 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 | | |  | Canadian trade is back in focus for the Bank of Canada. (xtock/Shutterstock) | | | The Bank of Canada has a tricky decision to make this week.
It's expected to cut interest rates yet again, bringing the key overnight lending rate all the way back to three per cent. The tricky part is in laying out where it goes from here.
The central bank has been clear that it feels rates are higher than they need to be. Households are still getting clobbered, as more Canadians renew their mortgages at significantly higher prices.
But now, the Bank of Canada also has to factor in the potential risk of tariffs from the U.S..
The bank never likes to build policy on hypotheticals. It usually likes to wait and see what actually happens.
The rollercoaster ride most of us felt last week during inauguration day in the U.S. was probably amplified inside the Ottawa offices of the central bank.
The morning's relief that Canada had avoided specific tariffs via executive order was washed away by the evening's threat that the full weight of 25 per cent tariffs was coming on Feb. 1.
"Tariffs represent a complicated setup for central banks. They tend to increase costs (inflationary), but they also weaken an economy (deflationary)," wrote RBC's chief economist Frances Donald in a typically sharp report.
Donald and co-author Nathan Janzen resist the urge to pin down exactly how the tariffs (whatever they may be) will crash into the Canadian economy, saying the reality of a tariffs shock is trickier and messier.
The size of the tariff is only one factor, they say. How the dollar responds is another, as a lower exchange rate would boost profits for exporters and offset the cost of the tariffs. How governments respond, both in terms of retaliation and support, will also change the landscape.
Instead of trying to measure what damage the tariffs will do (plenty), they offer a navigational tool to pierce through the noise and figure out what the best policy response would be.
"[Policy makers] will need more than a simplified round number to understand how the economy will evolve. They will collectively need a playbook on how tariffs filter through the economy, over what timelines and through what channels," they wrote.
I have found myself returning to this graphic repeatedly this week. | | |  | | | | | Each step offers a new catastrophe and a new set of challenges.
The report goes on to make some crucial distinctions. (Just read it, it's so worth it. Click here for the full thing.) But it's the final point that is worth exploring.
"Tariffs are unlikely to have the desired impact on U.S. economy that policymakers are hoping for" is the title of the final section.
I think about this a lot.
If the U.S. is serious about repatriating American manufacturing, is it willing to shoulder the extra costs to do that? Are American consumers?
Is it serious about shrinking its trade deficit with its trading partners? If so, how will these tariffs accomplish that?
On that front, Marc Ercolao and Andrew Foran from TD Economics offer some much-needed fact-checking on the trade deficit. (Click here to read that report.)
Chief among them is that Canada's trade deficit is comparatively tiny compared to other countries trading with the U.S.
Here's a look at the most recent figures (the first three quarters of 2024) in U.S. dollars. |  | | | This is the sort of thing that has everyone scratching their heads.
At the heart of it is: "What does Donald Trump really want?"
Some think he wants to force Canada and Mexico to renegotiate the North American free trade deal this year (instead of next year). Some think it's all just a play to seed chaos and disorder to extract concessions.
Some think he intends to use the money generated through tariffs to pay for his tax cuts.
The fact is, we don't really know.
We were hoping inauguration day would bring some clarity, and yet somehow, we made it through last week with less understanding of where things stand than we had going into it.
So, when the Bank of Canada meets on Wednesday, don't just look for the decision on interest rates. There will also be an updated forecast that will shed some light on how the bank sees the road ahead.
What do you think will happen?
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forwarded to you. | | |  | | The Bank of Canada is expected to cut interest rates once again this week. The central bank will announce its latest policy decision on Wednesday. | | | | | | On Tuesday, we will get the latest Canadian inflation numbers. Economists believe the year-over-year rate came in around 1.8 per cent in December. | | | | | | The Bank of Canada will release two crucial surveys measuring economic confidence this week. The Business Outlook Survey and Survey of Consumer Expectations for the last three months of 2024 come out Monday. | | | | | Three things to read, watch and listen to this week | | |  | Emilia Perez leads among nominees for Academy Awards. (Netflix) | | | 1. Is the Oscar bump still a thing? | | | An Oscar nomination ain't what it used to be.
There was a time when a mere nomination for an Academy award was a guarantee of a box office boost.
When it was nominated in 2014, the film American Sniper saw a huge bump. The movie made $346 million US, 99 per cent of which came after its nomination.
The business is simply different today.
It's not just that people don't go to the theatre as much as they used to. Netflix earned the most nominations. The streaming giant generally only releases its movies in theatres for a short run (just long enough to qualify for awards like this).
Thirteen of the 16 nominations for Netflix went to the French-produced, Spanish-language musical Emilia Pérez.
Netflix has never won best picture, despite nominations for such films as Roma and The Irishman.
Emilia Pérez might be its best shot. The film has been a darling of the awards season.
