. His father, former prime minister Pierre Trudeau, famously described Canada-U.S. relations as “sleeping with an elephant,” with Canada “affected by every twitch and grunt.” This elephant is now wide awake.

Bloomberg News

CPPIB inks US$4.3B deal with investment manager to take international school company private

TORONTO — The Canada Pension Plan Investment Board and Baring Private Equity Asia have signed a deal to take Nord Anglia Education private in a transaction that values the international school company at US$4.3 billion, including debt.

The cash offer of $32.50 per share represents a premium of 17.7 per cent to Nord Anglia’s Monday closing on the New York Stock Exchange.

Hong Kong-based Nord Anglia has 43 schools that teach a total of 37,000 students from kindergarten through to the end of high school in China, Europe, the Middle East, North America and Southeast Asia.

CPPIB said the deal is its first direct equity investment in private education.

Baring Private Equity Asia controls 67 per cent of Nord Anglia.

Funds affiliated with the investment manager have been investors in Nord Anglia since August 2008 when they completed a previous privatization transaction with company management.

The deal includes a so-called go-shop period, during which Nord Anglia can evaluate proposals from other buyers for 30 days.

In March, CPPIB, along with Singapore wealth fund GIC and property owner Scion Group LLC, said their joint venture had bought three U.S. student housing portfolios for about $1.6 billion.

The transaction is subject to shareholder approval and customary closing conditions.

With a file from Thomson Reuters

Metro Inc’s surging profit beats expectations as cost controls pay off

TORONTO — Profits surged at Metro Inc. in the second quarter as the grocery retailer controlled its operating expenses through a period of corrosive food price deflation.

The Montreal-based grocer reported a 10 per cent boost in per-share earnings Tuesday to 56 cents, or $132.4-million, compared with profit of 51 cents ($124.9 million) in the second quarter of 2016, beating average analyst estimates of 53 cents, according to Thomson Reuters data.

Revenue nudged up 0.7 per cent to $2.9-billion from $2.88-billion in last year’s quarter.

Same-store sales, a measure of retail sales performance that strips out square footage changes, rose 0.3 per cent, compared with five per cent last year.

The company said its average food basket experienced two per cent deflation, compared inflation of three per cent a year ago.

“We are pleased with our second quarter results that show sales, net earnings and tonnage growth against a background of food deflation and intense competition,” chief executive Eric La Flèche said in a statement.

“This growth reflects our effective execution and strong expense control.”

The company also confirmed it would acquire the remaining minority interest of Quebec-based ethnic food chain Adonis and its distributor Phoenicia Products as part of an agreement it made in 2011 when Metro bought a 55 per cent stake in the niche supermarket.

Great-West Lifeco to cut 1,500 jobs, 13% of its workforce, as industry competition heats up

WINNIPEG — Great-West Lifeco says it will cut 1,500 positions over the next two years in response to changing technology and customer expectations.

The cuts are equal to 13 per cent of the Winnipeg-based company’s 12,000 employees in Canada.

Great-West says the job cuts are part of a transformation of its business as it faces heightened competition.

More to come …

08:04ET 25-04-17

Canada vows to fight ‘unfair and punitive duty’ as Trump slaps 20% tariff on softwood lumber

U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24 per cent on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed.

Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3 per cent to 24.1 per cent on Canadian lumber producers including West Fraser Timber Co.

“We’re going to be putting a 20% tax on softwood lumber coming in — tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering, a White House correspondent for Breitbart News. A White House official confirmed the comment.

The step escalates an economic battle among neighboring countries that normally have one of the friendliest international relationships in the world. U.S. Commerce Secretary Wilbur Ross amplified Trump’s remarks in a statement afterward that also referenced a fight over a new Canadian milk policy that U.S. producers say violates NAFTA.

“It has been a bad week for U.S.-Canada trade relations,” Ross said, adding “it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States.” He said the Commerce Department “determined a need” because of unfair Canadian subsidies to the lumber industry to impose “countervailing duties of roughly one billion dollars.”

