When David Cameron's Tories came into power in 2010, in coalition with Nick Clegg's Liberal Democrats, I was still living in the UK. Like the rest of the world, the UK was grappling with the financial crisis that had erupted in 2008. The economy was wobbling and the banking system was shaky, with Northern Rock defunct, RBS in near-terminal trouble and so on.
Almost the Tories' first move, against all advice, was to set the economy on a path of fiscal austerity. The promise was that a few years of belt-tightening would get the budget back on track, and then the economy could drive forward. In the event, and to the surprise of no-one with the least sense of economic history, austerity made the fiscal situation worse and ensured years of sub-par growth. The date for a return to fiscal balance kept getting pushed farther into the future.
Then, just as the global economy was showing signs of picking up, Cameron pulled his next dumb stunt -- the Brexit referendum, which surely seals his position as the UK's worst Prime Minister ever. This entirely unnecessary vote, called purely for internal Tory party purposes, ensured that the second half of the decade would be even more divisive and disheartening than the first half had been.
Now, with Brexit Day five months away, Chancellor Phillip Hammond has tabled a budget that proclaims "the end of austerity". The fiscal situation is far from being repaired, even after seven years of austerity, and indeed Hammond is projecting significant budget deficits for the next several years. The sole justification for declaring austerity to be at an end is that the Tories desperately need to boost the morale of the country ahead of what looks ominously like a costly and messy divorce from the EU. Hammond admits that he will have to go right back to the drawing board if his assumption about the future UK-EU trading relationship -- an "average-type free trade deal", whatever that is -- turns out to be incorrect.
Watching the UK from our safe perch in Canada since 2012 has been agonizing. My wife said some time ago that if we were still living in Britain we'd be angry all the time, and we're too old to live like that. We may have Donald Trump as our next door neighbour and Doug Ford running our Province, but at least we're not contemplating national suicide.
Monday 29 October 2018
Wednesday 24 October 2018
Bank of Canada: heading towards neutral
As expected, the Bank of Canada raised its interest rate target by 25 basis points to 1.75 percent today. The Bank also published its updated Monetary Policy Report. Senior Deputy Governor Carolyn Wilkins's opening statement provides a very full summary of the Bank's current thinking and the likely direction of monetary policy over the next few quarters.
The Bank considers that the economy is operating close to full capacity, and notes that the growth is broad-based. The NAFTA renegotiations, which had weighed on business investment, have been successfully completed, even if the deal has not yet been ratified by any of the three participants. This eliminates one potential impediment to continued growth, although the Bank notes that there is still uncertainty over the US-China trade relationship, which has significant implications for Canada.
In terms of inflation, the Ms Wilkins noted with evident satisfaction that the Bank's staff had been correct in their assessment earlier in the year, that the spike in headline CPI would prove transitory. Although headline CPI is still just above the Bank's target level, at 2.2 percent, the preferred core measures are all right at the target level, consistent with an economy operating at full capacity. Despite a healthy labour market and low unemployment, wage gains are well-contained at 2.3 percent year-on-year. However, the Bank sees this as a lagging indicator and expects wage pressures to move somewhat higher.
The Bank believes a "neutral" interest rate would be in a 2.5-3.5 percent range. Ms Wilkins's statement makes it clear that the Bank intends to move rates into that range. However, it is no longer describing its approach as "gradual", in order to remove any impression that there is any kind of pre-set path. Actual rate moves will be data-dependent. One factor the Bank is continuing to watch carefully is the level of household debt. This has shown some very slight moderation, but is still so high that each rate move by the Bank pushes more households toward financial stress.
One factor the Bank did not focus on today is fiscal policy. Despite the strong performance of the economy, the Federal Government continues to run significant deficits, with little improvement in prospect. This excellent piece from Bloomberg, published ahead of today's rate decision, summarizes the issue very well.
There will be a Federal election on October 21 2019, and between now and then Finance Minister Morneau will table a fiscal update (in the next few weeks) and a full budget in the spring. After the 2015 election Justin Trudeau bragged that it was his pledge to run small budget deficits, in contrast to the fiscal austerity of the previous Tory government, that won him the election.
