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Briefing highlights

  • The ‘boogeyman’ tariff threat
  • Trump slaps tariffs on China
  • A cannabis road sign I’d love to see
  • Global markets mixed so far
  • New York set for weak open
  • Canadian dollar nears 76 cents
  • Canada Goose posts surprise profit
  • What to expect in housing report

Boogeyman or bogeyman

A monstrous imaginary figure used in threatening children

— Merriam-Webster

Whether or not the Trump administration follows through, Canadian governments and businesses can expect to be stalked by the “boogeyman” that is the threat of auto tariffs.

This comes as the U.S. today announced 25-per-cent tariffs on US$50-billion in goods from China, ratcheting up trade tensions ever further.

“These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs,” President Donald Trump said in unveiling the move.

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“In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China.”

Here’s the thing: Observers don’t expect the Trump administration to actually slap crippling tariffs of 25 per cent on auto imports, though the threat alone is enough to sow doubt and angst.

“The entire North American auto sector would be hurt badly, with Japan and Europe also seriously affected,” warned Eric Lascelles, chief economist at RBC Global Asset Management.

“To the extent that the auto sector has played a disproportionate role in U.S. trade negotiations so far, this threat cannot be dismissed,” he added.

“All the same, it would prove so unpopular domestically that it seems a stretch. We instead view it as a boogeyman to be trotted out regularly whenever the U.S.’s negotiating partners step out of line.”

Like Mr. Lascelles, other observers expect no full-blown tariff war. Of course, how many expected the steel and aluminum tariffs? Or that Mr. Trump would be elected in the first place? Or that Brexit would happen, for that matter?

As The Globe and Mail’s Justin Giovannetti, Greg Keenan, James Bradshaw and Steven Chase report, Canadian businesses are fretting about the impact of a tariff war with the United States. The threat of hitting the auto sector, which employs about 130,000 people in assembly and parts, is the latest and most worrisome.

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New Ford Edges sit on a production line at the Ford Assembly Plant in Oakville, Ont

Chris Young/The Canadian Press

This comes amid troubled negotiations to overhaul the North American free-trade agreement and follows the high-profile attack on Prime Minister Justin Trudeau by President Donald Trump and his officials.

“If such comments are taken at face value, the trade environment is in serious trouble,” Mr. Lascelles said.

“Fortunately, there is likely some exaggeration to them.”

He noted that Mr. Trump is “notoriously sensitive to criticism,” and that the President “usually finds another target quickly,” and that his own team admitted it wanted a “show of strength” before the summit with North Korean leader Kim Jong-un.

Importantly, too, is that Americans would probably “sour quickly” amid an actual tariff war.

“Thus, in the run-up to the November midterm elections, the trade threats may continue to come even as actual tariffs tend to be a bit scarcer on the ground,” Mr. Lascelles said.

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“This could get to the point that the U.S. triggers the NAFTA withdrawal process (though the six-month cooling-off period would then permit a sober second thought after the midterms).”

As to a full-scale tariff war, Capital Economics believes the overall impact on the global economy would not be terrifying, if it happened.

“Our best guess is that even if all the protectionist threats made to date were carried out, they would subtract a lot less than half a per cent from global GDP,” chief global economist Andrew Kenningham and global economist Simon MacAdam said in a recent study.

“A free-for-all, in which all governments imposed high trade barriers, could cause a global recession, but we are confident that this will not happen.”

Of course, that depends on your local economy. And Canada’s is tied to the U.S.

Their colleague in Toronto, chief North America economist Paul Ashworth, noted that such a tariff on $75-billion a year in Canadian autos would be “at least as damaging” as an average 2.4 per cent levy on our total exports to the U.S. of $414-billion.

He used that 2.4-per-cent measure because that’s the hit that would come into effect if NAFTA died and the U.S. reverted to the World Trade Organization tariff regime.

Of course, if auto parts are included, the hit would be much worse.

