Briefing highlights
- Best- and worst-case NAFTA scenarios
- Stock markets at a glance
- Storm shakes up oil, gasoline prices
- What to expect in GDP report
- What else to watch for this week
- Toromont to buy Hewitt Group
- Gilead Sciences buying Kite Pharma
- GE shifts strategy, financial targets
Snits happen
No, that's not exactly the phrase, but either expression may be apt when NAFTA talks resume at the end of the week.
Negotiators go back to the table in Mexico City, their first meeting since President Donald Trump's repeated threats to terminate NAFTA, which doesn't bode well for Friday's talks and no doubt has left some officials in said snit.
Some observers say Trump was broadcasting a hard stand in renegotiating the North America free-trade agreement.
Certainly, that's common in any set of negotiations. But in this case, one wonders if it was just Trump being Trump.
"There is also the small matter that Congress will ultimately have a big say in the fate of NAFTA, and there appears to be limited appetite for 'terminating' the deal in those halls," noted Bank of Montreal chief economist Douglas Porter.
Currency markets may have thought so, too. The Canadian dollar dipped in the wake of Mr. Trump's initial comments, but it didn't take long for it to bounce back. And it's above 80 cents (U.S.) today as the greenback suffers.
Of course it's far too early to project specific, or even overall, outcomes. This week's talks, expected to run for five days, are only the second round.
Citigroup, for example, expects to see "a modernized version of NAFTA that avoids inclusion of many controversial items."
The bank sees a 50-per-cent chance of a a deal being done by 2019, a 40-per-cent chance of it being wrapped up by mid-2018, and a 10-per-cent chance of it dying, said Citi Research economist Dana M. Peterson.
Here's a look at Mr. Hartpence's best- and worst-case scenarios:
Best case
"A best-case outcome for Canada would play up those shared interests: For the U.S. and Canada, preserving reciprocal market access for goods across heavily integrated industries; reducing 'red tape' at the border; expanding services and government procurement access; and bringing digital trade, labour and the environment into the core of the agreement."
For example, Canadian exporters hit by non-tariff barriers could benefit if they're relaxed, Mr. Hartpence said, citing beef and pork producers hurt by America's "country-of-origin" labelling rules.
"Ensured access could allow exporters to specialize further, reap advantages from economies of scale and potentially improve their productivity," Mr. Hartpence said.
"Given the U.S. intends to make [rules of origin] more restrictive, a best case scenario for Canada would be a minor increase," he added.
Canada could also benefit if "more streamlined and harmonized" border procedures lower shipping costs.
Then there's the services side of the ledger, where the U.S. runs a surplus with Canada.
"Even if the NAFTA partners cannot come to an agreement on their respective sensitivities (movement of professionals for the U.S., opening up of cultural industries and telecom for Canada), extending market access for services should prove mutually beneficial for the increasingly services-driven economies of North America," Mr. Hartpence said.
Worst case
"A worst-case, however unlikely, would see a U.S. withdrawal from NAFTA, which would have a long-run negative impact on the Canadian economy and chip a percentage point off GDP as tariffs rise. And a bad new deal would raise rules-of-origin thresholds for 'local' content to a level that diminishes Canadian producers' global competitiveness; impose IP rules that stymie rather than support innovation; and possibly remove the impartial trade arbitration afforded by NAFTA's Chapter 19."
It's difficult to gauge what goods trade adds to economic growth, Mr. Hartpence said, but average U.S. levies aren't devastating.
The long-term hit is an entirely other matter.
"An approximate 4-per-cent rise in tariffs in Canada and the U.S. under a worst-case scenario (NAFTA withdrawal) would have a significant longer-run negative impact on the Canadian economy, reducing Canadian GDP by around 1 per cent over the next five to 10 years relative to a 'no-change' baseline," Mr. Hartpence said.
"The cumulative impact could amount to some $20-billion [Canadian] loss of annual economy-wide income in today's dollars," he added.
"The broader cost is hard to quantify. Scrapping NAFTA would also hit business and consumer confidence, further weighing on growth and investment and potentially fuelling a cycle of falling interest rates and a declining Canada dollar."
