U.S. striving to create ‘more painful’ trade environment to lower barriers, level playing field: Ross

WASHINGTON — Commerce Secretary Wilbur Ross said on Thursday the United States needs to make it harder for its trading partners to have high trade barriers in order to achieve President Donald Trump’s ultimate goal of lower barriers and a level playing field.

“What we have to do is create an environment where it’s more painful for these parties that have these huge trade barriers, both tariff and non-tariff, got to make it more painful for them to keep those barriers than to get rid of them,” he told CNBC.

“In the particular case of China, it’s compounded by their disrespect of intellectual property, the forced technology transfers, the cybersecurity breaches.”

Trump this week expanded the amount of Chinese imports possibly facing new duties. He threatened on Monday to hit US$200 billion of Chinese imports with 10 per cent tariffs if Beijing retaliated against his previous target of US$50 billion in imports, aimed at pressuring China to stop stealing U.S. intellectual property.

The growing trade conflict hit financial markets hard, with Beijing accusing the United States of “extreme pressure and blackmailing” and vowing to retaliate. With both sides upping the ante, the risks of a damaging trade war grew dramatically.

In the CNBC interview, Ross downplayed the impact of tariffs on steel and aluminum imports from Canada, Mexico and the European Union that Washington imposed last month, saying they would not have a huge impact on product prices and the overall economy.

Those tariffs, Ross said, had induced other countries to take similar action against dumping.

“After we put those in, suddenly Europe started a whole bunch of safeguard actions to protect their own borders against dumping of steel and aluminum,” Ross said. “Before we put our tariffs, they hadn’t done that. Similarly Japan.”

“It may sound strange but the fact that we put tariffs on the goods coming out of them has modified their behaviour and has induced a pretty high degree of international cooperation against dumping,” he said.

© Thomson Reuters 2018

How Mexico’s tariffs on U.S. pork could hammer Canadian producers too

Mexico’s retaliatory tariffs on U.S. pork could inadvertently disrupt the Canadian market, dragging down live hog prices for farmers and squeezing sales south of the border.

In an example of how tariffs targeted at one specific NAFTA country can rattle the others, analysts and industry players say the pork levies hitting the U.S. will distort long-established trade patterns in a manner that hurts all three economies.

“The problem is we’re a highly integrated market and meat moves among the countries based on demand,” said Gary Stordy, director of government and corporate affairs at the Canadian Pork Council. “Those traditional flows are rarely disrupted but when they are, the impact is felt by our producers very quickly.”

U.S. President Donald Trump’s tariffs on steel and aluminum imports have prompted a wave of retaliatory measures from other countries including Mexico, the largest market for U.S. pork exports by volume. As part of its tit-for-tat response, Mexico announced an initial 10 per cent tariff on imports of unprocessed U.S. pork, a levy that will rise to 20 per cent on July 5.

Meanwhile, China — locked in its own escalating trade battle with the U.S. — has vowed to raise existing import duties of 12 per cent on pork products by another 25 per cent. The products affected by the tariffs include “variety meats,” the elbows, ears and feet that have little value in the United States but are in high demand in China, the third largest export market for U.S. pork.

Not surprisingly, the trade uncertainty is already hammering producers south of the border, with hog futures tumbling by US$18 per animal between March and May, a $2.2 billion annualized hit on the industry, according to the U.S.-based National Pork Producers Council (NPPC).

“The toll on rural America from escalating trade disputes with critically important trade partners is mounting,” said Jim Heimerl president of the NPPC. “Mexico is U.S. pork’s largest export market, representing nearly 25 per cent of all U.S. pork shipments last year. A 20 per cent tariff eliminates our ability to compete effectively.”

In theory, Canadian producers could benefit from all this upheaval by stepping in to fill the void in the Mexican and Chinese markets. Indeed, U.S. suppliers shipped US$1.5 billion worth of pork products to Mexico last year while Canada’s pork industry exported just $194 million to Mexico. With U.S. producers saddled by tariffs “Canada could take over as the main source of supply,” said Kevin Grier, an independent market analyst for the food industry.

