Can a Trump Trade War Derail the Canadian Economy?

In the upcoming Bank of Canada on July 11th, it was widely expected that the central bank would increase interest rates. After all, why not? A strong end to the first quarter boosted optimism that the Canadian economy was headed towards better times.

Low oil prices and bad weather saw real gross domestic product increase at a seasonally adjusted annualized rate of 1.3 percent in the first quarter of 2018, the slowest quarter in almost two years. Q1 was the third successive quarter that the economy expanded at rate lower than 2-per-cent, in the four quarters prior, there was a near 4-per-cent average.

Whilst the first three months of the year proved to be a tepid, at best, first quarter, March GDP increased 0.3 percent month over month, after February’s 0.4-percent increase. This indicates the Canadian economy entered the second quarter, enjoying solid momentum and providing a prompt for analysts to increase their forecasts for the second quarter. However, things have wobbled of late.

The Bloomberg Nanos Canadian Confidence Index slumped to 55.3 in the week ending June 22nd, down from 57.1 a week earlier and the lowest weekly level since 2016. The fall of 1.8 points was the single largest drop since weekly polling began in 2013. The sharp deterioration in relations between the U.S and Canada is spooking Canadian consumers. Sales in household, office and IT supplies. Compounding matters was news that the burgeoning Canadian crypto community would be hit by proposed regulation strengthening the policies of Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime (AML/ATF). Crypto innovation enjoys strong IT support Toronto and Ontario being the main hubs. The growing crypto economy would suffer from regulatory curbs, whilst other cities such as Seoul in South Korea enjoy freer regulation.

Canadian Retail Sales saw their largest decline in over two years. Although particularly bad weather was blamed on the slump, escalating trade tensions with the U.S. is affecting Canadian households and sending consumer confidence spiraling. The G7 Summit held recently in Quebec, saw President Donald Trump and Canadian Prime Minister Justin Trudeau square off over tariffs and trade. Trump ordered his administration to review a 25% tariff on vehicles exported to the US from Canada. Vehicles and auto parts are Canada’s second largest export, behind energy, and approximately 180,000 people are employed in the auto industry.

For the Canadian economy to progress there needs to be a happier ending between the Trump-Trudeau stand off than a trade war. The Canadian economy is too reliant on the US market and although Canada has oil, the instability of the oil markets means Canada has to rely on the oil and auto markets, its two largest exports, to survive this testing second quarter to an increasingly eventful 2018.

Melissa Thompson
Melissa Thompson writes about a wide range of topics, revealing interesting things we didn't know before. She is a freelance USA Today producer, and a Technorati contributor.