Recall that the actual pledge was for deficits of $ 10 billion or so for just a couple of years, with a return to balance by about the time of next year's vote. Actual deficits have been near twice that size, with no path for a return to balance. These deficits are arguably unnecessary and are indisputably complicating the Bank of Canada's job, but the chances of Trudeau and Morneau changing tack with voting day approaching are just about zero.
Finally, a little hat-tip. It's unusual to find any business economist with a novel and arresting way of describing things, but Bloomberg's reporter has found one. Frances Donald of Manulife Asset Management is quoted as saying of the US and Canada that "these economies are sprinting in the middle of a marathon and that will lead to exhaustion". Well done, Ms Donald! I wish I'd said that, and at some point in the future I almost certainly will.
The Bank considers that the economy is operating close to full capacity, and notes that the growth is broad-based. The NAFTA renegotiations, which had weighed on business investment, have been successfully completed, even if the deal has not yet been ratified by any of the three participants. This eliminates one potential impediment to continued growth, although the Bank notes that there is still uncertainty over the US-China trade relationship, which has significant implications for Canada.
In terms of inflation, the Ms Wilkins noted with evident satisfaction that the Bank's staff had been correct in their assessment earlier in the year, that the spike in headline CPI would prove transitory. Although headline CPI is still just above the Bank's target level, at 2.2 percent, the preferred core measures are all right at the target level, consistent with an economy operating at full capacity. Despite a healthy labour market and low unemployment, wage gains are well-contained at 2.3 percent year-on-year. However, the Bank sees this as a lagging indicator and expects wage pressures to move somewhat higher.
The Bank believes a "neutral" interest rate would be in a 2.5-3.5 percent range. Ms Wilkins's statement makes it clear that the Bank intends to move rates into that range. However, it is no longer describing its approach as "gradual", in order to remove any impression that there is any kind of pre-set path. Actual rate moves will be data-dependent. One factor the Bank is continuing to watch carefully is the level of household debt. This has shown some very slight moderation, but is still so high that each rate move by the Bank pushes more households toward financial stress.
One factor the Bank did not focus on today is fiscal policy. Despite the strong performance of the economy, the Federal Government continues to run significant deficits, with little improvement in prospect. This excellent piece from Bloomberg, published ahead of today's rate decision, summarizes the issue very well.
There will be a Federal election on October 21 2019, and between now and then Finance Minister Morneau will table a fiscal update (in the next few weeks) and a full budget in the spring. After the 2015 election Justin Trudeau bragged that it was his pledge to run small budget deficits, in contrast to the fiscal austerity of the previous Tory government, that won him the election.
Recall that the actual pledge was for deficits of $ 10 billion or so for just a couple of years, with a return to balance by about the time of next year's vote. Actual deficits have been near twice that size, with no path for a return to balance. These deficits are arguably unnecessary and are indisputably complicating the Bank of Canada's job, but the chances of Trudeau and Morneau changing tack with voting day approaching are just about zero.
Finally, a little hat-tip. It's unusual to find any business economist with a novel and arresting way of describing things, but Bloomberg's reporter has found one. Frances Donald of Manulife Asset Management is quoted as saying of the US and Canada that "these economies are sprinting in the middle of a marathon and that will lead to exhaustion". Well done, Ms Donald! I wish I'd said that, and at some point in the future I almost certainly will.
Friday 19 October 2018
Canada CPI lower but rate hike still coming
Statistics Canada reported this morning that headline CPI rose 2.2 percent in the twelve months to September, down from 2.8 percent in August and well below the consensus expectation of a 2.7 percent rise. The spike in CPI during the summer months was largely the result of a big jump in gasoline prices. One can only assume that the economists who contribute to the consensus forecast are all tooling around in Teslas, because otherwise they would surely have noticed that gas prices have fallen back sharply as the so-called summer driving season has wound down.
Despite the relatively benign September data, a Bank of Canada rate hike this coming week is all but certain. The transportation index (which includes gasoline) was the largest single contributor to the gain in headline inflation, but all eight principal components of the index rose on an annual basis. This suggests that inflation pressures, while still modest, are widespread. Moreover, the average of the Bank's three favoured core inflation measures remains right at 2 percent, meaning that the Bank has little leeway to get things wrong.
