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business briefing

Briefing highlights

  • What a trade war could mean
  • A movie poster I’d love to see
  • Stocks rise as trade fears ease
  • Canadian dollar above 78 cents
  • Canada’s trade deficit swells in February
  • Corus stock soars on earnings

A knife at a gun fight

As Derek Holt sees it, the Trump administration ‘brought a knife to a gun fight’ in its trade spat with China.

As Michael Pearce sees it, America is effectively taxing its own consumers.

And as Julian Evans-Pritchard sees it, the U.S. is hampering its own companies.

The bottom line from these three economists is that President Donald Trump won’t find it anywhere near as easy to win a trade war with Beijing as he so famously declared just a short while ago.

To recap, the Trump administration published its list of Chinese exports that could be the target of tariffs after some public consultation and likely negotiations with Beijing.

The list is a fascinating read, largely aimed at Chinese electronics, but including everything from cash registers, gold carts and dirigibles to defibrillators to artificial body parts and birth control, in pill and other forms.

China fired back Wednesday with its own list, which, for the record, helped drive down soybean prices.

Economists believe Washington and Beijing will, in the end, step back from an all-out tit-for-tat tariff war. But make no mistake, the former could well suffer more than the latter should it come to that.

China would suffer, of course, but by many accounts, the U.S. would have it worse.

“Although the U.S. tariffs should have a negligible impact on China’s economy, the Chinese government has nonetheless responded more aggressively to the tariff list than many had expected,” said Mr. Evans-Pritchard, senior China economist at Capital Economics, citing Beijing’s list of tariffs on US$50-billion of American exports from soybeans to autos.

“This retaliation would come at a cost to China by pushing up the price of its imports,” Mr. Evans-Pritchard said.

“In particular, imposing tariffs on soybeans looks problematic given that China’s soybean imports are greater than the entire exports of non-U.S. producers.”

But where the American tariffs are concerned, the Trump administration would be hurting its own people.

“Many of the most widely imported products being targeted are electronics, where China has a dominant market position,” Mr. Evans-Pritchard noted.

“Indeed, for a number of these products China is responsible for a significant share of world exports,” he added.

“This will make it difficult for U.S. firms to find alternative suppliers, limiting the downside for Chinese exports.”

The tariffs won’t be a huge hit to the U.S. economy, Capital Economics said, but there would be an impact.

“The U.S. proposals cover 2 per cent of total imports, so a 25-per-cent tariff would raise import prices by 0.5 per cent or so,” said Mr. Pearce, senior U.S. economist at Capital Economics.

“It would in effect be a tax on U.S. consumers, offsetting some of the boost to real disposable incomes from the income tax cuts,” he added.

“The reality is that China is the dominant global supplier for many of these goods so it would be hard to find alternatives.”

Not only that, the two sides aren’t evenly weighted, added Mr. Holt, head of capital markets economics at Bank of Nova Scotia.

“The Chinese tariffs are a bigger percentage of U.S. goods exports than the U.S. tariffs are of Chinese goods, given Chinese goods exports are larger than U.S. goods exports,” Mr. Holt said.

Expressed in U.S. dollar terms, US$50-billion represents about 2.5 per cent of Chinese goods exports but about 3.5 per cent of those from America, he noted.

“In that respect, the U.S. brought a knife to a gun fight overnight,” Mr. Holt said.

“The U.S. tariffs are allegedly about targeting intellectual property related items, but upon scanning the list … I can’t help but reach the conclusion that if these are truly the examples of Chinese thievery of U.S. intellectual prowess then the U.S. isn’t much of a competitive threat to anyone,” he added.

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A movie poster I’d love to see

Photo illustration

Stocks rise as trade fears ease

Dealers love snapping up relatively cheap stocks

David Madden, CMC Markets

Investors are in fine form today as fears over a mighty trade battle between the U.S. and China ease.

“Stocks are in robust form this morning after hopes of negotiations in the current bout of trade wars prompted U.S. markets to stage a rapid turnaround last night,” said IG chief market analyst Chris Beauchamp.

“Having been consumed yesterday by the fear that tariffs would continue to be imposed, today investors are aiming to find the positives, noting that several senior U.S. officials have struck a conciliatory tone,” he added.

“But that’s all we’ve had so far, and it will take more than some fine words to really convince markets that both sides are serious about talking.”

For now, though, it’s working.

Tokyo stocks closed higher, European markets are rising, and here’s how North America looks:

“The positive sentiment is evident as traders feel President Trump might not be as aggressive as he lets on after it was reported he might be more flexible on one point of the North American free-trade agreement,” said CMC Markets analyst David Madden.

“Now that China has hit back with proposals of sizeable tariffs on U.S. imports, room to renegotiate a new trade relationship has opened up before the levies will actually be implemented,” he added.

“Beijing has indicated it is open to softening its stance, and this has boosted investor sentiment. Dealers love snapping up relatively cheap stocks, and now the mood is optimistic, they are wasting no time.”

The Canadian dollar is above 78 US cents, slipping after Canada’s trade report.

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Trade deficit swells

Canada’s trade deficit swelled in February to $2.7-billion, more than expected at much fatter than January’s $1.9-billion gap.

Imports climbed 1.9 per cent, largely on energy imports, eclipsing the 0.4-per-cent rise in exports led by autos, Statistics Canada said today.

And here’s a tidbit for President Trump: Imports from the U.S. rose 3.3 per cent, topping Canada’s exports to America, which rose 1.9 per cent.

That meant a narrower goods trade surplus with the U.S. of $2.6-billion, down from $2.9-billion.

“It was a rough start to the year in terms of economic data and the bumpy ride continued in today’s trade numbers,” said Royce Mendes of CIBC World Markets.

“Over all, while export volumes did rebound, removing some of the negativity surrounding this report, they remain disappointing given the strong U.S. economy and weak Canadian dollar,” he added.

Separately, the U.S. trade deficit with the rest of the world now stands at $57.6-billion, the fattest in more than nine years.

But another tidbit for the president: America’s deficit with China narrowed by almost 19 per cent, while the gap with Mexico swelled.

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