But just as Canada could send more ham to Mexico, the U.S. would likely send more ham to Canada, Grier said. And with the U.S. facing a potential surfeit in supply, Canada’s exports south of the border would be curtailed. Last year, Canadian producers sent $1.4 billion worth of pork to the U.S., their largest export market. The U.S. shipped US$792 million worth of pork to Canada, its fourth largest market.

“U.S. hams that might have gone to Mexico could come here instead of going to the place of highest demand,” Grier said.

Those disruptions to trade patterns can’t help but make markets less efficient and drive up prices for customers, said Dermot Hayes, an economist and chair in agribusiness at the University of Iowa.

“It’s a waste of transportation and it’s a waste of money,” he said. “For more Canadian ham to get to Mexico it’ll have to be shipped somehow and across much further distances.”

And the tight integration of NAFTA markets means that as U.S. producers suffer, so will their Canadian counterparts, Hayes added. Canadian live hog prices are tied by a formula to those in the United States, “so if U.S. hog prices fall, Canadian prices will follow,” he said. For example, as China slaps a tariff on U.S. variety meats in retaliation for Trump’s tariffs, the resulting decline in live hog prices will hit Canadian producers, too.

“Every mistake the U.S. makes on this issue translates into damage to Canada, even if Canadians don’t make the same mistake,” Hayes said.

Though a decline in live hog prices might mean lower prices for Canadian packers – who buy live hogs and package them into products, it’s unclear how long that advantage might last, Grier said. An increase in wholesale prices at the packer level could ultimately result in higher prices for consumers, though that could be offset by a significant increase in U.S. products coming into Canada.

“The Mexican action could simply drive down all ham prices,” he said.

Couldn’t Canadian producers take advantage of the gap in the Chinese market? Unlikely, analysts say. Demand from China has already been softening, the country is boosting its domestic supply and some analysts say it is more likely to turn to the European Union to fill its remaining needs.

“All those variety meats that once went to China will now be destroyed,” said Hayes. “It’s a massive waste of resources.”

• Email: npowell@nationalpost.com | Twitter:

Progress made in modernizing NAFTA will make it easier to trade, says Freeland

MONTREAL — Foreign Affairs Minister Chrystia Freeland says progress made in negotiations to modernize NAFTA will make it easier for companies to conduct trilateral trade.

After speaking to a Montreal business audience, the minister told reporters that the nine modernization chapters concluded in the renegotiation of the North American Free Trade Agreement will cut red tape that has made it a hassle to conduct cross-border trade.

Freeland says modernization of the 24-year-old trade agreement is often ignored by journalists who focus on struggles by the United States, Canada and Mexico to reach an overall deal.

Good regulatory practices and sanitary measures may not be worthy of the front pages, she says, but bringing NAFTA up to date with the 21st Century will help those who actually trade by, for example, implementing electronic forms at the border.

Consultations ahead of the start of negotiations nine months ago found that about 40 per cent of Canadians doing business with the U.S. didn’t bother to use their NAFTA preferences that allow products to be traded duty-free.

Freeland says the high number showed that people making real-life decisions concluded that the hassle wasn’t worth their time.

She says the public will find when a modernized NAFTA deal is concluded that it will simply be easier to trade.

Odds of a July rate hike are dropping — and the Canadian dollar is taking the hit

Short-end traders are piling into wagers the Bank of Canada will turn dovish as erupting trade tensions shake market confidence in the outlook for future interest-rate increases.

The gap between September 2018 and December 2018 bankers’ acceptance futures narrowed to 14.5 basis points Tuesday amid record two-day volumes in the spread. Market participants are now pricing in just 41 basis points of additional policy tightening by year-end, down from more than 60 basis points as recently as last month. The Canadian dollar has declined in tandem, sliding 2.5 per cent against the greenback since the start of June.

Expectations for future BOC rate hikes are waning as the outlook for North American Free Trade Agreement negotiations grows increasingly fraught. President Donald Trump said again Tuesday that the U.S. has been “treated horribly” by its northern neighbour. Meanwhile, U.S.-China trade relations are faring no better, with Beijing threatening retaliation should Washington follow through on a pledge to impose duties on another US$200 billion of Chinese goods. Anxiety over escalating trade tensions could slow the BOC’s tightening push, according to Canadian Imperial Bank of Commerce.

