Trade Friction Escalates; China and Canada Face U.S. Sanctions

by Greg Valliere, AGF Management Ltd.

LEGISLATION IS STALLED on Capitol Hill, but the Trump Administration is determined to make policy via executive orders on a wide range of issues — including trade, as relations between the U.S. and China deteriorate; even Canada is a target.

AS IF RELATIONS WITH CHINA couldn’t get any worse, the Trump Administration yesterday issued executive orders against TikTok and WeChat, which would prohibit the firms from doing business in the U.S. — they wouldn’t be allowed on aps of U.S. firms like Google and and Apple.

MICROSOFT IS STILL IN THE RUNNING to purchase TikTok before an apparent Sept. 15 deadline, but Trump is demanding a fee to the U.S. China is likely to retaliate; Beijing said yesterday that it would “pursue all remedies.” With the U.S. election approaching, Trump (and many Democrats) are eager to punish China for its lack of transparency on the coronavirus, and its blatant hacking of U.S. firms.

MEANWHILE, THE “BUY AMERICAN” drive intensified, as the Administration issued an executive order yesterday that “essential” drugs and medical supplies must be manufactured in this country. “We cannot rely on China and other nations across the globe that could one day deny us products in a time of need,” Trump said.

THE BUY AMERICA MOVEMENT has widespread support in Congress, and is a major threat to the generic drug industry; many generic drugs are manufactured in China and India. Trump’s order affects purchases by the Departments of Health and Human Services, Defense and Veterans Affairs (this order will be delayed as the FDA determines which drugs are “essential”).

AND IN STILL ANOTHER MOVE AIMED AT CHINA, several news services reported yesterday that Trump is seriously considering an executive order to “delist” Chinese firms that trade on U.S. stock exchanges unless they meet American auditing requirements. Many Democrats support this crackdown.

THE U.S. CAN’T EVEN GET ALONG WITH CANADA: Yesterday Trump announced a 10% tariff on Canadian aluminum shipments to the U.S. This almost certainly will prompt a retaliation from Prime Minister Justin Trudeau, who’s probably happy to have an issue that might deflect attention away from his latest domestic controversy. “We will always stand up for our aluminum workers,” he declared.

“CANADA IS TAKING ADVANTAGE OF US, AS USUAL,” Trump proclaimed yesterday, even though all sides signed a new NAFTA deal on July 1.

THE AGGRESSIVE PRE-ELECTION TRADE STANCE by the U.S. also could heat up controversies with Western Europe over taxation of American tech companies, which could lead to more tariffs. A dispute over aircraft subsidies could be closer to resolution, however.

* * * * *

THE STIMULUS TALKS, CLEARLY STALLED, may result in executive orders from President Trump that would defer evictions and perhaps impose a payroll tax cut. It’s unclear whether these actions could survive a legal challenge, and that process could be time-consuming, delaying aid that virtually all economists agree is crucial.

TRUMP WANTS TO PROD CONGRESS, but both sides are far apart. This could be a self-inflicted disaster, transforming the economy — which exceeded expectations this summer — into a renewed slump this fall. A weak jobs report at 8:30 this morning could jump-start the talks; a strong report would reduce pressure for more aid.

A STIMULUS PACKAGE COSTING ABOUT $1.5 TRILLION seemed like a logical compromise, but logic often does not apply in Washington.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI is registered as a portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2020 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.