In a dig at the North American Free Trade Agreement, which Trump has said he wants to renegotiate, Ross added, “This is not our idea of a properly functioning Free Trade Agreement.”

Canada Response

Canada fired back, saying the tariff is an “unfair and punitive duty” imposed on “baseless and unfounded” allegations, according to a joint statement from Foreign Minister Chrystia Freeland and Natural Resources Minister Jim Carr. The measures will hurt workers on both sides of the border and will raise U.S. home prices, they said.

Canada “will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation,” the ministers said, adding they nonetheless “remain confident that a negotiated settlement is not only possible but in the best interests of both countries.”

The Canadian dollar dropped to a 4-month low against the U.S. dollar after Trump announced the tariff, trading down 0.40 per cent to C$1.356. The loonie traded at 73.8 U.S. cents.

In the latest chapter of a trade dispute that has been simmering for decades, the U.S. Department of Commerce in a preliminary determination Monday said it has calculated that Canada subsidizes Canfor Corp. by 20.26 per cent; West Fraser Mills Ltd. by 24.12 per cent; Tolko Marketing and Sales Ltd. and Tolko Industries Ltd. by 19.5 per cent; Resolute FP Canada Ltd. by 12.82 per cent and J.D. Irving Ltd. by 3.02 per cent. It set a preliminary subsidy rate of 19.88 per cent for all other producers in Canada.

Anti-Dumping

The so-called countervailing duties, which counter what the U.S. considers Canadian subsidies, came in below some analyst expectations. CIBC analyst Hamir Patel forecast the initial combined countervailing and anti-dumping duties could reach 45 to 55 per cent, he said in an April 23 note. The U.S. may also apply anti-dumping duties if it determines Canadian firms are selling for below costs. That decision is expected in June.

“It definitely could’ve been a heck of a lot worse,” Kevin Mason, managing director of ERA Forest Products Research said by phone from Kelowna, British Columbia. “I think a lot of people were bracing for a higher duty.”

Canadian companies such as Vancouver-based West Fraser and Canfor Corp. will be able to weather the current duty level as lumber prices are high, Mason said. Lumber prices may actually decline in order to curtail Canadian shipments to the U.S., he said.

The duties are unwarranted and the determination “is completely without merit,” Susan Yurkovich, president of the B.C. Lumber Trade Council, said in a statement. The allegations are the same made in previous softwood trade battles which were rejected and overturned by independent NAFTA panels, she said.

The industry group represents companies such as Canfor, West Fraser and Interfor Corp.

“This new trade action is driven by the same protectionist lumber lobby in the U.S. whose sole purpose is to create artificial supply constraints on lumber and drive up prices for their benefit, at the expense of American consumers,” Yurkovich said.

A detente in the lumber trade dispute expired in October, and a new agreement isn’t on the horizon. That’s contributed to a more than 20 per cent surge in wood prices since the U.S. election.

Old Dispute

Since the early 1980s, the U.S. has argued with Canada over how much softwood lumber the country’s suppliers can sell in the U.S. and at what price. The two nations have negotiated temporary agreements in previous years over softwood, which comes from trees that have cones, like pine or spruce, and is preferred by builders for constructing home frames.

But hammering out a new deal has been slow-going for the Trump administration, which still doesn’t have its chief trade negotiator in place.

After the latest deal lapsed, a group including U.S. timber companies petitioned an independent government agency and the U.S. Commerce Department for duties on lumber imports from Canada, saying the country unfairly subsidizes its own industry, costing profits and jobs.

While signing an executive order Thursday on steel imports, Trump digressed to note that during a trip to Wisconsin earlier in the week, he’d called Canada’s cutting of prices of dairy ingredients “a disgrace” that’s hurt farmers in Wisconsin and New York. He added that the “disgrace” extended to “what’s happening along our northern border states with Canada, having to do with lumber and timber.”

