David Olive: A divide-and-conquer strategy on NAFTA?
The latest twist in the NAFTA saga has Donald Trump, the U.S. president, resorting to the tactic of divide and conquer between Canada and Mexico, America’s partners in the North American Free Trade Agreement.
Chrystia Freeland, the Canadian foreign affairs minister, has been frozen out of recent talks between the U.S. and Mexico, according to Ottawa officials.
Those same Canadian officials stoutly maintain that it’s legitimate for Washington and Mexico City to iron out specific differences on auto content, which is thought to be the focus of the bilateral talks.
Trouble is, those very same auto-related issues, mostly turning on the amount of North American content per vehicle, are also central to what the U.S. wants from Canada.
A charitable view is that the Trump team thinks it can cut something closer to an “America First” deal with Mexico’s new president than the previous Mexican regime.
But that’s no sure thing. Incoming Mexican president Andres Manuel Lopez Obrador, while on balance pro-NAFTA, has been overtly anti-Trump.
Still, it’s likely Trump hopes to cut a deal with Mexico that he can then impose on Canada on a take-it-or-leave-it basis.
It’s ironic that the NAFTA talks have increased NAFTA’s popularity with Canadians, by 27 per cent, according to a June polling report by Ipsos Public Affairs.
But opinion would swing strongly in other direction if Ottawa is confronted with an “America First” NAFTA deal, from which Freeland has vowed to walk away.
She would have the support of the 70 per cent of Canadians who told Ipsos they’re willing to boycott U.S. products, and are already making a point of buying Canadian when possible.
A discreet sign of Canada’s strength
The prospects of Canada’s retail sector don’t seem all that bright, judging from the record-high levels of Canadian household debt, rising interest rates and a recent history of a failed Target Canada and Sears Canada and the struggles of Hudson’s Bay Co.
So how to account for the recent U.S. acquisition of Toronto-based Northwest Atlantic Inc., Canada’s biggest leasing agent for retail space, on behalf of clients including Nordstrom Inc., Cineplex Inc. and the Winners arm of U.S.-based TJX Cos.?
Behind the headlines, Canada’s retail sector is healthier than its counterpart in the U.S., which has too many stores chasing too few shoppers, and is “over-malled,” a result of injudicious over-building in the 2000s.
As leading economic indicators go, the recent acquisition by Chicago-based Jones Lang LaSalle Inc. (JLL), the biggest U.S. retail space leasing agent and advisory firm, of its largest Canadian peer merits attention as a sign of the underlying strength of the Canadian economy, and of consumer spending more specifically.
JLL is making its biggest expansion bet, in the Canadian market, because the Canadian retail sector is more stable than the U.S. sector, yet with encouraging signs of robust future growth.
It’s worth noting that JLL is making its Canadian foray when trade tensions between Canada and the U.S. are at their most acute, with Canadian disposable income at risk.
“[But] Canada’s economy was only slightly impacted by the U.S. recession [the Great Recession of 2007-2011],” JLL official Naveen Jaggi told Bloomberg News last week when the deal was announced. The Canadian economy “experienced less than a year of declining fundamentals post-recession, which kept it safe and stable for retailers and investors.”
Even the Bank of England can’t quash Brexit fears
The Bank of England’s (BoE) recent hike in its benchmark interest rate, up 0.25 per cent to 0.75 per cent, might be based on sound economic fundamentals.
To be sure, the U.K. inflation rate is near the 2 per cent target that requires tighter monetary policy. And that policy, of BoE Governor Mark Carney, former governor of the Bank of Canada, is similar to that of his old employer.
Stephen Poloz, the Bank of Canada governor, has also embarked on a campaign of gradual increases in the benchmark interest rate, and with the same purpose of containing inflation.
But Canada’s is a comparatively vibrant economy, where inflation concerns are – or should be – more pronounced than in a U.K. economy befogged by Brexit uncertainty.
Indeed, U.K. business leaders accuse Carney of acting prematurely in his hawkish monetary policy. And the markets agree, having pushed down the value of the pound in the aftermath of the BoE’s latest rate hike, the opposite of what should happen after a rate hike.
That increase was accompanied by a stated BoE determination to raise rates still further over the next year.
Carney’s tight-money gambit at least hints of a BoE attempt to force a stability for the U.K. economy that simply isn’t there.
Certainty about the U.K.’s economic prospects is impossible in the absence of a divorce settlement between Britain and the EU. That settlement isn’t close to fruition, meaning its harsh or manageable provisions aren’t yet known.
And so, downward pressure on sterling and the drain on foreign direct investment in the U.K. will continue, no matter how determined Carney is to establish market calm if not buoyancy.
David Olive is a business columnist based in Toronto. Follow him on Twitter: @TheGrtRecession