Business Brief: Cross-border fallout – The Globe and Mail

To paraphrase Ferris Bueller, trade wars come at you pretty fast.

This is Globe investment reporter Tim Shufelt and today we’ll look at the quickly shifting battle lines in the war of words and tariffs pitting Canada against its erstwhile ally to the south. But first:

Up first

In the news

Investment: A prospectus for Prime Minister Mark Carney’s Canada Investment Summit lists more than 160 projects seeking capital, including a $10.9-billion Edmonton-Calgary high-speed rail link and a $57-billion Port of Churchill expansion.

Energy: Enhance Energy has broken ground on what is set to become Canada’s largest carbon-capture project, with the Alberta hub initially having the capacity to permanently store up to 1.5 million tonnes of carbon dioxide a year.

Tourism: Air bookings by Canadian business travelers to the U.S. rose by 16.5 per cent year-over-year in August, an analysis showed, countering the national trend in leisure travel.

In focus

The empire strikes back

We’re beginning to get a sense of the scale of Donald Trump’s latest tariff salvo and how it might land on the Canadian economy. We knew something was coming after trade talks fell apart and the Prime Minister responded to new U.S. tariffs, dollar for dollar.

As always with Mr. Trump, there was lots of bluster and memes − a map with Canada blanketed in stars and stripes. An AI-generated hockey video of Mr. Trump repeatedly slashing Mr. Carney, which would easily get you five minutes and a game misconduct.

The policy response, on the other hand, was surprisingly moderate. This was no hammer blow. Let’s take a closer look.

How much will the latest tariffs hurt the Canadian economy?

Probably not much, at least from a macro perspective. Mr. Carney is warning Canadians of pain to come, and the cumulative effects of competing tariffs are certainly negative for growth. Economist Stephen Brown of Capital Economics said in a report that Canadian GDP may even contract in the third quarter.

But look under the hood, as The Globe’s Mark Rendell and Jason Kirby did, and you see that the U.S.’s counterpunch is more of a soft jab. The total value of Canadian goods subject to tariffs under a century-old American statute rose to US$20.26-billion from US$20.15-billion – less than one half of one per cent.

Why the restraint?

Why indeed. Mr. Trump seems to be brimming with animosity toward Canada. And he certainly has the capacity to inflict serious economic pain. But perhaps not without injuring himself in the process. Escalating tariffs on Canada risks further inflaming U.S. inflation and harming border economies, which could hurt the Republicans in the midterm elections (fingers crossed).

One of the few party faithful willing to challenge the President’s agenda is Maine Senator Susan Collins. On social media, she said she pressed the administration over how much tariffs on Canadian cement and road salt were costing businesses and communities in her state. Lo and behold, both products are suddenly exempted from tariffs.

What about Canadian businesses?

Here is where the damage is being done. For those Canadian companies now facing 50-per-cent tariffs or outright import bans, the threat is existential. “These latest measures are about inflicting economic pain rather than raising revenue,” Mr. Brown said. Some furniture, dairy and wood products will soon be subject to punitive tariffs. Motorcycles made in Canada will be prohibited from crossing the border starting Sept. 29. Same goes for a range of alcoholic beverages, including beer sold in cans and bottles, as well as rye whisky.

Smaller producers that sell to U.S. buyers have few options, as Meera Raman and Nathan VanderKlippe write. But larger distillers can still ship their product in bulk tariff-free and have them packaged stateside. Note the inducement for Canadian businesses to shift value-added work across the border. That’s no mistake.

Will Canada retaliate again?

It seems unlikely, even though many Canadians are spoiling for a fight after more than a year and a half of being threatened. The Canadian Chamber of Commerce, for one, is urging restraint after an American response that could have been far worse.

“It allows the U.S. to kind of take a bit of a tough guy stance, while not really pouring gasoline on the fire,” Matthew Holmes, the chamber’s executive vice-president, told The Globe’s Bill Curry. You can’t escape the fact that tariffs are self-harming and largely borne by one’s own consumers, which is one reason this trade war is so dumb and destructive.

Charted

Triple-digit oil is back

For the first time since July, crude oil has breached the US$100-a-barrel mark. Brent crude, which is the pricing benchmark for European and Middle East oil, has spiked again as fighting between the U.S. and Iran has intensified. Six months into the conflict, there are few signs of a resolution.

Oil price shocks ripple through the economy in a variety of ways. Drivers pay more at the pump, rising transportation costs get passed on to consumers through higher prices for food and everyday goods, and interest rates trend higher, pushing up the cost of loans and mortgages.

Quoted

Canada’s big-bank CEOs say consumers and business remain resilient but cautious amid the escalating trade war, as regulators give lenders more room to spur investment.

Up next

More files we’re following

By the numbers: The U.S. Census Bureau is scheduled to release its Monthly Wholesale Trade report for July.

After the bell: Earnings today include software giants Oracle Corp. and Adobe Systems Inc.

Morning update

Global markets were mixed as investors awaited a widely forecast interest rate hike from the European Central Bank, and a wave of attacks in the Middle East left them nervous ‌ahead of U.S. inflation data.

Wall Street futures were muted with the Nasdaq pointing lower, while TSX futures edged into negative territory.

Overseas, the pan-European STOXX 600 was down 0.14 per cent in morning trading. Britain’s FTSE 100 fell 0.36 per cent, Germany’s DAX declined 0.11 per cent and France’s CAC 40 advanced 0.18 per cent.

In Asia, Japan’s Nikkei closed 0.2 per cent higher, while Hong Kong’s Hang Seng dropped 1.27 per cent.

The Canadian dollar traded at 72.40 U.S. cents.