The last-minute conclusion of the NAFTA renegotiation has removed a big cloud over the economy's prospects. Even before the deal was reached, business sentiment was positive and the economy was operating essentially at full capacity, with the labour market looking increasingly tight. The Bank of Canada has done a good job of staying abreast of the curve here, and another 25 bp tightening move this week would allow it to stay that way. This will in all likelihood be the final move for 2015, but with the Fed set to continue edging US rates higher in 2019, the Bank of Canada will not want to lag too far behind.
Despite the relatively benign September data, a Bank of Canada rate hike this coming week is all but certain. The transportation index (which includes gasoline) was the largest single contributor to the gain in headline inflation, but all eight principal components of the index rose on an annual basis. This suggests that inflation pressures, while still modest, are widespread. Moreover, the average of the Bank's three favoured core inflation measures remains right at 2 percent, meaning that the Bank has little leeway to get things wrong.
The last-minute conclusion of the NAFTA renegotiation has removed a big cloud over the economy's prospects. Even before the deal was reached, business sentiment was positive and the economy was operating essentially at full capacity, with the labour market looking increasingly tight. The Bank of Canada has done a good job of staying abreast of the curve here, and another 25 bp tightening move this week would allow it to stay that way. This will in all likelihood be the final move for 2015, but with the Fed set to continue edging US rates higher in 2019, the Bank of Canada will not want to lag too far behind.
Tuesday 16 October 2018
All cannabis, all the time
Jump for joy, because the big day is almost here -- recreational cannabis use becomes legal across Canada at midnight tonight -- which means those lucky Newfoundlanders get to toke up a full four-and-a-half hours ahead of the poor folks out in BC. Personally I couldn't care less -- pot is the dullest way of getting a buzz on that mankind has ever devised -- but it's got a whole lot of people excited. So here are some suitably scrambled thoughts on the whole thing.
If you're the kind of person who defines a politician as a someone who couldn't organize a two-car funeral, you'll find proof aplenty in the cannabis legalization saga. There wasn't exactly a public outcry in favour of legal weed before the last election. There was support for the smaller step of decriminalization, but Justin Trudeau decided to go all the way.
It turned out to be much harder than he expected, because the junior levels of government (Provinces and municipalities) weren't actually supportive. They recognized that the costs, both financial and social, would largely be borne by them in the shape of added burdens on their law enforcement and medical systems. In true Canadian style, there was a wrangle over who would get the benefit of the tax revenue on newly-legalized ganja.
Even with the tax issue settled, the Provinces kept stalling and asking for legalization to be delayed. As a result a policy that was supposed to be implemented during 2017 was pushed back to October 17, 2018, and some Provinces are still saying they're not really ready. To get them onside, Ottawa had to allow each Province to set some of its own rules within the general context of legalization. As a result Quebec has opted for a minimum age limit of 21 versus the national standard of 19, possession of small amounts by a minor is a punishable offence in some Provinces and not in others, and so on.
The election of Doug Ford as Premier of Ontario threw a last minute monkey wrench in the works. The previous Wynne government planned to open a chain of preternaturally dull, publicly-operated cannabis stores across the Province, a step that would have virtually guaranteed the continuing success of the existing illegal distribution system. True to his free enterprise principles, Ford scrapped that idiotic notion with a plan to issue licenses to private operators.
One small problem, though: there was no time to get potential sellers vetted and licensed by the big day. As a result, would-be tokers in Canada's largest province will only be able to score their weed online until April 2019 -- a step that seems to virtually guarantee the continuing success of the existing illegal distribution system. The eventual proliferation of small pot outlets also seems likely to lead to a lot more petty crime than Wynne's scheme would have.
There's going to be an almighty shake-out, and probably sooner rather than later. There are reportedly 135 marijuana enterprises listed on public stock exchanges, plus who knows how many more private companies. Oversupply looms, then, right? Wrong! Reportedly the expected amount of legal maryjane available in the first year of legalization will be only about one-third of projected demand. Evidently, a good proportion of the new firms are get-rich-quick schemes that may never actually get any product to market before either failing or getting bought out.
