Canada's prospects amidst changing U.S. trade policy

by Krishen Rangasamy and Warren Lovely, National Bank, Economics and Analysis

Summary

• The arrival of new leadership in Washington brings both opportunities and threats to Canada. While the energy sector is set to benefit from U.S. President Trump’s executive order on Keystone XL, the outlook for non-energy Canadian exporters is less clear amidst calls by the new administration to re-negotiate the North American Free Trade Agreement or even scrap the latter in favour of a separate bilateral agreement.

• Should policymakers fail to reach an agreement to exempt Canada from upcoming U.S. trade barriers, Canada’s exports and hence economic growth would take a significant hit. For instance, if the U.S. imposes a 10% border adjustment tax on imports and nothing else changes, Canada’s total goods exports to the U.S. would drop roughly 9% based on U.S. import price elasticities, enough to chop about 1.5% from Canada’s GDP growth. Under that scenario, Ontario and New Brunswick would be the worst hit among provinces given their relatively high exposures to the U.S.

• U.S. protectionism could do more than just derail Canada’s plan for export resurgence. It would keep the country’s economic growth model skewed to housing/consumer spending to an unhealthy extent.

• Whether or not Canada-U.S. trade relations suffer, expect Ottawa to keep working hard in establishing new trade relationships and reinforce existing ones. An enhancement in interprovincial trade is a laudable objective. Policymakers will also have to find ways to make Canada more competitive not just via a weakening Canadian dollar but through more sustainable methods including measures to enhance investment and boost productivity.

 

Read/Download the complete report below, and here:

Special Report 30jan2017 by dpbasic on Scribd

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