 Monday, November 04, 2024 | | | Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong | | |  | Americans go to the polls on Tuesday in a very tight election. (Gabriele Maltinti/Shutterstock) | | | The U.S. election is finally upon us.
I don't pretend to know what's going to happen. But I do know there are real consequences for Canada and the Canadian economy either way.
Tariffs remain the biggest feature and the biggest threat to the Canadian economy. A looming renegotiation of NAFTA (now called the USMCA) comes with its own issues.
Trade has fundamentally changed since the last time Donald Trump was running for president. Since then, we had multiple trade wars, COVID-19 and the ensuing supply chain crisis and new wars in the Middle East and Europe.
More broadly speaking, there has been a shift away from globalization as a solution to all the world's problems.
Interestingly, there is one exception.
If you want an example of a trade deal that has grown and expanded even as the world took the first tentative steps toward deglobalization.... look no further than our own backyard.
"As of last year, total exports between Canada, the U.S. and Mexico topped $1.5 trillion, nearly 30 per cent higher than 2019 levels," wrote Marc Ercolao with TD Economics. | | |  | | | | | That chart comes via a really smart and insightful report from Ercolao and the team at TD Economics.
It says 75 per cent of Canadian exports are currently destined for the U.S.
"Meanwhile, over 30 U.S. states have Canada as their number one export destination. Canadian energy exports to the U.S. have led the way, accounting for almost a third of its total merchandise exports," wrote Ercolao.
So Trump's proposed tariffs — anywhere between 10 and 20 per cent across the board — would bite deep.
TD has calculated that kind of sweeping tariff would cause Canadian GDP to fall by as much as 2.4 percentage points over two years.
But it also says that's a worst-case scenario.
Still, it's an unsettling time for consumers and businesses alike.
KPMG does a regular survey of business leaders. Its 2024 survey found 87 per cent of Canadian business leaders "fear that the Canadian economy could become 'collateral damage' from growing American protectionism." |  | | | It's hard to find fault with those concerns.
But the team at CIBC Economics crunched the numbers and found the actual impact may not be quite as pronounced as feared.
On the one hand, they say we have to at least consider that the spectre of tariffs is more threat or negotiating position than actual policy.
They also dug into various sectors hit by previous tariffs to see how much of the additional cost was carried by the consumer and how much was shouldered by the businesses.
The long and short of it is that the worst-case scenarios don't factor in how Trump's most damaging proposals would actually play out.
"All of this is reason to suspect that, should Trump win, an all-out trade war, which will not be in the U.S. interest, is less likely to be the end game for American policy. Widespread tariffs would hurt U.S. consumers, risk retaliatory actions by America’s trade partners that would impede U.S. exports and slow global growth," wrote CIBC's team of economists.
But they conclude with the fairly self-evident point that for most businesses and most exporters, there is a clear policy preference.
"For Canadian exporters, the outlook still looks to be less concerning, with fewer downside risks, with a [Kamala] Harris electoral victory," they wrote.
For all the speculation and all the prognosticating, I for one will be glad to see some actual results this week.
You can catch all our coverage on CBC Radio, TV and online.
Piya Chattopadhyay and Susan Bonner will be hosting special coverage on CBC Radio One starting at 8 p.m. ET on Tuesday night.
On CBC Television, chief correspondent Adrienne Arsenault will be joined by host Ian Hanomansing, senior Washington correspondent Paul Hunter and chief political correspondent Rosemary Barton. Catch their coverage starting at 8 p.m. ET.
And of course, you can follow results on our website: cbcnews.ca.
What do you think will happen?
As always, send me a note.
My email is: peterarmstrong@cbc.ca | | |  | | Americans go to the polls on Tuesday. The presidential election is top of mind, of course, but the balance of power in Congress may prove just as consequential. | | | | | | Just two days after the U.S. election, the Federal Reserve will announce its latest interest rate policy. Economists expect the central bank to cut rates by 0.25 per cent on Thursday. | | | | | | Canadian jobs numbers for October will be released on Friday. The consensus is that Canada added just enough jobs to keep the unemployment rate unchanged. | | | | | Three things to read, watch and listen to this week | | |  | Who will be the next U.S. president? (Maxx-Studio/Shutterstock) | | | 1. Waiting for a winner | | | I want to use this section this week to highlight some of the pieces I've read about the U.S. election campaign that have stuck out for me.
The economy has always been front and centre in this campaign. But there is a weird and ongoing disconnect between what's happening in the American economy and how people feel about the American economy.
Objectively, it has been booming. GDP growth is the best in the G7 (by far). Employment growth has slowed over the past few months, but the labour market has been red hot over the last year.
My colleague Jenna Benchetrit spoke with the author, columnist and YouTuber Kyla Scanlon about the disconnect.
