The protectionist fable
In Latin America, actual or threatened import barriers against everything from kitty litter and glassware to wine and cars are raising concerns that a new era of protectionism is afoot in the region.
Between 2009 and 2011, the number of discriminatory trade actions enacted throughout Latin America more or less doubled, says a recent report by Capital Economics’ Michael Henderson, using data compiled by Global Trade Alert.
The apparent lurch towards a more protectionist trade climate is most evident in Argentina and Brazil, he writes.
However, there are good reasons for not jumping to conclusions, he adds.
For one, Argentina and Brazil account for over 75 per cent of the actions taken between 2009 and 2011, and Argentina has by far the largest share of that.
And keep in mind that there are many reforms opening up countries to foreign competition.
The picture for Brazil looks a little more balanced when you add liberalizing trade measures to the chart, Mr. Henderson points out.
As well, there is no clear evidence of a trend towards protectionism in the rest of the region, he says. “Instead, the anecdotal evidence would suggest that most other countries are, in fact, going the other way – that is, taking steps to open up their economies to international trade.”
A slippery slope
As the world’s sixth largest producer of crude oil, Canada has a lot riding on the ups and downs of the price of crude.
Oil sands production, in particular, is vulnerable to falling global oil prices because it’s more expensive than conventional projects. Worries are mounting that oil sands producers might have to put off new projects because they are just not economically viable at current low prices.
Ian Pollick of RBC Capital Markets offers some reassurance in a recent analysis.
There is “still a large amount of weakness that would be needed in order to arrest future development in the Canadian oil sands – a key source of growth in future years,” he says in his report.
With benchmark North American oil prices in the $84 (U.S.)-a-barrel range, there is still enough wiggle room for the majority of future oil sands projects, namely those that use the “in situ” method of steam injection, because they have a breakeven price of about $60 per barrel, he writes.
However, the potential to add new projects at those prices is reduced, he says.
“As for the aggregate operating costs of projects currently on-line, our equity research team estimates this to be in the $30- to 40-per-barrel area, meaning that current production should proceed largely unscathed from a pricing perspective.”
China shifts focus
China has become less dependent on exports to Europe, and not a moment too soon.
As the crisis in the euro zone escalates and the economy there slows, China has been shifting its policies away from encouraging exports and toward stimulating domestic demand.
“Fears of the ongoing European recession derailing China’s growth seem somewhat overblown if the exports data is any guide,” Krishen Rangasamy of National Bank Financial says in a recent snapshot of the Chinese economy.
“Demand outside of Europe continues to sustain Chinese trade, so much so that the EU’s share of exports fell to 18.1 per cent in May, a seven-year low,” he writes.
China’s economy is considerably less export-sensitive than it was a few years ago, with exports as a percentage of GDP below 27 per cent, says Mr. Rangasamy.
The drop in the annual inflation rate in May to a two-year low of three per cent should help to boost domestic demand, he says.