Business Brief: Relationship status? It’s complicated

Good morning. In focus today: Canada and the European Union agree they want a deeper union, but are they labelling it or not?

Up first

In the news

Economy: The U.S. Federal Reserve raised its benchmark interest rate for the first time since 2023, a move that could spur a sharp response from the White House. Popcorn at the ready.

Tech: A non-profit founded by Yoshua Bengio, an AI pioneer and professor at the University of Montreal, is getting up to $300-million from Canada and Germany to expand safe AI development.

Alberta: A report commissioned by the provincial government estimates that separating from Canada and setting up a new country would cost up to $170-billion.

In focus

Dear Canada: What do EU think about a new partnership?

In a speech this morning to the European Union’s parliament in France, Mark Carney focused on deepening ties between Canada and the economic bloc as something of a cold trade war sets in with the United States.

But the spotlight for many will be on his characterization of Canada’s relationship with the EU, a day after the President of the European Commission said she wanted to work with Carney on “opening the door for Canada to be the first associate member of the EU.”

That term – associate member – raised eyebrows around the world, because that’s not really a thing, at least officially. It might even have come as some surprise to Carney, who steered clear of using the term just a few days ago.

“We’re not looking to become a member of the European ​Union,” Carney said on Sunday.

The EU has “association agreements” with more than 20 countries, Paul Waldie reports. But Canada would be the first to become an associate member – even ahead of Britain, where one Guardian columnist asked whether the offer could be a blueprint for the country, or a reminder it is out in the cold.

Canada becoming any kind of member of the EU isn’t something I’d bet my Wealthsimple account on, but the mere suggestion of it from European Commission President Ursula von der Leyen is a striking example of just how much the world has changed in recent years. Britain is no longer part of the EU; Canada, on the other side of the Atlantic, is knocking on the economic bloc’s door; and the U.S. is turning against the international order it did more than any country to build.

What does ‘associate member’ mean?

Unclear. Neither Carney nor the EC’s Ursula von der Leyen have offered any details on what the status would involve. Joël Reland, a researcher with UK in a Changing Europe, called the European Commission President’s call to bring the EU’s relationship with Canada to the highest level possible “deliciously vague.”

For example: In her speech to the EU parliament, von der Leyen spoke of “a common prosperity and economic security space.”

“We will work on energy, critical minerals and batteries. On AI, quantum, cyber and economic security,” she said.

That reads like an economic grocery list. Each of them important areas in which Canada and the EU might find myriad #synergies, to be sure – but for now, at least, ingredients without a recipe.

Will it happen?

Not in the way many might hope, Doug Saunders says. An associate membership, despite its special name, could at most be some form of an association agreement.

Those deals are negotiated to the bone between the EU and a non-member country, and require the assent of all 27 member states.

Consider that the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) was signed on Oct. 30, 2016. Nearly a decade later, it awaits ratification from 10 member states.

Should it happen?

Shuvaloy Majumdar, the Conservative critic for Canada-U.S. relations, said Parliament should be consulted about membership in the EU, a body with its own regulations and rules for trade and commerce.

“Do we want European rules? Do we want European regulation? Do we want European Union taxes?” the MP asked. “To what degree is the Prime Minister offering up Canadian sovereignty to become the 28th member of the European Union?”

Those are good questions.

The commodity problem

Carney’s European trip and his investment summit earlier this week are part of the same campaign: In response to the U.S. trade war, the Prime Minister has focused on selling Canada to foreign investors and new trade partners.

The summit in Toronto was, by many accounts, a success. Among other things, organizers were able to show Canada has oil, gas, copper and uranium in spades – all the things a country needs to build its own sovereignty in a fast-changing world.

But sourcing capital hasn’t necessarily been Canada’s problem. Not even the country’s much-maligned regulatory burdens or Escherian tax schemes have been the killer.

In reality, Tim Kiladze writes, commodity prices – dynamics beyond the government’s control – are a risk that didn’t get much attention at the summit.

If commodity prices fall because of, say, weaker Chinese demand, a global recession or a surge in supply, it will be tough to attract capital no matter how many regulations Canada relaxes or how many tax incentives it rolls out, Kiladze writes.

The commodity solution?

If Canada’s economy is vulnerable to commodity price crashes, turning those commodities into higher-value products might be one way to inoculate itself.

In a new report published this morning, Mark Rendell writes, the country’s export credit agency argues that trade diversification is about more than signing new trade agreements or moving more commodities to Asian and European markets.

The real opportunity, according to Export Development Canada, lies in helping Canadian companies capture more of the value of their exports by doing more processing at home.

Charted

Headline inflation, known as the consumer price index, is the default yardstick for measuring how fast money loses purchasing power. But money likely loses value faster than the CPI suggests. By one estimate, Hanif Bayat writes, it loses half its purchasing power every 13 years – not the 30-plus years that the CPI implies. The clearest evidence is the price growth of assets like the ones above, which sit outside the CPI basket.

Quoted

An ad featuring a nude Sydney Sweeney is causing major backlash from athletes around the globe.

Up next

More files we’re following

Cracks in the foundation: Economists are expecting Canada’s monthly housing price index to show small declines compared with the same period last year. The housing market has already shown signs of illness this week: On Tuesday, existing home sales fell 6.5 per cent from a year earlier, and the MLS Home Price Index was down 3 per cent. Yesterday, CMHC reported housing starts declined in August. Medic!

Morning update

Global markets edged higher as investors bet the U.S. Federal Reserve is finally getting the jump on inflation, delivering its first rate hike in more than three years and calming a global bond selloff that had sent long-term yields soaring.

Wall Street futures were in positive territory, while TSX futures followed sentiment higher.

Overseas, the pan-European STOXX 600 was up 0.49 per cent in morning trading. Britain’s FTSE 100 rose 0.26 per cent, Germany’s DAX advanced 0.55 per cent and France’s CAC 40 climbed 0.18 per cent.

In Asia, Japan’s Nikkei closed 0.33 per cent higher, while Hong Kong’s Hang Seng declined 0.44 per cent.

The Canadian dollar traded at 71.47 U.S. cents.