“The decline in market-implied odds for July portend to concerns surrounding the global trade outlook,” said CIBC FX and macro strategist Bipan Rai, who still expects the BOC to hike next month. “As of now, you could talk us into a rate hike later this year, but that’s becoming a more difficult decision with trade risk.”

The odds of a rate increase at the BOC’s July 11 meeting have dwindled to about 65 per cent, according to overnight index swap pricing, from roughly 80 per cent in the aftermath of the bank’s May 30 meeting.

The Canadian dollar has tumbled more than 5 per cent versus the greenback in 2018, making the loonie the third-worst performing Group-of-10 currency in the span. It weakened to 75.23 US cents Tuesday as Trump singled out dairy, energy and timber as sectors where Canada is taking advantage of the U.S.

Bloomberg.com

Trump accuses Canadians of smuggling U.S. goods across the border to get around ‘massive’ tariffs

OTTAWA — U.S. President Donald Trump is accusing Canadians of buying products south of the border, then sneaking them back home — all because of what he calls “massive” tariffs on American goods.

Trump, speaking to a gathering of small business owners in Washington, is railing again against the North American Free Trade Agreement, saying the U.S. can no longer afford to be the “stupid country.”

He says Canada imposes such onerous tariffs on U.S. products — shoes, for instance — that people are forced to “scuff ’em up” in order to “smuggle” them home.

U.S. President Donald Trump speaks at the National Federation of Independent Businesses 75th anniversary celebration, Tuesday, June 19, 2018, in Washington, where he again criticized NAFTA.

Trump says he’s looking out for American farmers and manufacturers, and again takes issue with Canada’s supply management system for dairy farmers.

His comments as the official Opposition calls for an emergency debate in the House of Commons over the future of the Canada-U.S. trade.

Conservative foreign affairs critic Erin O’Toole says Canadians need to see their elected representatives addressing what is the biggest economic crisis in their lifetime — but Commons Speaker Geoff Regan says the issue doesn’t meet the requirements for an emergency debate.

“We can no longer be the stupid country; we want to be the smart country,” Trump said to rousing applause.

On July 1, Canada is set to impose retaliatory tariffs of $16.6 billion on U.S. products after Trump slapped tariffs on aluminum and steel — and he has threatened more to come on automobiles.

“Tariff imposition of this nature would be devastating for the auto industry in Ontario,” O’Toole said. “There has never been such a looming threat to the Canadian economy than the threat we’re looking at now.”

The Trump administration has already imposed punishing tariffs on imports of steel and aluminum from Canada, Mexico and the European Union, using national security as a justification.

The Conservatives say they will have more questions for Foreign Affairs Minister Chrystia Freeland later today when she appears before the Commons international trade committee.

Freeland met last week with Trump’s trade czar Robert Lighthizer, and said Canada, Mexico and the U.S. will continue negotiating the North American Free Trade Agreement through the summer.

The bid to save NAFTA comes as the fear of a global trade war continues to grow, fuelled by the Trump’s administration’s plan to impose new tariffs on China that target $200 billion worth of goods.

China said today it would respond with “comprehensive measures” that could target American companies.

Global stocks have since plummeted.

North American stock markets fell in late-morning trading, with the S&P/TSX composite index falling 68.77 points to 16,314.86, after 90 minutes of trading.

In New York, the Dow Jones industrial average was down 339.61 points to 24,647.86. The S&P 500 index was down 20.53 points to 2,753.22 and the Nasdaq composite index was down 75.35 points to 7,671.68.

Here’s what an all-out trade war would cost Canada

A report by Scotiabank explains what would happen if the U.S. breaks all trade ties with its partners and imposes across-the-board tariffs that average 20 per cent

Trudeau has billions of reasons to dig in against Trump on dairy supply management

Justin Trudeau’s defence of Canadian dairy tariffs isn’t just about farmers and politics — it’s about debt, too.

The prime minister squared off with Donald Trump this month over Canada’s “supply management” system, which sets quotas for dairy, eggs and poultry and charges high tariffs above that threshold. Despite a U.S. surplus on dairy trade with Canada, the president wants to blow apart the Canadian system.

