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Briefing highlights

  • Who stole the kishka? Trump may have
  • Businesses face complex tariff issues
  • Markets, Canadian dollar at a glance
  • What to expect in GDP report
  • What to expect from BoC survey
  • What else to watch for this week
  • Harley to shift some production

Someone stole the kishka

Someone stole the kishka

Who stole the kishka

From the butcher’s shop?

Who stole the kishka?

Who stole the kishka?

Who stole the kishka?

Someone call the cop

— Who Stole the Keeshka, a polka number by Walter Dana and Walter Solek, performed in the Sixties by Frankie Yankovic & His Yanks

Some businesses are scrambling to learn how they could be affected by Canadian tariffs on certain U.S. products, confused with just days to go before implementation.

It’s complex, to be sure, as the federal government prepares its final list of goods that will face levies as a countermeasure to U.S. tariffs on Canadian steel and aluminum.

And it’s not just importers who are trying to figure it all out in advance of the Canada Day implementation.

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“The non-stop flurry of trade rhetoric and threats has been bewildering for analysts and investors alike, as we all try to separate the noise from the facts,” said Bank of Montreal chief economist Douglas Porter, recounting how, as part of a panel, he recently had to explain to a U.S. bank economist that his government had hit Canada with steel and aluminum levies.

“The point is, someone who should probably know this, didn’t, and it gives you a sense of why markets are bouncing around on whether to be concerned about trade matters,” Mr. Porter said.

“And, of course, there’s the bigger point that the U.S. economy is on track for its strongest year since 2005 (and a very strong Q2), and that the U.S. is less susceptible to trade weakness than most other major economies,” he added.

“In that context, the global trade dispute still seems like a distant risk to many commentators, rather than the very real clear and present danger it has become.”

Fat and round and firmly packed

It was hanging on the rack

Someone stole the kishka

When I turned my back

Kishka is just one example highlighting the confusion, and issues, that businesses face, chosen for no other reason than that it came up in a conversation (that also led to that silly tune driving me nuts by going through my head over and over.)

It’s a tasty piece of mainly Jewish and Polish cuisine, and a staple at some deli counters. There are various ways to make it, but the version I remember is an old Jewish one, which looks like a fat sausage. It can be a mix of meat, matzoh meal and other stuff, including schmaltz, or chicken fat, mushed up inside beef intestine or, these days, a synthetic wrap. Then served in gravy.

(My mom used to make it, and my dad would annoy the teenage me by singing about it. These were the Sixties, after all, and I wanted to hum along with The Beatles. But my dad? No, he had to sing Frankie Yankovic.)

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Key here is whether kishka or any of its ingredients are imported from the U.S., and, thus, whether tariffs could be at play when they come into effect in a few days.

The list of proposed tariffs, unveiled when Ottawa’s countermeasures were announced, includes 10-per-cent levies on “prepared meals, of bovine” and “other prepared or preserved meat of bovine, other than in cans or glass jars.” There’s also a hit to “spent fowl.”

It’s hard to know just how things could play out, which, of course, is an issue for some businesses. I spoke to the Department of Finance Canada, which answered some questions and directed me to the Canada Border Services Agency for others.

(Neither laughed, by the way, despite the seeming absurdity of a journalist on a kishka quest.)

“All goods entering Canada, regardless of mode and whether they are eligible for duty and tax-free exemptions, must be reported to the CBSA and may be subject to a more in-depth exam,” said agency spokesman Nicholas Dorion.

“As consultations are ongoing on a list of goods that may be subject to a surtax upon import to Canada, it is too early to speak specifically on how the CBSA will administer the new surtax once it comes into effect,” he added.

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Details will be released before Canada Day.

Rabbi Royi Flescher, for one, manager of Magen Meats in the Toronto area, imports beef from the U.S. via a third party. But it’s raw, not cooked.

Rabbi Flescher said he checked with his third party, who in turn checked with his lawyer, who said raw beef would not be subject to a tariff. Which means his kishka would be off the hook.

But the beef he uses in kishka is “miniscule,’ regardless. A tariff on raw meat would be potentially more worrisome, particularly given the approach of the Jewish High Holidays, as supply would be in question.

“It is very confusing, and it is very scary,” Rabbi Fleshcer said. “Nobody knows what’s going on.”

