You see, the world isn’t falling apart after all

If you’ve been reading these pages in recent months, you may have noticed a trend. I have been trying to put U.S. President’s Trump’s impact on the global economy in perspective, in part by stating that it’s not as bad as some have made it out to be, and, lo and behold, guess what? Things haven’t turned out as bad as they’ve been made to be, have they.

For instance, let’s take the most recent development: the renegotiation of Nafta, the North American Free Trade Agreement. Now, there has been a lot of grumbling about Trump’s tactics on trade and tariffs. There’s no doubt about that. But let’s take a look at what actually happened.

The art of the deal

United States Mexico Canada Agreement free trade

After a lot of fear, and maybe even some hysteria, a new free-trade deal has been agreed to by the United States, Mexico and Canada. And, in typical Trump fashion, there was a lot of bluster on his part, even threatening to level huge tariffs on Canada’s auto exports to the United States. But, in the end, what came of it all? Both Mexico and Canada gave some concessions to Trump, in exchange for a new free-trade agreement, now called the USMCA (United States Mexico Canada Agreement). And now everyone’s happy. Imagine that.

Trump is now set to engage in similar tactics with China; this as he’s already come to an understanding on trade with Europe, and even Germany, led by Chancellor Angela Merkel, has now reached out to Trump on the issue of gas imports from Russia. When Trump first raised the issue, there was an awful lot of backlash. Now, there’s actually some discussion. Imagine that.

A method to the madness

Part of the point here is that President Trump, regardless of what you think of him and his style, isn’t simply shooting from the hip. There is a method to his madness, which, for economic observers and investors, means that we shouldn’t panic at every news story that comes out about Trump. That, in fact, there are philosophical and historical factors underlying Trump’s approach to the world.

Specifically, the Cold War has been over for a few decades now, which means that a global realignment is underway, regardless of who is President of the United States. During the Cold War, the States was willing to essentially play nice to many crucial allies in exchange for resisting the Soviet Union’s global ambitions. Well, that bill is way past due. American can no longer afford to subsidize its allies, nor does it have to. It’s a new world, and Trump is reflecting some of that new reality.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


NAFTA’s effect on investments

The North American Free Trade Agreement (NAFTA) has been in the news in recent months because of President Trump’s desire to renegotiate the trade deal. Although various aspects of the treaty have become a topic of public discussion, such as the dairy sector, as well as subsidies for aerospace companies, what has been less talked about, but perhaps more impactful in scope, is the effect that these NAFTA negotiations can have on the continent’s investment sector.

Chapter 11 of NAFTA is specifically titled: Investment. It provides an established and predictable set of rules to invest across the borders of Canada, the United States and Mexico, while also establishing dispute-resolution mechanisms that facilitate the movement of capital across national boundaries.

The Donald Trump factor

NAFTA renegotiation investment

However, since the rise of Donald Trump onto the American political landscape, accompanied by his skepticism towards established trade treaties, an uncertainty about the future of NAFTA has most definitely had an impact on Canada’s investment sector.

According to Global News, a report prepared by research firm Pitchbook states that only $490 million dollar was invested in venture capital in Canada so far this year ending in April, which predicts a significant decline from 2016, which saw a record $2.11 billion invested in Canada’s venture-capital sector.

Canada’s private-equity sector was hit particularly strongly, in which only $990 million was raised up until April of this year, which is down from a level of $3.4 billion from the same time last year, and suggests totals this year will be below the $7.3 billion for all of last year. This puts Canada’s private-equity sector on pace to have its worst year since 2012.

The current uncertainty

So, the uncertainty surrounding NAFTA renegotiations seems to have a detrimental effect so far on Canada’s investment sector. What does this mean moving forward? Well, it can mean one of two things.

On the one hand, this current unease about NAFTA reflects just how much Canada has become dependent on the treaty, and how important its continuation is to provide stability and predictability.

On the other hand, there are suggestions that Canada might have to start thinking very seriously about the prospect of an end to NAFTA. Former Canadian Prime Minister Stephen Harper himself has recently said that he doesn’t believe the cancellation of the treaty is a bluff from President Trump. Instead, forces are at play south of the border that have made protectionism more prevalent.

Nevertheless, good investors know they have virtually no control over the politics of trade and investment. Instead, investors should always look for opportunities, despite any uncertainty. As the NAFTA process works itself out, Canada has ratified its free-trade treaty with Europe (CETA), and there will always be landing spots for global capital, whether it’s south of the border, or across an ocean or two.

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