Trudeau is digging in for a variety of reasons, including the financial fallout. Canada’s protected dairy system caps production to avoid oversupply and maintain stable prices for farmers. Permits to sell within supply management’s cap, known as quota, have grown in value and are now worth $35 billion (US$26 billion), with about $30 billion in dairy specifically. Farmers use quota as collateral, and total farm debt across Canada amounts to $102 billion — nearly one-third of it lent through a federal agency.

If Trudeau bowed to calls for supply management to be dismantled, he’d be eroding a key asset in a sector to which his government is a key lender.

“It’d be catastrophic because we’ve gone through and assessed and included that value in our business plans and business operations,” said Ralph Dietrich, chairman of the Dairy Farmers of Ontario, an industry group in Canada’s most populous province. “The increased value is because of the desire to be involved in a system that works.”

It’s unclear precisely how much debt is secured by the value of Canadian dairy quota. Farm Credit Canada, a lender owned by the federal government, oversees $31 billion in loans, as of its last annual report. Of that, $5.7 billion is in dairy loans. The agency declined an interview request, but said in a statement most dairy loans are secured by a combination of quota and other assets, and just over 1 per cent are secured by quota value alone.

Chartered banks also hold about $38 billion in total farm debt while credit unions hold another $15 billion, according to Statistics Canada. The agency doesn’t break out dairy debt loads specifically.

Trump, meanwhile, isn’t the only person who has called for an end to the system.

“The value of quota now completely distorts the ability to be productive,” Martha Hall Findlay, president of the Canada West Foundation think tank and a former lawmaker, said in a BNN Bloomberg interview last week. “We should do what we need to do in moving away from supply management with compensation, transition — nobody wants to harm anybody.”

Canada’s biggest cheesemaker also says Trump’s criticism of certain parts of Canada’s dairy system has merit. “I understand the frustration of the U.S. side and quite frankly I think they have every reason to be upset,” Saputo Inc. Chief Executive Officer Lino Saputo Jr. said Monday in a phone interview.

NAFTA and TPP

Amid intensifying trade tensions with China, Trump continues to lash out against Canadian dairy tariffs. The U.S. is pressing to abolish supply management altogether in North American Free Trade Agreement talks, which Trudeau’s government expects will continue through summer. Agriculture Secretary Sonny Perdue said the U.S. doesn’t want to “do away” with the system, but would like “more access.” Foreign Minister Chrystia Freeland will update lawmakers on Canada’s position in the talks Tuesday afternoon in Ottawa.

When Canada signed the Trans Pacific Partnership, it gave up a sliver of its market — 3.3 per cent on dairy, and other concessions — and washed it down with $4.3 billion in announced funding for farmers, including $1.5 billion to support quota value.

Supply management can be lucrative. While the average net worth of a Canadian farm is $2.8 million, the average poultry and dairy farms are worth $5.8 million and $3.8 million respectively, according to Statistics Canada. To be sure, these types of farms also carry more than double the dollar value of liabilities of an average farm in Canada. Still, the expense-to-receipt ratio for dairy operators is 0.77, the most favourable among farming businesses; for all other types of farms, the average is 0.86.

There were 10,525 dairy farms in Canada in 2016, representing 5.4 per cent of all farms. Recent farm income data from Statistics Canada show dairy products make up around twice that proportion when it comes to sales — cash receipts from dairy products were $6.6 billion in 2017, or 10.7 per cent of total farm cash receipts.

‘Stupid Policies’

Other countries have included transition funding for farmers to move away from similar systems, according to Jack Mintz, a fellow at the University of Calgary’s School of Public Policy who calls supply management “completely nonsensical” and urges Trudeau to get rid of it.

“It’s of course uncomfortable when you make policy changes, which is why I feel it’s very important to avoid stupid policies in the first place,” Mintz said. Some farmers had to borrow money to buy quota, he said. “That’s why you end up doing something like having transition” funding.

Lyle Vanclief, who served as Canada’s agriculture minister from 1997 to 2003, said neither the Clinton nor Bush administrations pressed to abolish supply management, though countries like New Zealand criticized it and it was always a thorn in trade talks.