Higher Costs

While beneficial for U.S. lumber suppliers, tariffs could lead to even higher costs for companies that buy wood, such as builders and mattress makers, which use it in box springs.

Most of the softwood in Canada is owned by provincial governments, which set prices to cut trees on their land, while in the U.S. it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, U.S. producers say. Canada disputes that.

Robert Lighthizer, Trump’s nominee to be the next U.S. Trade Representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the U.S. and Canada. Oregon Democratic Senator Ron Wyden told Lighthizer the fight is the “longest-running battle since the Trojan War.”
Bloomberg.com

Hamilton, Lindsay and Thunder Bay first in Ontario to receive guaranteed minimum income in three-year pilot project

HAMILTON — Residents of Hamilton, Lindsay and Thunder Bay will be the first Ontarians to receive a guaranteed minimum income as part of a new provincial pilot project.

Premier Kathleen Wynne announced the details of the province’s three-year basic income project today in Hamilton.

She said the level of support starts at just under $17,000 a year for single people, and while that isn’t extravagant, she says it will make a real difference in people’s lives.

The government consulted former senator Hugh Segal for advice on building the pilot project.

Segal said the basic income should replace Ontario Works and the Ontario Disability Support Program payments, but be slightly more generous, and it should come with less monitoring and administration than those programs.

The Liberal government announced the pilot project in the 2015 budget.

Donald Trump says long-awaited tax reform to be announced Wednesday

WASHINGTON — President Donald Trump, signing executive orders calling for a re-examination of some Obama-era financial regulations, said on Friday he would have a major tax reform announcement next week.

“We’ll be having a big announcement on Wednesday having to do with tax reform. The process has begun long ago but the reform will begin on Wednesday,” Trump said at the U.S. Treasury Department.

Crude just dropped below $50 a barrel as oil’s worst week in a while gets worse

Oil dropped below US$50 a barrel as growing U.S. crude production hinders OPEC-led efforts to ease a global supply glut.

Front-month futures in New York are down more than 6 per cent this week. While a number of exporters have reached an initial deal to extend the curbs past June, according to Saudi Arabian Oil Minister Khalid Al-Falih, data showing rising U.S. output is raising concern that those cuts will be undermined. OPEC and its allies have failed after three months of cuts to achieve their target of trimming global supplies below the five-year historical average, Al-Falih said.

“The drumbeat of bearish data continues to put pressure on the market,” Michael Cohen, head of energy commodities research at Barclays Plc in New York. “The bulls don’t have much of a leg to stand on now.”

Oil’s rally has faltered after three straight weekly gains on expectations the Organization of Petroleum Exporting Countries and its allies will extend its supply reductions. Prices dropped 3.8 per cent on Wednesday after data showed U.S. crude production rose for a ninth straight week, even as stockpiles continued to decline from a record.

West Texas Intermediate for June delivery dropped US$1.07, or 2.1 per cent, to US$49.64 a barrel at 11:12 a.m. on the New York Mercantile Exchange. Total volume traded was about 16 per cent below the 100-day average. The May contract expired Thursday down 17 cents at US$50.27, the lowest close for front-month futures since April 3.

Brent for June settlement slipped US$1.01, or 1.9 per cent, to US$51.98 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a US$2.34 premium to WTI.

“It all comes down to whether OPEC can deliver inventory cuts,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “So far we haven’t seen a lot of evidence that they’re succeeding.’

Gulf Cooperation Council countries agreed to push for an extension to the OPEC-led cuts in a meeting on Wednesday, Oman Oil Minister Mohammed Al Rumhy said in an interview in Abu Dhabi.  Libya’s El-Feel oil field is ready to resume production after a two-year halt in operations that crimped the OPEC nation’s output, but there’s a problem: It doesn’t have enough electricity to pump the crude.

Bloomberg.com