"I think that there's always a lot of misconceptions about the economy. And with the economy, it's so incredibly personal. And so it's very difficult to talk about it on a national stage, because you're talking in terms of averages — but people don't live inside of an average. They live inside of their personal experience," said Scanlon.
Kyle Bakx wrote a piece trying to get a sense of what the election may mean for markets. The loonie has been selling off ahead of election day. Markets are on tenterhooks, but Bakx spoke with Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto.
Remember, when Trump won in 2016, Democrats said the market was going to tank. When Joe Biden won in 2020, Republicans warned markets would plummet. Schwartz says those same predictions will probably be made this time.
“No question, short term, there could be volatility, but it really doesn't matter. If you look at the history of stock market performance, the market did well under Trump. The market did even better under Biden," Schwartz told Bakx.
Read Kyle Bakx's piece on markets bracing for a decision here.
Follow our coverage of the economic fall out of this campaign here. | | | 2. Endorsements | | | I'm not sure endorsements carry as much weight as they once did.
The Washington Post made headlines last week when it decided against endorsing either candidate. That decision prompted much debate about whether Amazon founder Jeff Bezos, who owns the Post, was trying to hedge his bets in case Trump wins.
Executives of Bezos's aerospace company Blue Origin met with Trump on the very day the endorsement decision was announced. In the wake of that decision, at least 250,000 readers cancelled their subscriptions to the Post.
Newspapers don't always endorse a candidate. The Wall Street Journal has a 92-year-old tradition of not endorsing, which it maintained last week.
The Journal laid out the basic arguments against both candidates and doesn't sound exactly overwhelmed with enthusiasm.
"A second Trump term poses risks, but the question as ever is compared to what? Voters can gamble on the tumult of Trump, or the continued ascendancy of the Democratic left. We wish it was a better choice, but that’s democracy," wrote the Wall Street Journal's editorial board.
One last endorsement... this one from The Economist.
"A second Trump term comes with unacceptable risks," reads the headline of that piece.
Check out The Economist endorsement here.
Read the Wall Street Journal's editorial here (paywalled).
Check out The Washington Post's piece on subscription cancellations here. | | | 3. The state of the Canadian economy | | | I was going to dedicate the entirety of this week's newsletter to the U.S. election. But this podcast really jumped out at me.
I've always liked listening to Don Drummond talk about the economy. He's a no-nonsense straight shooter who has an uncanny ability to explain the wonkiest, most complicated economic thinking in ways I actually understand.
He's a guest this week on the podcast The Herle Burly. I have said it before: that show is doing more to advance the understanding of economics in this country than most of the rest of us combined.
This conversation between Drummond and host David Herle is wide-ranging and honestly, the whole thing is riveting.
Let me just highlight two small points Drummond makes that have been rattling around in my brain since I heard them.
They were talking about government spending and how every level of government is strapped right now.
"The one thing we know for certain is we are going to have continued expenditure pressure on health care," he said, turning to one of the most eye-popping stats I've heard in a while.
We will see "a doubling of the cohort [aged] 75-plus and a tripling of the cohort 85-plus and ... that’s where the expenses rise," said Drummond.
Managing that is going to be one of the defining characteristics of the next 30 years of Canadian fiscal policy, and as Drummond says, we aren't even addressing the existing problems.
"That’s without even talking about addressing the fundamental problem of six million Canadians not having a primary caregiver, people wanting to stay in their home but not having access to home care," said Drummond.
His other point was about the national household savings rate.
He says the household savings rate has climbed to eight per cent. (It averaged three per cent in the decade before that.)
What interests Drummond is less the actual savings rate than the reason why the Bank of Canada thinks households are saving right now.
"They speculate people are pre-saving, knowing the hit they’re going to take from their mortgage renewal," he said.
"Brilliant on the part of the households. I hope that's true. It just shows the wisdom and it does give me some confidence that we will get through that period," he said.
But Drummond says if Canadians really are stowing away that much money, what does that mean in terms of economic growth?
If we are stashing money in our mattresses, we probably aren't buying that new coat or re-doing the back deck. And those decisions will weigh on economic growth for a long time to come.
Check out Don Drummond on The Herle Burly here. | | | How the economy looks beyond Bay Street | | | Don't bet against the American consumer | | | One last note about the American economy heading into this election. We got (quite) weak jobs numbers out of the U.S. last Friday.
That prompted many to wonder if the economy has begun to materially slow after a long run of advances.
I found this chart to be a good reminder that even if the American voters feel like the economy is struggling, they aren't acting like it. | | |  | That chart comes via Joey Politano, who writes a newsletter called Apricitas Economics.
It's smart and well-written and chock-a-block full of charts and interesting stats about the (U.S.) economy.
You can sign up here (there's a free option).
But the chart is a good reminder of the main thrust in Jenna Benchetrit's piece above. There are plenty of contradictions in the economy. There always are.
I'm just glad it's someone else's job to make sense of those contradictions. | | | Share this newsletter | | or subscribe if this was
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