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June 27, 2018 | Me First

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Will they do it again in a few days? The odds were slam-dunk a couple of weeks ago before the latest Trump trade tantrum that rates would pop. Now? Meh. Not so sure. Chances are the Bank of Canada will add a quarter point on the 11th, but reluctantly. Because our nation is at more risk today than in decades.

Seriously. You should pay attention to this.

So much has changed in scant months. NAFTA was busily being negotiated during the winter. Now it’s likely paws up. Real estate markets – a major piece of the country’s economy – are being leveled by the stress test. Consumer confidence has fallen sharply as the trade war develops. Our prime minster was called cheap and dishonest by the world’s only omnipotent leader. The currency has lost ground. Household debt continues to rise. Our steel and aluminum industries have been whacked hard. And now the biggest blow appears to be coming.

Meanwhile the news people are talking about? Weed. Legal in October. Molson says it’s planning a weed-infused beer. Ottawa is reportedly ready to approve not only pot plants in your bathroom, but also your backyard. Provincial governments are planing to become drug pushers with new retail outlets. Rome burns. We fiddle.

Anyway, the White House is expected to decide in a few weeks whether or not to slap a 25% tariff on cars made in Mapleland which are then shipped to the States. At stake are the jobs of some 120,000 souls – good ones, generally with high wages, decent benefits and above-average pensions. The auto trade tallies about $62 billion in trade between the two countries. That’s 15% of our entire exports (oil is 20%), accounting for a fifth of all production jobs in Ford Nation.

Trump’s tariff would be a fell blow to everyone. Immediately affected would be the car manufacturers, dealers, parts makers, retailers and transport companies. As production was drained off to America, the job losses would be relentless. Then, of course, we’d all pay more for vehicles. Potentially a lot more, as the entire production chain becomes less efficient.

A report by Moody’s this week also made it clear Trump could be blowing off America’s nose to spite its face. GM and Ford, for example, depend on Canadians and Mexican-made cars (and especially trucks) to satisfy US domestic demand (up to 30% of it). So Americans will pay more, too.

“Both manufacturers would need to absorb the cost of scaling back Mexican and Canadian production and moving some back to the U.S.,” Moody says. “They would also probably need to subsidize sales to offset the tariffs for a time, with higher costs eventually passed onto the consumer.”

The idiotic, destructive, expensive, protectionist, America-first Trump move would not just kneecap Canada. Toyota sends over 20% of its cars to the States. For Nissan it’s 30% and 70% for those awful Kia guys. At a stroke, imposing such prohibitive tariffs on vehicles so integrated into the global supply chain would cause a form of industrial chaos unseen since the end of the last World War.

However, it may be coming.

If that’s the case, the currency could well weaken further, especially if the BoC signals on the 11th that it’s turning tail. A US$ now worth $1.33 in Canadian Tire money might be closer to a buck-forty before you know it. I hope you heeded the advice here, often repeated, to have at least 20% of your portfolio in American-denominated assets.

The carmakers will suffer, obviously, so expect that to be reflected in North American equity markets. Investors hate trade wars because they increase costs, decrease efficiency, diminish corporate profits, fuel inflation, dampen economic growth and cost jobs. They’re not good, nor easy to win. Those who profess such things will be proven as wrong as they are dangerous. Just ask the buys at Harley how this is all going for their business.

On Canada Day our country will retaliate against the US with tariffs on billions of dollars’ worth of American goods. That means you will pay more to buy stuff, without earning any more or having your tax load reduced. No benefit. Just more cost. At the same time, we grow closer to losing a slew of jobs and seeing one of the most successful international relationships in the world shredded. That’s what a trade war means.

This week a movement began in the US Senate to restrict a president’s ability to impose tariffs, allowing one man to ignite a global meltdown, affecting humanity. That’s in case an unstable despot ever achieves the White House.

Oh, wait…

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June 27th, 2018

Posted In: The Greater Fool

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