And if it did win, would the Oscar boost simply lead to a surge in subscriptions? (The streamer exceeded earnings expectations last week, largely on the back of people signing up to watch the Jake Paul-Mike Tyson boxing match and its NFL games on Christmas Day).
For what it's worth, I'm pulling for the very excellent Bob Dylan biopic A Complete Unknown. And I'm more than a little disappointed that the wonderful tennis movie Challengers didn't get any love.
Alas, I don't get a vote.
Check out the full list of nominees here.
Read this CNBC piece on how the Oscar bump is shrinking. | | | 2. Who's subsidizing whom? | | | At the heart of the trade dispute with the United States lingers a broader question about whether any trade is really "free."
Donald Trump appointed Robert Lighthizer to be his trade representative during his first term. His book No Trade Is Free is required reading for anyone trying to understand the worldview of those trying to impose tariffs.
There have been plenty of pieces written that help poke holes in some of the key arguments. One by Canadian economist Jim Stanford is a fantastic read.
"Trump’s claim that the U.S. deficit in merchandise trade with Canada amounts to the U.S. 'subsidizing' Canada ... has no economic merit. It ignores many crucial ways in which the bilateral relationship strongly benefits the U.S.," wrote Stanford.
The piece goes on to list the many ways it is being ignored. That ranges from not including services in the trade calculations, or investment, to factoring in how Canada provides oil and wheat and metals at a cheaper price than the U.S. would get elsewhere.
Stanford spoke with my colleague Jayme Poisson on the CBC podcast Front Burner.
"If we counted the full value of services exports to Canada, and the U.S. has a big trade surplus in services, that's why Mr. Trump never talks about services.... that number would be much smaller and perhaps reversed," he said.
On the issue of investment, he says there is a steep imbalance. Canadian individuals, banks, investors and companies have invested about $5 trillion in the U.S.
Much, much more than Americans have invested in Canada.
"Right now, we have about a trillion dollars more in assets in the U.S. than the U.S. has here," said Stanford.
He says investors, banks and even governments around the world want to hold U.S. assets like government bonds or stocks or property.
Stanford says all that money is helping to subsidize the U.S. and is fundamental in allowing the country to run a deficit.
"[It] proves the claim that the deficit-is-a-subsidy is false — the rest of the world is giving the U.S. more money so they can consume more than they produce," he said.
I've read plenty of pieces laying out the many ways in which Trump has this wrong. But I've been carrying this one around as a sort of cheat sheet.
Check Jim Stanford's report on subsidies here.
Listen to the episode of Front Burner here. | | | 3. The Scam Inc. podcast | | | Regular readers know I like a yarn about a good scam.
So I'm wildly excited about a new podcast from The Economist’s Sue-Lin Wong.
She did an excellent podcast series called The Prince that documented the rise of Xi Jinping to the heights of Chinese (and global) power.
In her latest endeavour, she breaks down a scam that took down a local bank in rural Kansas.
"Over several months, the bank's CEO had quietly put most of the bank's money into some sort of cryptocurrency investment. Until the board called him in to explain himself," she says in the trailer that dropped last week.
The CEO had lost $47 million US.
But as Wong investigated further, she found a story that went far beyond rural Kansas.
"This wasn’t your classic Nigerian prince con. It was something new, sophisticated and ruthless," she says in the trailer. "This wasn’t the work of one mastermind fraudster, or a single organized crime group. It was a global industry and it’s much bigger, more powerful and darker than I ever imagined."
The podcast is called Scam Inc. and it looks like a wild ride.
Check out the trailer for Scam Inc. here. | | | How the economy looks beyond Bay Street | | | Trump says U.S. doesn't need Canadian products | | | The U.S. president had some things to say about Canadian imports last week.
"We don't need them to make our cars. And they make a lot of them. We don't need their lumber, because we have our own forests," he told leaders gathered at the World Economic Forum in Davos, Switzerland.
"We don't need their oil and gas. We have more than anybody," he concluded.
He's at least partly right. The U.S. now produces more crude oil than any other country.
But it still imports a lot, too.
And when you break down where those oil imports are coming from, an interesting picture emerges. | | |  | Canada has surpassed OPEC as the main source of oil imports in the U.S. Something like $100-billion worth of Canadian oil was sent to American refineries last year.
The American Fuel & Petrochemical Manufacturers says the U.S. does indeed produce more refined products than it consumes. But it says there isn't sufficient pipeline capacity for American consumers to rely solely on U.S. oil and refined products.
More to the point, it says most of the refineries that churn out all the gasoline and diesel and jet fuel needed simply can't process the kind of oil being made in abundance in the U.S. right now.
"Most of our refineries were built prior to the U.S. shale boom, when heavier, higher-sulfur crudes were more abundant," says the AFPM.
In other words, the U.S. does indeed need Canadian oil.
But you probably already knew that. | | | Share this newsletter | | or subscribe if this was
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