Recent events have led some people to believe that Canada, and even the rest of the world, is on the verge of a trade war that could conceivably dampen economic outlook and risk international investment opportunities. Indeed, if you’ve been in Canada for the past few weeks, you might been led to believe that a huge trade war is looming, well, because apparently Donald Trump has nothing better to do than pick on Canada, as well as other countries.
However, the reality of the situation might be quite different than the impression you get from watching the nightly news, for a number of different reasons. First, Trump may be a lot of things, but he probably fancies himself, more than anything else, as being the consummate negotiator. His famous book, The Art of the Deal, is a testament to not only his negotiation style, but how he sees himself as a business man. And, after all, that’s what Trump is: a business man. The politician/president component of his resume constitutes a second career of sorts.
Negotiations vs. reality
As a result, much of what we’re seeing from Trump currently might be nothing more than negotiation tactics. Yes, Canada is now subject to significant tariffs on our exports of steel and aluminum to the States, and retaliatory tariffs from Canada are planned for the end of the month. Yet much of this is occurring as a backdrop to NAFTA free-trade negotiations, as well as other trade relations Trump is targeting. So, these current developments may well be nothing more than a large real-time exhibition of Trump’s negotiating tactics. Time will soon tell.
However, beyond Trump’s current trade tactics, other factors suggest that things might not be as gloomy as they seem. Specifically, there are various leading indicators when it comes to international trade. And, right now, they seem to suggest a positive future reality, despite the imposition of current and prospective tariffs by the United States.
For example, the Nomura Asia Export Leading Index, as reported by Bloomberg, although having experienced a slight downward trend earlier in the year, is still at historically high levels as of the end of April, 2018. What this means is that exports to Asia are still strong, particularly since the data includes an emphasis on electronics, which means global trade should be chugging along for at least the next few months.
The numbers are still good … for now
Another leading trade indicator is found in statistics provided by Oxford Economics. As reported by Bloomberg, the index contains a basket of 11 Chinese economic indicators. The numbers suggest that last year’s international trade strength should be sustained for much of 2018, despite all this talk about protectionism. The fact is that the U.S. economy’s strength is fuelling demand for international goods and services, and China, as well as everyone else, should still stand to benefit.
So, what does all this tell us about the state of trade in a world where everyone’s talking about a trade war? Well, it tells us that we have yet to fall off the ledge when it comes to international trade. Recent tariffs, as well as the talk of more tariffs, have yet to dampen overall production and demand. And, as always, forward-looking investors should worry less about what the headlines are saying about trade and, instead, always look for opportunities whenever they present themselves, even during bluster over trade.
ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.