“In that scenario, the retail price of a finished vehicle in both the U.S. and Canada would increase by significantly more than just the 25-per-cent tariff imposed on the finished good, which would devastate the industry on both sides of the border,” Mr. Ashworth said.

“It is hard to believe that congressional Republicans would allow that to happen but, up to now, at least, they have shown little appetite for standing up to Trump’s destructive impulses.”

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A road sign I’d love to see

Photo illustration

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Stocks mixed, loonie near 76 cents

Global markets are mixed so far, with New York pointing down, while the Canadian dollar heads down toward 76 US cents.

The Trump administration’s China tariffs are spreading angst around the world.

“Trump is clearly used to getting things his own way, yet with his decision to fight on all fronts on trade, we are essentially seeing him bet the house on the notion that the likes of China, the EU and Canada will eventually cave in to his demands,” said IG market analyst Joshua Mahony.

Tokyo’s Nikkei rose 0.5 per cent, with Hong Kong’s Hang Seng down 0.4 per cent and the Shanghai composite down 0.7 per cent.

In Europe, London’s FTSE 100 was down 0.5 per cent by about 5:20 a.m. ET, while Germany’s DAX was flat and the Paris CAC 40 was up 0.2 per cent.

New York futures were down.

The Canadian dollar, which was recently at 77 US cents, is now just above 76 US cents.

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What to watch for today

Expect to see an ongoing slump in housing markets when the Canadian Real Estate Association closes out the week on Friday with its report on May sales and prices.

This, too, will buoy the hearts of policy-makers in British Columbia and at the Office of the Superintendent of Financial Institutions, the bank regulator, whose measures have eased the inflated Vancouver and Toronto markets.

The Ontario government, whose fair housing plan also played a big role, is about to be replaced by a Conservative administration led by Doug Ford, who mused during the election campaign about possibly killing the tax on foreign buyers of Toronto-area real estate.

Year-over-year growth in quality-adjusted

benchmark house prices

Greater Vancouver Area, Vancouver Island,

Victoria and Fraser Valley

Greater Toronto Area, Barrie and district, Guelph and district

Calgary, Edmonton, Saskatoon and Regina

Ottawa, Montreal and Moncton

Canada

35%

November FSR

30

25

20

15

10

5

0

-5

-10

2015

2016

2017

2018

THE GLOBE AND MAIL, SOURCE: BANK OF CANADA

Year-over-year growth in quality-adjusted

benchmark house prices

Greater Vancouver Area, Vancouver Island, Victoria and Fraser Valley

Greater Toronto Area, Barrie and district, Guelph and district

Calgary, Edmonton, Saskatoon and Regina

Ottawa, Montreal and Moncton

Canada

35%

November FSR

30

25

20

15

10

5

0

-5

-10

2015

2016

2017

2018

THE GLOBE AND MAIL, SOURCE: BANK OF CANADA

Year-over-year growth in quality-adjusted benchmark house prices

Greater Vancouver Area, Vancouver Island, Victoria and Fraser Valley

Greater Toronto Area, Barrie and district, Guelph and district

Calgary, Edmonton, Saskatoon and Regina

Ottawa, Montreal and Moncton

Canada

35%

November FSR

30

25

20

15

10

5

0

-5

-10

2015

2016

2017

2018

THE GLOBE AND MAIL, SOURCE: BANK OF CANADA

Having already seen several local real estate board reports, including those from Vancouver and Toronto, Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist, expects CREA’s national number to show home sales tumbled 17 per cent in May from a year earlier, with average prices down 5 per cent.

The MLS home price index, which observers believe is a better measure, is expected to show a gain of just 1 per cent, the slowest pace since late 2009.

On a monthly basis, expect to see a “flat to lower” showing in sales in May from April.

“There are some early signs that the market is stabilizing but we’re still waiting on a rebound,” Mr. Reitzes said.

“Toronto and Vancouver remain soft (outside a still-robust condo market), along with Calgary, while activity has plateaued in the hot markets of Montreal and Ottawa,” Mr. Reitzes said.

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