Implications of Trans-Pacific Partnership and Canada Election
by Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James
HIGHLIGHTS
• Following years of negotiations a historic trade deal was reached this week. Known as the Trans-Pacific Partnership (TPP), it represents the largest trade agreement signed in decades, between 12 countries which account for 40% of the global economy.
• The main thrust of the agreement is that it reduces trade barriers and tariffs and opens previously closed or protected markets to the 12 countries. Trade negotiators estimate that the TPP will add $220 billion to the global economy by 2025, accounting for 1% of global GDP. With Canada being a large export nation this should provide a boost to our economy in the years ahead.
• However, as with life, there is always some give and take with some Canadian industries being negatively impacted by this agreement. These include the dairy and automotive industries.
• We believe this agreement will be a net positive for Canada, and according to recent polls, for the Conservative government. Recent polls by The Globe and Mail (G&M) have the Conservative Party pulling away from the pack, and currently leading (see Chart of the Week).
• Our take on this election is to expect significant policy changes should the Liberals or NDP win or status quo if the Conservatives win their fourth term. From a market perspective, we believe the equity markets and Canadian dollar could gain on a Conservative win, particularly if a majority win. Investors like stability, and that’s what they would perceive if the Conservatives win. On a Liberal win, we could see a short term decline in the markets on concerns of higher debt levels due to infrastructure spending.
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