MNI INTERVIEW: EDC: Tariffs,Demand Pose Long-Run Trade Problem

--Intractable US-China Fight, Recession Key Risks In Canada Survey

By Greg Quinn

     OTTAWA (MNI) - Global trade remains threatened by an intractable U.S.-China

dispute and persistently weak growth, Export Development Canada's deputy chief

economist told MNI on Tuesday.

     Exporter confidence in Canada, one of the world's most trade-dependent

economies, fell to an eight-year low in a survey by the government's trade

finance agency. Recent signs of momentum on the Phase One China deal and the

U.S. Mexico Canada Agreement or USMCA are also being countered by the more

recent coronavirus outbreak in China.

     "The vast majority of Canadian exporters are thinking that protectionism

will remain kind of at the same level it is in 2020, relative to 2019, or will

get worse," Stephen Tapp of EDC said in an interview. "We're interpreting this

in some sense as being a new normal for Canadian exporters."

     One-third of survey respondents said there won't be a full resolution to

the U.S.-China dispute, leaving the world economy exposed to another slowdown

that forced central banks to rescue growth in 2019. Recession predictions were

pushed into next year with the odds at 39% in the EDC survey, taken before the

Phase One deal was signed and the coronavirus outbreak.

     "It's a negative hit to the global economy, it's coming at a pretty bad

time right now, we had just started to see signs of stabilization both through

the CUSMA deal ratification push and the U.S.-China trade tensions kind of

dissipating," Tapp said. "We are seeing some worries about cancelation of

contracts on things like Canadian exports of lobsters to China, which are high

for the season to celebrate the Lunar New Year, and Canadian exports of pork."

     --PRETTY WEAK 2020

     The Phase One deal still left in place some broad tariffs and even Canada's

trade deal with President Donald Trump didn't fix other barriers such as `Buy

American' policies, Tapp said. 

     "We've seen pretty weak performance in Canadian trade in the last quarter

of 2019 and the results we've got in the survey here would be consistent with a

pretty weak outlook in the first half of 2020," he said. 

     The BOC has said the door is open to the first rate cut since 2015 on signs

that global trade fights that hit exports and investment are now weakening

domestic spending. Governor Stephen Poloz has said the key question is whether

weakness persists in the economy.

     The EDC report comes the day before Statistics Canada reports the December

merchandise trade balance, likely to show a deficit of CAD610 million according

to an MNI economist median. The annual deficit is on track to show a record

shortfall against non-U.S. nations, mostly offset by a surplus in trade with

America. Most economists say Canada's competitiveness is in decline compared

with emerging markets like Mexico and China.

     --DOLLAR RELIEF 

     One relief to exporters is Canada's dollar, which in the past has burned

manufacturers with fast or persistent appreciations through commodity booms.

"The exchange rate has been trading in a relatively stable band over the last

three years or so, we've been in the mid-70, high 70-cent range, and there

hasn't been as much volatility as when you saw the big commodity price and oil

price movements prior to that," Tapp said.

     "Canadian exporters are enjoying a bit of an advantage in the U.S. market

from that competitive Canadian dollar, but people aren't really pricing in any

big moves in monetary policy on both sides of the border, it's expected to

remain relatively stable over the next year or so."

     The semi-annual Trade Confidence Index posted its third consecutive

decline, falling to 69.3 to 69.8, the lowest since 2012. The telephone survey of

about 1,000 companies was conducted from Nov. 18 to Dec. 15. Compiled since

1999, it peaked around 85 in 2000 and its trough was 60 around the 2008 global

financial crisis.

     "A lot of Canadian exporters are feeling that it's going to be a

challenging trade environment for the foreseeable future" because of

protectionism and the global outlook, Tapp said.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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