The media are going to need something else to write about once the fuss dies down. Both the Toronto Star and the Globe and Mail have been obsessing about pot for months. The Star website has had a "countdown to cannabis" clock on display for most of this year and is choc-a-bloc with weed stories. Today's (i.e. October 16's) print edition has three pot stories in the first four pages of the main paper, another on the first page of the business section...and a separate cannabis section running to several pages!
This whole business is important to my local area, and possibly not in a good way. Niagara has one of the more benign growing climates in Canada, and a high proportion of Canada's highest-grade agricultural land. In the past it was Canada's fruit belt, playing an honourable role in the Second World War by providing enormous quantities of canned fruit that helped protect allied troops from scurvy. Some of that has given way to wineries, but there is still a flourishing greenhouse sector providing much of Ontario's vegetable crop during the warmer months.
Greenhouses are now being converted to grow ops. These give off an appalling smell if not properly managed -- there's a reason marijuana is known as skunk -- and there are real concerns that the odour will affect the flavour of other crops in the region, especially grapes. Given that you can grow weed in your basement, it makes absolutely no sense to waste some of Canada's best agricultural land on this rather nasty crop, but that's where the money is perceived to be, so that's what's happening.
Oh well. It's going to happen whether I like it or not. So let's give the last word to the late, great Peter Tosh, who had a few strong ideas of his own on the subject.
If you're the kind of person who defines a politician as a someone who couldn't organize a two-car funeral, you'll find proof aplenty in the cannabis legalization saga. There wasn't exactly a public outcry in favour of legal weed before the last election. There was support for the smaller step of decriminalization, but Justin Trudeau decided to go all the way.
It turned out to be much harder than he expected, because the junior levels of government (Provinces and municipalities) weren't actually supportive. They recognized that the costs, both financial and social, would largely be borne by them in the shape of added burdens on their law enforcement and medical systems. In true Canadian style, there was a wrangle over who would get the benefit of the tax revenue on newly-legalized ganja.
Even with the tax issue settled, the Provinces kept stalling and asking for legalization to be delayed. As a result a policy that was supposed to be implemented during 2017 was pushed back to October 17, 2018, and some Provinces are still saying they're not really ready. To get them onside, Ottawa had to allow each Province to set some of its own rules within the general context of legalization. As a result Quebec has opted for a minimum age limit of 21 versus the national standard of 19, possession of small amounts by a minor is a punishable offence in some Provinces and not in others, and so on.
The election of Doug Ford as Premier of Ontario threw a last minute monkey wrench in the works. The previous Wynne government planned to open a chain of preternaturally dull, publicly-operated cannabis stores across the Province, a step that would have virtually guaranteed the continuing success of the existing illegal distribution system. True to his free enterprise principles, Ford scrapped that idiotic notion with a plan to issue licenses to private operators.
One small problem, though: there was no time to get potential sellers vetted and licensed by the big day. As a result, would-be tokers in Canada's largest province will only be able to score their weed online until April 2019 -- a step that seems to virtually guarantee the continuing success of the existing illegal distribution system. The eventual proliferation of small pot outlets also seems likely to lead to a lot more petty crime than Wynne's scheme would have.
There's going to be an almighty shake-out, and probably sooner rather than later. There are reportedly 135 marijuana enterprises listed on public stock exchanges, plus who knows how many more private companies. Oversupply looms, then, right? Wrong! Reportedly the expected amount of legal maryjane available in the first year of legalization will be only about one-third of projected demand. Evidently, a good proportion of the new firms are get-rich-quick schemes that may never actually get any product to market before either failing or getting bought out.
The media are going to need something else to write about once the fuss dies down. Both the Toronto Star and the Globe and Mail have been obsessing about pot for months. The Star website has had a "countdown to cannabis" clock on display for most of this year and is choc-a-bloc with weed stories. Today's (i.e. October 16's) print edition has three pot stories in the first four pages of the main paper, another on the first page of the business section...and a separate cannabis section running to several pages!
This whole business is important to my local area, and possibly not in a good way. Niagara has one of the more benign growing climates in Canada, and a high proportion of Canada's highest-grade agricultural land. In the past it was Canada's fruit belt, playing an honourable role in the Second World War by providing enormous quantities of canned fruit that helped protect allied troops from scurvy. Some of that has given way to wineries, but there is still a flourishing greenhouse sector providing much of Ontario's vegetable crop during the warmer months.