It’s not even clear where or if you can get imported frozen kishka in Canada. Though that’s somewhat academic - the discussion is broader in terms of what Canadian businesses will face.

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In this Tuesday, June 12, 2018, photo, trucks cross the Ambassador Bridge from Windsor, Ontario, into Detroit

Paul Sancya/The Associated Press

The goods affected will be decided from those on these two lists posted on Finance Canada’s website during a period in which businesses could have their say.

The final list will be made “taking into account views expressed during the comment period, and published prior to the July 1 implementation date,” a Finance Canada official said.

“The precise classification of a particular product depends on the technical specifications of the good,” the official added.

“If there is uncertainty regarding the coverage of a product under the heading, subheading or tariff item level in tables 1 and 2, importers can request an advance ruling from the Canada Border Services Agency (CBSA) in order to provide certainty in the tariff classification of the goods.”

The peril lies less in the existing American tariffs that sparked the war, and more in the threat of escalation.

Remember that this is just the opening salvo as the Trump administration marches to battle against Canada, the European Union, China and others.

This is not to suggest that the U.S. might not have legitimate grievances against some countries, only that the threat of further turmoil looms.

Crucial to Canada will be whether the administration makes good to also slap tariffs on imports of autos.

“The impact on Canada’s economy would be significant, and possibly large enough to pull Ontario specifically down to near recession territory,” warned Mr. Porter and his colleagues at BMO, Robert Kavcic and Alex Koustas.

Indeed, production levels could plunge by somewhere between 600,000 and 1 million vehicles, shaving between 0.3 and 0.6 of a percentage point from gross domestic product as the impact ripples through the parts industry, and threatening “at least” 40,000 jobs.

“Of course, the impact wouldn’t stop at the factory gate,” Mr. Porter, Mr. Kavcic and Mr. Koustas said in a report, noting 85 per cent of the autos turned out each year are destined for the U.S.

“Income losses would flow through to lower consumer spending; sectors that derive business from autos, such as transportation and warehousing, would see activity decline; the impact would likely disrupt the the wholesale and retail networks, which employ twice as many people as parts and production; and the broader hit to business confidence would certainly dent capital spending in other sectors.”

New Ford Edges sit on a production line at the Ford Assembly Plant in Oakville, Ont., on Thursday, February 26, 2015

Chris Young/The Canadian Press

There would be help from a weaker Canadian dollar, possibly the Bank of Canada through monetary policy, and, potentially, government aid.

When you put it all together, the BMO economists said, the “broader impact” could be lower GDP to the tune of 0.6 of a percentage point to 1.2 points.

Any tariffs, however, would probably be short-lived or at least reduced because of the simultaneous hit to the U.S. economy, they said.

The U.S. administration has been tossing around a lot of numbers, calling Prime Minister Justin Trudeau names and accusing Canada of being less than forthright.

“If measuring bilateral trade balances is messy business, using them to justify policy is dangerous business,” said Royce Mendes of CIBC World Markets.

“Eventually, U.S. businesses and consumers will push back, feeling the pinch and realizing that the focus on bilateral trade balances is fake news,” he added.

“Unfortunately, that’s looking more and more like a 2019 story.”

And for the record:

Yaschel found the kishka

Yaschel found the kishka

Yaschel found the kishka

He hung it on the rack

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Markets at a glance

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What to expect in GDP report

Canada’s economy is taking another breather.

So, too, might the Bank of Canada.

But observers believe it’s temporary. And while the good times won’t roll again anytime soon, at least the modest times will, as long as the trade war with the United States doesn’t escalate.

We’ll get two reports this Friday that put this in perspective.

The first, from Statistics Canada, is expected to show that the economy flat-lined in April, that cruellest of months, with no growth or a mild contraction. The second is the Bank of Canada’s widely watched business outlook survey.

Both are pieces of the puzzle leading up to the central bank’s July 11 rate decision. Until recently, a rate hike of a quarter of a percentage point was seen as a given, but markets aren’t so certain now, after last week’s cooler-than-expected readings on inflation and retail sales, and the Trump administration’s ongoing assault on Canada. Market-implied probability of a July 11 hike is now down to 54 per cent, from 73 per cent a week ago, according to Bloomberg data.

