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April 2017

Trump cards: What kind of hand will Canada be dealt?

How the Trump presidency is impacting cross-border trade relations and the effect on Canadian and global economies.

Trade Relations with Trump Ever since the now infamous “handshake” during the initial meeting between Donald Trump and Justin Trudeau, political pundits have been curious as to how relations would develop. What started out with words of mutual admiration between the two leaders back in February has deteriorated into more protectionist language, particularly from the American president, as trade negotiations heat up.

Trump’s first few months

Since President Trump took office back in late January 2017, the administration’s tenure has been subject to a whirlwind of media scrutiny and controversy. From the initial travel ban, to contentious cabinet appointments, hastily conceived laws and “alternative facts”, Trump-related news has dominated the headlines.

How will the Trump Doctrine play out with regard to the North American Free Trade Agreement (NAFTA), immigration, foreign policy, thicker border walls, Canadian softwood lumber production and the “dairy wars” focus on Canada’s supply management system? There is also the reality of the American debt load and the country's significant reliance on China’s continued huge U.S. investments. Ongoing promises to build the “Great Wall of America” on its southern borders will add dramatically to that debt, despite assurances from Trump that Mexico will pay for it.

Conditions on the global stage are no less unsettled. During the election campaign, Trump stated that the U.S. was tired of being the world’s cop and demanded other countries pick up their fair share of the tab. But that hasn’t stopped him from bombing ISIS positions in Afganistan, conducting Tomahawk strikes against government infrastructure in Syria or sending the American “armada” to the shores of North Korea. Even Trump’s apparent cordial relations with Putin and Russia have cooled in recent weeks. While a “might makes right” approach to military intervention may play well to some U.S. citizens, it is doubtful that it’s sustainable without push-back on the world stage.

On the domestic front, Trump has advocated to lower corporate tax rates from 33% to 15%, lower personal taxes with a maximum of three tax brackets, and talked up a planned $1 trillion in infrastructure investment over the next 10 years. While these initiatives will add to the country’s debt load, they are stimulatory in nature and potentially good for trade between Canada and the U.S. If Trump imposes a border tax, it may slow traffic from Canada to the U.S. but that has already undergone a significant reduction due to the state of the loonie. Conversely, the dollar difference has led to much greater tourism and investment in Canada by American citizens. Furthermore, Trump’s approval of the Keystone XL pipeline could prove beneficial to the Canadian energy sector.

What’s next for NAFTA?

One of the areas of greatest concern for Canadians with the Trump platform is NAFTA. President Trump has frequently referred to NAFTA as a “disaster” and threatened to “make some very big changes”.

In recent weeks, Trump’s flurry of complaints about Canada has increased, marking a noticeable change from the early days of his presidency — suddenly, he's complaining less about China and Mexico, and more about his northern neighbour. This is despite the fact that the U.S. trade deficit with Canada is only $11B as compared to its deficits of $347B, $69B, $65B and $63B with China, Japan, Germany and Mexico respectively.

Nonetheless, Canada is a huge trade partner of the U.S. with $545B in annual trade between the countries. Canada sends about three-quarters of its exports to the U.S. and roughly 2.5 million Canadian jobs depend on that trade with 400,000 people a day crossing our shared borders. So renegotiating NAFTA could create major economic setbacks for our country.

Softwood lumber and dairy update

With the larger trade issue of NAFTA renegotiations as the backdrop, Trump has also waded into the fray attacking the Canadian softwood lumber and dairy industries. According to the Huffington Post, “Lumber and dairy are longstanding irritants — and were also a problem file under previous presidents. In softwood lumber, the countries have a once-a-decade cycle of tariffs, trade litigation, and ultimately settlements.”

At the time of writing Trump had just thrown the first punch in the latest round of the softwood lumber battle, announcing initial duties of up to 24% on Canadian lumber, with further tariffs expected later this year. The new lumber tariffs come into effect immediately and will be applied retroactively to the past 90 days. Industry experts suggest that the new and future duties could range between 30-40% and will definitely impact our forestry industry here in BC. How Canada responds to these recently imposed duties could lead to a lengthy court battle and will be paramount to future trade negotiations with the U.S.

Trump also turned to his Twitter account on to hint at future restrictions on the Canadian dairy industry as he unveiled his “Buy American and Hire American” imperative in Wisconsin.

Trump Twitter

What does it all mean for you?

Relations with the U.S. aren’t the only economic issue at play in the global market these days. Brexit, upcoming elections in France and Britain, and rising tensions with North Korea and Russia, all make for an unsettled global economy. So, how can you navigate market uncertainty when it comes to your investment strategy? By focusing on the things you can control. While no one can predict what President Trump may do next, there are strategies to help manage your portfolio while mitigating the risk.

1. Monitor your asset mix. A key to successful investing is finding the right mix of stocks, bonds and cash to deliver enough growth to meet your goals, at a level of risk that’s acceptable to you. It’s important to periodically rebalance your investments so the market’s ups and downs don’t push your portfolio to an overly aggressive, or too conservative, position. Consider turning market volatility into your advantage by regularly adding new money to your portfolio so you wind up buying more of an investment at better prices when the market’s down.

2. Maximize tax saving opportunities. Reducing your tax bill year-in and year-out can make a substantial difference to how much you’re able to save over time, no matter how markets behave. Work with your advisor to create a tax-efficient portfolio that lets you make the best use of RRSPs, TFSAs, the dividend tax credit, tax loss selling and other wealth building opportunities.

3. Don’t make emotional investment decisions. It isn’t always a lack of planning or the wrong investment choices that sink good intentions. More often than not, investors fail because their discipline falters, allowing fear or greed to cloud their judgement and ultimately leading to poor decisions. Ignore the headlines. Avoid trying to time the market or chase returns. And above all, stay invested. Sticking to your investment plan gives you the best chance of achieving your long-term goals.

While you keep a weather eye on the unfolding events on the local and global stage, a well-structured portfolio can help see you through what lies ahead. If it’s been a while since you last reviewed your investments, speak with your BlueShore Financial advisor.

Check out our online resources available from our recent seminar series, Investing in Unsettled Times, or contact your advisor to review your investment portfolio structure and options.

The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any financial products.

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