Greenhouses are now being converted to grow ops. These give off an appalling smell if not properly managed -- there's a reason marijuana is known as skunk -- and there are real concerns that the odour will affect the flavour of other crops in the region, especially grapes. Given that you can grow weed in your basement, it makes absolutely no sense to waste some of Canada's best agricultural land on this rather nasty crop, but that's where the money is perceived to be, so that's what's happening.
Oh well. It's going to happen whether I like it or not. So let's give the last word to the late, great Peter Tosh, who had a few strong ideas of his own on the subject.
Thursday 11 October 2018
Trump versus the Fed
We already knew that Donald Trump's understanding of economics was, to put it politely, limited. His trademark combination of insanely stimulative fiscal policy and tariff wars may be giving the US economy an adrenaline shot in the short term, but in the longer term it's a recipe for problems, quite possibly including a full-blown financial crisis. That crisis would most likely unfold with tariffs and a tight labour market leading to an upsurge in inflation, prompting the Fed to tighten interest rates more aggressively, resulting in a sharp rise in bond yields and a corresponding downturn in equity markets.
Some of those effects are already starting to be seen, even if this week's sudden equity selloff proves short-lived. Prices and wages are rising and the Fed is promising to react, as it should -- and Trump doesn't like it one bit. He has been complaining quietly about the Fed's gradual policy tightening for some time, but this week he has turned the volume up to 11, accusing the Fed of "going loco".
It's possible, as Jordan Weissmann seems to argue here, that Trump is just distancing himself from the Fed's actions so that he can blame the central bank if (or rather when) things go off the rails. Given Trump's bull-in-a-china-shop approach, however, it's quite possible that he is setting the stage to do something much more drastic, like firing Fed Chairman Jerome Powell and replacing him with someone more pliable.
The fact that this possibility is even remotely plausible is a clear indication of Trump's lack of understanding of economic policy and markets. With other key elements of US policy, notably fiscal and trade, having already gone loco, to use Trump's own phrase, the assurance of a stable hand at the Fed is one of the key factors keeping market participants from panicking.
If Trump continues to rail against the Fed, he will trigger exactly the kind of rout in fixed income and equity markets that he wants to avoid. Maybe there are calming voices among Trump's White House team that can rein him in, but as that team includes Larry Kudlow and Peter Navarro, you can't blame investors for feeling uneasy.
Some of those effects are already starting to be seen, even if this week's sudden equity selloff proves short-lived. Prices and wages are rising and the Fed is promising to react, as it should -- and Trump doesn't like it one bit. He has been complaining quietly about the Fed's gradual policy tightening for some time, but this week he has turned the volume up to 11, accusing the Fed of "going loco".
It's possible, as Jordan Weissmann seems to argue here, that Trump is just distancing himself from the Fed's actions so that he can blame the central bank if (or rather when) things go off the rails. Given Trump's bull-in-a-china-shop approach, however, it's quite possible that he is setting the stage to do something much more drastic, like firing Fed Chairman Jerome Powell and replacing him with someone more pliable.
The fact that this possibility is even remotely plausible is a clear indication of Trump's lack of understanding of economic policy and markets. With other key elements of US policy, notably fiscal and trade, having already gone loco, to use Trump's own phrase, the assurance of a stable hand at the Fed is one of the key factors keeping market participants from panicking.
If Trump continues to rail against the Fed, he will trigger exactly the kind of rout in fixed income and equity markets that he wants to avoid. Maybe there are calming voices among Trump's White House team that can rein him in, but as that team includes Larry Kudlow and Peter Navarro, you can't blame investors for feeling uneasy.
Friday 5 October 2018
Still going strong-(ish)
A few days ago a young man in my town wrote a post on one of our community Facebook groups, asking for suggestions about where he might find work. I and others were able to point to help-wanted ads at the local supermarket, hardware store, several restaurants, a seniors residence and more. Employers in our town (and the Niagara region as a whole) are finding it harder and harder to find the workers they need.
This morning StatsCan reported the results of its labour force survey for September, and it's clear that the tightness in the job market is not confined to our little area. After an unexpected decline in August, employment across Canada rose by 63,000 in the month, dropping the unemployment rate fractionally to 5.9 percent. The monthly gain was more than fully accounted for by a rise of 80,000 in part-time employment, but on a year-on-year basis, the 222,000 increase in the number employed is fully accounted for by full-time jobs.