Economists expect Statistics Canada’s report to show gross domestic product was flat or down by 0.1 per cent in April. That follows two better showings in March and February, and would kick off the second quarter on a sour note.

“But there might be some better news on the horizon given that at least part of the weakness appears to have been transitory,” said Royce Mendes of CIBC World Markets.

“Indeed, shutdowns at a handful of oil refineries were to blame for the big drop in manufacturing, while poor weather likely temporarily restrained consumer spending and construction activity.”

But “thanks to a solid handoff from [the first quarter], and an expected bounce back from some of that transitory weakness over the next two months, second-quarter GDP growth still looks set to come in above 2 per cent,” Mr. Mendes added.

Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen Poloz

PATRICK DOYLE/The Canadian Press

Just after that, the Bank of Canada releases a quarterly look at business optimism and plans, a key report before the rate decision.

“The BOS indicator (a summary measure for the survey) was not far from historical highs in the prior survey, and would do well to hold steady during this round,” said Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist. Mr. Reitzes still expects Bank of Canada governor Stephen Poloz, senior deputy Carolyn Wilkins and their colleagues to raise their benchmark rate next month.

“Over all, the tone of the survey is expected to be generally positive, though not as upbeat as in the spring,” he added.

“Even so, we’re not expecting the [survey] to alter the BoC’s bias to tighten on July 11. Risks around trade and tariffs appear to be the main stumbling block to a move.”

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The rest of the calendar:

MONDAY: TAKING STOCK

There’s not much on the calendar, but let’s see how markets open after last week’s mixed showing amid concerns over global trade spats.

The S&P 500 dipped, but Canadian stocks climbed, indeed to a record, with the S&P/TSX Composite Index up 0.8 per cent.

“This is all the more impressive given that it comes alongside news flow that reads anything but bullish for the Canadian economy (see the weakening loonie) and equity market,” BMO senior economist Robert Kavcic said.

“Since bottoming in early April, the index has jumped more than 7 per cent, a rare bout of outperformance, however modest, versus the S&P 500.

“Gains have been widespread, with all sectors but utilities in the black.”

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TUESDAY: HOUSING

The April reading of the U.S. S&P Case-Shiller Home Price Index is expected to show a gain of 6.8 per cent from a year earlier, and 0.5 per cent from March.

WEDNESDAY: POLOZ

Notable is a speech by Mr. Poloz to the Greater Victoria Chamber of Commerce, which may help give markets a sense of the Bank of Canada’s thinking just before the July decision.

“Recent data have reduced the odds of a July rate hike, however we’ll get a clearer idea if one’s still on the table [this] week, with Poloz likely commenting on the recent data/trade uncertainties in Wednesday’s speech,” CIBC’s Andrew Grantham said.

Also on tap is the May report on U.S. durable goods orders, which economists expect to show a dip.

AGF Management Ltd. and Corus Entertainment Inc. additionally report quarterly results. So, too, does Canopy Growth Corp., a major cannabis player, which may have some interesting things to say after last week’s passage of laws to legalize marijuana.

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THURSDAY: EUROTRIP

There’s a big summit of European leaders. The European Council (EC) will discuss everything from Brexit and migrants to banking and, no doubt, trade.

German Chancellor Angela Merkel

ERIC VIDAL/Reuters

“The European Council meeting on Thursday will focus on immigration, allowing [German Chancellor] Angela Merkel to push for EU-wide policies which might ease dissent within her coalition,” said Jennifer McKeown of Capital Economics.

“The Euro summit later the same day is likely to confirm that very slow progress towards a euro zone banking union and reform of the [European stability mechanism] has continued.”

They’ll also talk about Brexit bargaining at the EC gathering.

“However, given that many issues remain unresolved, the withdrawal agreement and framework on the U.K.’s future relationship with the EU are unlikely to be signed off anytime soon, possibly not until December’s European Council meeting,” said Liam Peach, Ms. McKeown’s colleague at Capital Economics.

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FRIDAY: THE FINALE

Besides GDP and the Bank of Canada survey, markets will watch for reports on Japanese employment and industrial production levels.

And finally, there is a report on U.S. spending and income, each expected to show a gain of about 0.4 per cent in May.

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