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Business Briefing If it looks like a trade war, swims like a trade war, quacks like a trade war

Briefing highlights

  • Trade tensions mount
  • Companies, economies threatened
  • Loonie below 74 cents
  • Home Capital puts itself on the block
  • Potash Corp. profit tops expectations
  • Ford's quarterly profit slips

Tit for tat

Presumably, you’ve got to have at least one return volley to mark the start of the war. And at this point, we’ve only had the tat in any tit-for-tat trade action between the United States and Canada.

If Christy Clark has her way, our volley would come next.

And, as they say, if it looks like a duck, swims like a duck and quacks like a duck, then it’s probably a duck.

So far, we’ve seen just one trade action, from the Americans on softwood lumber. Beyond that, there’s the bluster and the threats.

But all of this takes a toll on Canadian companies, and threatens to damage the economy even further.

“Tense negotiations will almost certainly hit investment spending from Canadian companies - already expected to be a drag on domestic growth for the year,” warned Bipan Rai, executive director of macro strategy at CIBC World Markets.

At this point, many observers say they don’t expect an all-out war, but they certainly point to that possibility.

And, of course, emotions are running high and politics are at play. Ms. Clark is in the midst of an election campaign, battling for re-election as British Columbia’s premier, and President Donald Trump appears desperate to show he has actually done something concrete, beyond a failed attempt at health care reform, in his first 100 days.

If it looks like a duck

Let’s start with softwood lumber. To recap, the U.S. has slapped preliminary countervailing duties on Canadian exports, with anti-dumping levies still to come.

As The Globe and Mails Sunny Dhillon and Wendy Stueck report, Ms. Clark is now pressing the Trudeau government to retaliate by banning thermal coal exports from B.C. ports.

To be sure, she cited environmental issues related to those shipments, but also brought the softwood lumber dispute into it.

“With the decision by the United States Department of Commerce to impose these unfair and unwarranted duties on Canadian softwood lumber exports, now is the time to align our shared values with our environmental policy,” she said in an open letter to Prime Minister Justin Trudeau.

This all sent the shares of Canada’s Westshore Terminal Investment Corp. and Cloud Peak Energy Inc. of the U.S. sliding on Wednesday. The Canadian dollar, too, has tumbled on the softwood duties.

If it swims like a duck

Ms. Clark, Mr. Trudeau and Quebec Premier Philippe Couillard are swimming against ever-rising floods (or whatever one has to say to make the analogy work).

Ms. Clark’s province has much at stake. Canadian softwood exports represent more than 30 per cent of the American market, and B.C. accounts for the lion’s share.

“Lumber and wood products account for over 3 per cent of Canadian international goods exports, with the U.S. tariffs applying to nearly half of these,” Toronto-Dominion Bank chief economist Beata Caranci, senior economist Michael Dolega and economist Dina Ignjatovic said in a report.

“The majority of Canadian lumber exports come from B.C., where the industry’s exports to the U.S. account for 2 per cent of economic output - more than quintuple the national share,” they added.

“The industry is also a significant contributor to the economies of New Brunswick and Quebec.”

As for the latter, the Quebec government has already promised to come to the aid of its industry, to the tune of up to $300-million.

If it quacks like a duck

It sure does, and most of it’s coming from Mr. Trump.

Heading into his 100th day, Mr. Trump has spent much of the last couple of weeks blaming Canada for some of America’s woes, slamming its dairy, lumber and energy industries.

Then on Wednesday, there was widespread talk that he was preparing an executive order that would lead to the U.S. pulling out of the North American free-trade agreement.

But as our Washington correspondent Adrian Morrow reports, Mr. Trump backed off that late in the day, with the White House saying that he “agreed not to terminate NAFTA and this time” after speaking with Mr. Trudeau and Mexico’s Enrique Pena Nieto.

That put a spark in the Canadian dollar and Mexican peso, but the loonie still sits below the 74-cent U.S. mark after tumbling earlier in the week.

According to Mr. Trump, in two tweets this morning:

“I received calls from the President of Mexico and the Prime Minister of Canada asking to renegotiate NAFTA rather than terminate. I agreed ... subject to the fact that if we do not reach a fair neal for all, we will then terminate NAFTA. Relations are good - deal very possible!”

Of course, that came after he warned via Twitter that “we will not stand for” how Canada is harming Wisconsin dairy farmers.

Observers believe these are signals heading into NAFTA talks, as well as trying to make good on his campaign pledges.

“Despite this tariff on softwood lumber being preliminary, it represents a strong signal that President Trump is acting on his campaign promise to ensure better trade conditions for America,” the TD economists said.

“Canada’s dairy and energy sectors have also come under scrutiny recently, and [the softwood] announcement may be a sign of more to come.”

Mr. Trudeau and his right hand on trade, Chrystia Freeland, are saying all the right things heading into negotiations. But let’s close with this from Ms. Clark’s demand of Mr. Trudeau:

“I would hope that you will join me in this important initiative, but in the event that Canada does not consider this request appropriate, please be assured that British Columbia will use the tools we have at our disposal to discourage the shipping of thermal coal through British Columbia.”

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