Interestingly, the biggest job gain was recorded in Ontario, which saw an employment increase of 36,000 positions, all part-time in nature. This is the third increase in employment in Canada's largest province in the past four months. However, a rising participation rate resulted in a small increase in the provincial unemployment rate, which now matches the national figure of 5.9 percent.
Just this week, the new Doug Ford government announced that it would repeal the previous government's labour reform bill, which had increased the minimum wage and provided improvements to workers' non-wage benefits. Ford bellowed in the provincial legislature that the reforms had cost the province "60,000 jobs". It's true that employment fell by that amount in January, the first month of the higher minimum wage, but given that employment fell in most parts of Canada in that month, it's hardly likely that Ontario's wage policy was the culprit. As StatsCan reported this morning, employment in Ontario is up by 103,000 in the past twelve months, all accounted for by full-time jobs. Don't expect Doug Ford to mention that any time soon.
An unemployment rate just below 6 percent on a national level is as close to full employment as Canada is ever likely to get, given the structural factors that bias unemployment higher in the four Atlantic provinces. Wage pressures remain relatively well-contained, with average hourly earnings up 2.3 percent year-on-year in September. Even so, the tightness of the job market is one of the key factors that the Bank of Canada will have to consider as it sets monetary policy in the months ahead. With the NAFTA uncertainty out of the way, a 25 bp rate hike is likely at the end of this month, with a further increase probable early in 2019.
This morning StatsCan reported the results of its labour force survey for September, and it's clear that the tightness in the job market is not confined to our little area. After an unexpected decline in August, employment across Canada rose by 63,000 in the month, dropping the unemployment rate fractionally to 5.9 percent. The monthly gain was more than fully accounted for by a rise of 80,000 in part-time employment, but on a year-on-year basis, the 222,000 increase in the number employed is fully accounted for by full-time jobs.
Interestingly, the biggest job gain was recorded in Ontario, which saw an employment increase of 36,000 positions, all part-time in nature. This is the third increase in employment in Canada's largest province in the past four months. However, a rising participation rate resulted in a small increase in the provincial unemployment rate, which now matches the national figure of 5.9 percent.
Just this week, the new Doug Ford government announced that it would repeal the previous government's labour reform bill, which had increased the minimum wage and provided improvements to workers' non-wage benefits. Ford bellowed in the provincial legislature that the reforms had cost the province "60,000 jobs". It's true that employment fell by that amount in January, the first month of the higher minimum wage, but given that employment fell in most parts of Canada in that month, it's hardly likely that Ontario's wage policy was the culprit. As StatsCan reported this morning, employment in Ontario is up by 103,000 in the past twelve months, all accounted for by full-time jobs. Don't expect Doug Ford to mention that any time soon.
An unemployment rate just below 6 percent on a national level is as close to full employment as Canada is ever likely to get, given the structural factors that bias unemployment higher in the four Atlantic provinces. Wage pressures remain relatively well-contained, with average hourly earnings up 2.3 percent year-on-year in September. Even so, the tightness of the job market is one of the key factors that the Bank of Canada will have to consider as it sets monetary policy in the months ahead. With the NAFTA uncertainty out of the way, a 25 bp rate hike is likely at the end of this month, with a further increase probable early in 2019.
Monday 1 October 2018
Not A Free Trade Agreement
It went down to the wire, but it appears that Canada will be signing on to the trade deal previously agreed by the United States and Mexico. Part of the deal, very important to Trump, is that the new arrangement will not bear the name NAFTA. Instead it will be known by the unpronounceable acronym USMCA, standing for United States Mexico Canada Agreement. In one important sense that's not a bad change, because if there's one thing that the new deal doesn't achieve, it's free trade.
A cursory glance at Canada's "red lines" in the negotiations shows that many of the arguments were about how many of the anti-free trade provisions of NAFTA the country would be able to carry over into the new deal. Prominent among these, and a cause celebre for Trump after he received an earful from Wisconsin farmers during the election campaign, was Canada's system of "supply management" for dairy and other agricultural products. This was resolved in part by opening up 3.6 percent of the Canadian dairy market to US competition, a miserly concession that nevertheless has the dairy lobby crying doom.
