FROLITICKS

U.S. Vice-President Pence just visited Ottawa this week to discuss the ratification of the proposed new North American free trade agreement, which includes Mexico. In order to encourage Canadian ratification of the agreement, the U.S. just lifted its tariffs on Canadian and Mexican steel and aluminum products. Tariffs that should never have been implemented to begin with given the President’s use of ‘national security’ as a justification.  No sooner had these tariffs been lifted, President Trump’s administration placed new tariffs on Mexican imports.  Only this time, Trump is using these tariffs to try to force the Mexicans to do something more about stopping Central American refugees from crossing into the U.S.  Most would agree, including some of Trump’s own advisors, that this tactic will have little effect with respect to the border issue.

Instead, the new tariffs on Mexican products will cause as much economic harm to the Americans as it will to Mexicans. Many goods, including vehicles assembled in Mexico and agricultural goods, will cost American consumers even more. Combined with the recent increases in tariffs on Chinese imports, Americans can be expected to pay even more for consumer products of all kinds.  Remember, at one time about eighty percent of Walmart’s sales inventory involved cheaper Chinese imports.

Recent headlines in The New York Times (May 31, 2019) read: “Things Were Going Great for Wall Street. Then the Trade War Heated Up.” Basically, the article notes that up to now the U.S. economy was going fairly well. However, since the introduction of further tariffs on Chinese goods, the benchmark index of the stock exchange ended down 6.6 percent in May, its first monthly decline of the year and its worst drop since an ugly sell-off at the end of 2018. As well, stock markets in trade-dependent economies such as Canada, Japan, South Korea and Germany also saw steep losses in May. In addition, government bond markets have been sending some of the strongest warning signals.

I have been warning for some time that we could be heading for another major global recession if the U.S. continues its protectionist policies. The President’s use of economic threats and a trade war appears to be unravelling. Many economic indicators in the American economy are showing a growing weakness, despite the current low unemployment rate and high corporate profits. As indicated in the above article, investors are becoming increasingly fixated on any signs that growth is flagging. Consumer debt is high and consumer spending is on the decline in both Canada and the U.S. It just may be that Trump’s tariff strategy has gone too far. There is little doubt that ordinary Americans and Canadians will pay the price under his economic policies.