Read more
- Adrian Morrow: Trump renews threat to terminate NAFTA
- Greg Keenan, Steven Chase: Changing NAFTA won’t stop auto-job exodus to Mexico: officials
- Adrian Morrow, Steven Chase: Canada, Mexico unfazed by Trump’s threat to ‘terminate’ NAFTA
- Adrian Morrow, Steven Chase: U.S. demands end to NAFTA trade-dispute panels
- NAFTA’s first round of talks will jump right into Chapter 19
- Adrian Morrow: What to expect at the NAFTA table
- Globe editorial: What Canada wants from NAFTA 2.0, and how to get it
- Tariffs, taxes, money (and morals): A guide to NAFTA 2.0
- David Parkinson: Is Chapter 19 worth fighting for in NAFTA negotiations?
- Wine and olives: No, not a sexy evening, but two trade spats
Markets at a glance
Read more
What to watch for this week
Define barn-burner: An economy growing at an annual pace of up to 4 per cent.
Economists expect Statistics Canada to report Thursday that gross domestic product expanded at an annual rate of somewhere between about 3.5 and 4 per cent in the second quarter.
"That would cap a remarkable four-quarter run for the economy, leaving output up 3.6 per cent from a year ago, matching the best pace of the cycle and one of the strongest of the past 15 years," said BMO senior economist Robert Kavcic, who expects the federal agency to peg annualized growth at 4 per cent.
"True, part of the outsized gain reflects comparison to the wildfire-ravaged quarter a year ago, but it also reflects the fact that a major headwind (i.e., the oil-shock adjustment) has faded, leaving above-potential growth in other sectors/regions to fully shine through," he added.
"In the second quarter, consumer spending was strong again, government spending likely accelerated with fiscal stimulus hitting the ground, and business investment appears to have settled into a modest growth track. After carving deeply from Q1 growth, net exports look to add modestly to Q2."
Having said that, the second quarter is believed to have ended on a flat note, with virtually no growth in June.
"Despite a robust retail sales report, declines in manufacturing and wholesaling could hold June's monthly GDP to a flat reading," said Andrew Grantham of CIBC World Markets.
"That would be the first sign of an economy cooling back to the more trend-like growth rates expected for the second half of the year."
The rest of the calendar:
Monday
As luck would have it on the week of the second round of NAFTA talks, the U.S. reports its goods trade deficit for July. Economists expect it to come in at about $64.5-billion (U.S.).
Tuesday
Japan reports some economics statistics, including jobs numbers.
Markets will also get a look at U.S. real estate with the release of the S&P/Case-Shiller home price index.
We'll also get to see more Canadian bank results, with Bank of Montreal, Bank of Nova Scotia and Laurentian Bank on tap. Best Buy Co. also reports.
Wednesday
Here's that as-luck-would-have-it thing again, with Statistics Canada expected to peg the country's current account deficit at $16.6-billion.
National Bank of Canada is out with quarterly results.
And Mr. Trump is scheduled to speak on tax reform, which is key for the markets and has so far come to naught.
Thursday
Aside from Canada's GDP report, we'll get the latest on inflation and jobless levels in the euro zone.
RBC expects to see annual inflation unchanged at 1.3 per cent in July, and unemployment also unchanged at 9.1 per cent.
Toronto-Dominion Bank and Canadian Western Bank follow the others with quarterly results, and Campbell Soup Co. also reports.
Friday
September dawns with global purchasing manufacturers index reports, providing a look at the state of manufacturing across the globe.
Which is the perfect setup for Round 2 of NAFTA talks, with the Trump administration focused on manufacturing jobs.
Ditto the monthly U.S. employment report, which observers expect will show about 180,000 jobs created in August and unemployment at 4.3 per cent.
Read more
- Follow our investor calendar
- James Bradshaw: RBC profit buoys outlook for Canadian banks
- James Bradshaw: CIBC sets sights on U.S. growth
More news
- Toromont to buy Quebec-based Hewitt Group for $1-billion
- Gilead Sciences buying Kite Pharma
- GE shifts strategy, financial targets for digital business after missteps