The solutions found for many of the other contentious issues tend to show just how far the US moved off its initial bargaining positions in order to make the deal. For example, the initial US stance was that the new deal should expire after just five years, something that both Canada and Mexico found unacceptable. USMCA provides for an initial term of sixteen years, with the opportunity to extend it further after six years. Canada also seems to have won a victory over the so-called Section 19 dispute resolution mechanism, which the US wanted to abolish but which has been carried over essentially unchanged into the USMCA.
Other terms of the deal, including changes in auto rules of origin, patent protection, duty free shopping allowances and such, can be found here. Considering how minor, indeed almost cosmetic, as lot of the changes are, it's legitimate to wonder (a) why Trump was so anxious to blow up NAFTA and (b) why it was so hard for Canada to belly up to the bar until the last moment.
As far as Trump's motivation is concerned, the simplest explanation is is just likes taking credit for stuff. Making minor changes to an existing deal doesn't give him much to brag about at the mid-term elections, but a newly-named deal reached at the eleventh hour will look much more impressive to what remains of his base.
As for Canada, it's a little harder to be sure of what happened. As I have repeatedly suggested in previous postings, the Trudeau government has mismanaged this from the outset, dragging in all kinds of extraneous topics and generally not seeming to take the various deadlines set by the US (and by the political cycle in Mexico) at all seriously. The sudden rush to conclude a deal over the past week may have reflected a belated realization that Trump really might follow through on his threat to impose tariffs on Canadian autos. A cynic might also wonder if going down to the wire suited Trudeau well enough, with a Provincial election taking place today in Quebec, the Province likely to be hit hardest by the dairy concessions.
Removing the uncertainty over NAFTA should be good for both consumer sentiment and business investment in Canada. And it surely leaves the way clear for the Bank of Canada to raise interest rates again later this month.
A cursory glance at Canada's "red lines" in the negotiations shows that many of the arguments were about how many of the anti-free trade provisions of NAFTA the country would be able to carry over into the new deal. Prominent among these, and a cause celebre for Trump after he received an earful from Wisconsin farmers during the election campaign, was Canada's system of "supply management" for dairy and other agricultural products. This was resolved in part by opening up 3.6 percent of the Canadian dairy market to US competition, a miserly concession that nevertheless has the dairy lobby crying doom.
The solutions found for many of the other contentious issues tend to show just how far the US moved off its initial bargaining positions in order to make the deal. For example, the initial US stance was that the new deal should expire after just five years, something that both Canada and Mexico found unacceptable. USMCA provides for an initial term of sixteen years, with the opportunity to extend it further after six years. Canada also seems to have won a victory over the so-called Section 19 dispute resolution mechanism, which the US wanted to abolish but which has been carried over essentially unchanged into the USMCA.
Other terms of the deal, including changes in auto rules of origin, patent protection, duty free shopping allowances and such, can be found here. Considering how minor, indeed almost cosmetic, as lot of the changes are, it's legitimate to wonder (a) why Trump was so anxious to blow up NAFTA and (b) why it was so hard for Canada to belly up to the bar until the last moment.
As far as Trump's motivation is concerned, the simplest explanation is is just likes taking credit for stuff. Making minor changes to an existing deal doesn't give him much to brag about at the mid-term elections, but a newly-named deal reached at the eleventh hour will look much more impressive to what remains of his base.
As for Canada, it's a little harder to be sure of what happened. As I have repeatedly suggested in previous postings, the Trudeau government has mismanaged this from the outset, dragging in all kinds of extraneous topics and generally not seeming to take the various deadlines set by the US (and by the political cycle in Mexico) at all seriously. The sudden rush to conclude a deal over the past week may have reflected a belated realization that Trump really might follow through on his threat to impose tariffs on Canadian autos. A cynic might also wonder if going down to the wire suited Trudeau well enough, with a Provincial election taking place today in Quebec, the Province likely to be hit hardest by the dairy concessions.
Removing the uncertainty over NAFTA should be good for both consumer sentiment and business investment in Canada. And it surely leaves the way clear for the Bank of Canada to raise interest rates again later this month.
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