“I certainly had some spirited debates and discussion at the WTO,” he said. Trump and others don’t understand supply management, he said. “What’s Trump prepared to give up in order to get it? Nothing, nothing. So I think our government has to stand up.”

Bloomberg.com

China vows to retaliate against U.S. ‘blackmail’ as Trump targets $200 billion in tariffs

Trade tensions between the world’s two biggest economies intensified, with China vowing to retaliate “forcefully” against President Donald Trump’s threatened tariffs on another US$200 billion in Chinese imports.

“If the U.S. loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures,” according to a statement from the Ministry of Commerce. It labeled the move “extreme pressure and blackmail,” and said it would retaliate with counter measures.

Trump ordered up identification of US$200 billion in Chinese imports for additional tariffs of 10 per cent — with another US$200 billion after that if Beijing retaliates. While the US$50 billion in tariffs already announced on Friday were mainly on industrial goods, the broader move would push up prices for toys, tools, t-shirts and a lot more for U.S. shoppers.

Markets soured as economists warned of damaged business confidence, a blow to China’s growth prospects and ripple effects through its supply chains. The benchmark index of Chinese stocks fell almost 4 per cent, other Asian share markets declined and U.S. equity futures traded lower, while safe havens including the yen, gold and Treasuries climbed.

“Its psychological effects, its effects in increasing uncertainty, could be very serious and we’re certainly getting later in a cycle of escalation,” former U.S. Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television.

By targeting goods that are finished in China but whose components are often sourced from neighboring South Korea, Japan and Taiwan and more, the U.S. strategy could hurt the economies of America’s allies too.

“The collateral damage from an escalating U.S.-China trade war will be widespread, hitting many Asian countries that are part of China’s manufacturing supply chain in sectors such as electrical and electronic products,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore.

There are dangers for the U.S. economy too. If implemented, the tariffs would mean a sizable amount of imported Chinese goods would be exposed to new tariffs. Higher prices on imported goods could dampen consumer sentiment and pressure inflation.

“In a global trade war, no matter how you spin tariffs, retailers and the American families that we serve are the losers,” said Hun Quach, vice president, international trade, for the Retail Industry Leaders Association.

Tom Orlik, chief economist at Bloomberg Economics, said that in the event that China’s exports to the U.S. weaken in the face of tariffs, the government would likely seek to offset the growth impact with a combination of subsidies to support domestic demand and higher infrastructure investment.

The People’s Bank of China is using both money and words to try to ease market concerns about escalating trade tensions and the weakening economy. It injected another 200 billion yuan (US$31 billion) into the economy via its medium-term lending facility on Tuesday, pushing its net injections so far in June to the most in any month since December 2016.

The escalation in trade tensions comes at an inopportune time for China’s policy makers, with indicators for May suggesting growth is already dialing back a notch.

The U.S. President last week threatened 25 per cent tariffs on US$50 billion in Chinese products and said at the time he would impose even more duties if China retaliated. A counter punch was swift in coming, with a statement from Beijing on Friday night that it would “strike back forcefully.”

China’s threat “clearly indicates its determination to keep the United States at a permanent and unfair disadvantage,” Trump said Monday. “This is unacceptable. Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship.”

The latest salvo came as Trump seeks to convince U.S. lawmakers to let Chinese telecom company ZTE Corp. remain in business after it became a bargaining chip in the trade row. Earlier this month, the Trump administration gave ZTE a reprieve for breaking a sanctions settlement after the company agreed to pay fines, change management and agree to American oversight. ZTE’s survival has been a key goal of Chinese President Xi Jinping.

Shares in ZTE dived after the Senate passed legislation on Monday evening that would restore penalties.

The U.S. imported US$505 billion of goods from China last year and exported about US$130 billion, leaving a 2017 trade deficit of US$376 billion, according to U.S. government figures. The fact that America imports more from China will make it harder for Beijing to match Trump’s attacks, according to Derek Scissors, a resident scholar at the conservative American Enterprise Institute in Washington who focuses on China.

“All they can do is impose higher tariffs on a smaller subset of products,” he said. That being said, “China is going to retaliate,” he added.

Bloomberg.com