Trade Wars – ‘The Yin and The Yang’

The Canadian and American economies are proving to be resilient in light of current global trade tensions and wars.

U.S. consumer spending, which accounts for an outsized share of GDP, bounced back strongly, supported by the lowest unemployment rate in 50 years. Canada’s wage growth and inflationary pressures have emerged against a steady, central bank interest rate. Yet, Canada had similar increase in economic output in GDP. (NBF July 2019) Furthermore, some U.S. trade tensions have benefitted Canadian manufacturers and producers. For example, Lobster exports are way up to China more than doubled after receiving a 3-percentage point Chinese tariff cut. Also, the Canadian dollar has been appreciating against the U.S. dollar. (It) has increased over 3% since the end of May 2019 and maybe begin to soften to benefit Canadian exporters.  (BDC July 2019) Sounds like a pretty good economic ‘Yang’. So what’s the ‘Yin’?

Trade Wars Expand Their Impact

Trade Wars may be a negotiating strategy but if sustained they will become a global ‘wet blanket’ that no economy will escape. As our partners at NBF Economics, point out in their recent economic outlook, China’s slowdown is significant. This is the ‘Yin”. A significant Chinese economic slowdown could hit Canada hard and cause a decline in the U.S.

“In China, GDP expanded just 6.2% in Q2 from a year earlier (+1.6% q/q non-annualized). Its slowest pace since data collection began in 1992. Although in line with expectations, this result confirmed that the world’s second largest economy is slowing amid persistent U.S. trade tensions. The deceleration could have been worse had other indicators not surprised on the upside in June.”

NBF Economics July 2019
Predicted U.S. GDP is expected to decline especially if trade wars persist.
Predicted U.S. GDP is expected to decline especially if trade wars persist.

“Global trade contracted 2.3% between October and April, according to the Netherlands Bureau of Economic Analysis. The World Bank expects the global economy to grow by just 2.6% this year—the weakest pace since the financial crisis.”

Source: BDC July 2019

It appears the later half of 2019 may be more Yin than Yang. Looming challenges include slowing Chinese growth coupled with the U.K.’s new Prime Minister’s hard line approach to Brexit.