Today might have been a turning point in Trump's relationship with Canada though many would argue that it's now beyond repair. Yesterday Canadian Prime Minister Mark Carney said:
“The old relationship we had with the United States, based on deepening integration of our economies and tight security and military cooperation, is over.”I suspect the relationship has bottomed and that's a big opportunity in many trades. That said, it's difficult to have conviction in that call given all the unpredictability in the Trump 2.0 administration.
Some facts:
The US-Canadian relationship is one of the all-time great truly free trade agreements. The average tariff rate of US goods going into Canada is 1.1%, per the WTO. So if they US wants to actually do reciprocal trade, then that would be fine.
2) Canada doesn't have a manufactured goods surplus with the US
Ex-energy, the US has had a surplus with Canada for every year this century.
3) Based on the size of trade, the US deficit is small
Despite all of this, you have Trump repeatedly saying things like "we are subsidizing Canada by $200 billion a year". Neither he nor the White House have ever indicated how this math makes any sense.
It's hard to comprehend any kind of strategy, unless you believe in the 51st State line. Perhaps this is an extremely-aggressive escalation in rhetoric and some short-term tariffs in order to extract a slightly better trade deal. That's my base case but it's looking more and more like a foolish strategy that ultimately benefits no one.
I'll be on BNNBloomberg on Monday morning talking about some of this. Tune in.
This article was written by Adam Button at www.forexlive.com. Read More Details
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