Monday, December 9, 2019Canada's Leading Online Business Magazine

A Federal Election, Trade Disputes & Brexit and the Impacts on Canada

By Angus Gillespie

It can often be difficult to foretell whether the future holds a greater level of positive or negative economic indicators with so many different international issues in the mix at any given time. While the list is arguably endless, three of the most important immediate issues facing Canadians can be boiled down to: next month’s federal election; ongoing international trade disputes that manage to entangle our nation; and the controversial Brexit decision taking place in the United Kingdom of Great Britain.

Federal Election

On October 21st citizens of this country will have an opportunity to determine the political direction of this country. The current federal Liberal government, headed by Prime Minister Justin Trudeau will definitely have their hands full in trying to turn aside a strong Progressive Conservative party and their leader Andrew Scheer.

The hard campaigning is now well under way and despite repeated promises by politicians to run clean campaigns now and in the future just never comes to fruition. Once again there has been no shyness towards slinging mud – and that comes from all sides – by the Liberals, Conservatives, New Democratic Party and the Green Party although the two main combatants as one would have presumed are Trudeau and Scheer as they are the two men who have by far the best chance of leading this country after the election.

Polls are polls. Sometimes they are bang on. Other times they are relatively accurate and in other times they manage to completely miss the mark. With that being said, most polls currently seem to indicate that Scheer’s Conservatives may have more of the popular vote, but Trudeau’s Liberals likely would still win more seats in Parliament. However, virtually no poll is projecting a majority government for either party.

As of publication, the Conservatives have the support of 34% of decided votes, followed by the Liberals at 32%, the NDP at 14%, the Green 10%, BQ at 4%, PPC 3% and the remaining fringe parties totalling 3%. However, based on jurisdictional breakdown most projections indicate the Liberals would take 156 seats in Parliament followed by the Conservatives at 145, the NDP 18, the BQ 12, Green 4 and independent at 1. The last statistic could be as high as three, given that two of the independents are former Liberal Cabinet ministers – Jody Wilson-Raybould, who was Justice Minister and Attorney General and Jane Philpott, who was President of the Treasury Board. Both were eventually banished from the Liberal party Prime Minister Trudeau. The third independent candidate with a seemingly strong chance of winning is former Olympic boxer Mike Strange, representing the riding of Niagara Falls. It’s considered a wide open race with the retirement of long-time Conservative MP and former Attorney General and Justice Minister Rob Nicholson. While he doesn’t have the party strength behind him, Strange is definitely the most high-profile candidate in the riding, who also has experience in politics, currently serving on municipal city council.

The biggest challenge to Trudeau’s re-election will be the ability of Canadians to push aside the SNC-Lavalin debacle, which resulted in two former Cabinet ministers – Raybould and Philpott being removed from the party. A recent report by the Ethics Commissioner found damning evidence that both Trudeau and the Prime Minister’s Office violated ethics law by pressuring Wilson-Raybould to turn a blind eye and not continue with criminal prosecution of SNC-Lavalin for allegedly paying millions of dollars to public officials in Libya between 2001 and 2011 to secure government contracts. If convicted, SNC could face a 10-year ban on receiving federal government contracts.

Trudeau has maintained he did nothing wrong and was saving Canadian jobs. Others, including the Conservatives say that simply is not true. Wilson-Raybould resigned from cabinet in February and was kicked out of the Liberal caucus in April along with Philpott when they were deemed disloyal to the Liberal doctrines.

Among the major topics of this election will be: the economy, trade and jobs; energy and environment; housing and infrastructure; social and Indigenous issues; military and veterans affairs, justice and policing and refugees and citizenship. The carbon tax, climate change, the future of pipeline transportation, immigration and the elimination of foreign interfaces being involved in the approvals process are just some of the hot-button topics that will be front and centre during the campaign.

Meanwhile, the Bank of Canada may also play a role in how the election plays out, based on whether its key interest rate remains steady or actually begins to move as we’re seeing in other countries. The central bank is concerned by the ongoing and deepening global trade conflict between the U.S. and China. Voters could become more apprehensive about their future if there are signs of a slowdown or if the U.S. takes action that ripples into the Canadian economy. The level of optimism shown by the bank could affect how some voters look to parties, with some promising more fiscal restraint during bumpy economic times, while others become drawn to leaders pledging more support for national services and programs, regardless of the wider economic footprint.

Former parliamentary budget officer Kevin Page believes Canada is capable of handling an economic slowdown because it’s projecting modest government deficits below 1% of gross domestic product. Other central banks — including the U.S. Federal Reserve — have cut their interest rates and the markets expect even lower rates to follow.

Oftentimes political discord moves into other areas, such as the realm of religious and spiritual beliefs. Such was the case recently when Hassan Guillet, an Islamic religious leader, gained international attention for speaking out in the aftermath of the Quebec City mosque attack of 2017. Immediately B’nai Brith came out with a statement saying it is shocked by the types of verbiage used by Guillet and are calling for his being precluded as a candidate in any elections.

Trade

Even when Canada is not at the eye of the storm regarding trade disputes the country somehow manages to get caught right in the middle of a Category 5 dilemma. Most notably, the ongoing trade war between the United States and China is not only taking an effect on the two largest economies in the world, but it’s also having a massive economic tsunami effect on a plethora of other countries, Canada included.

U.S. President Donald Trump has no shortage of gripes about the trade imbalance with China and has vowed to massively cut the trade deficit. To date he has either imposed or is threatening to impose hundreds of billions of dollars in tariffs. Not surprisingly, China has retaliated in-kind. The immediate effect has been felt on the international stock markets.

Last December, the U.S. Justice Department requested that Canada detain Huawei Chief Financial Officer Meng Wanzhou in Vancouver after the U.S. accused the Chinese telecom giant of defiantly working on deals with Iran, which would contravene an international agreement. Huawei has vehemently denied the accusations. Meanwhile, Meng remains under house arrest in Vancouver. She has been staying in a six-bedroom, multi-million dollar home but her permitted movements beyond that a severely restricted.

The U.S. has accused Meng and Huawei of conspiracy, fraud and obstruction in relation to violating U.S. sanctions in Iran. The U.S. and China have attempted to keep Meng’s case separate from their trade dispute, although Trump has said he would consider intervening in the case if it would help forge a trade deal with Beijing.

The U.S. has asked that Meng be extradited to the U.S. to face serious charges, but her lawyers have managed to keep their client in Canada as negotiations continue. In the interim, China has grown increasingly angered by Canada’s role in all of this and has detained several Canadians in retaliation. It’s been denied by Beijing, but it’s clear that is in fact the case.

Additionally, China has sent a number of stern warnings to Canada not to interfere with issues that our government should not be involved with. Chinese officials told Foreign Affairs Minister Chrystia Freeland to stop meddling in affairs that do not concern Canada – namely trade disputes and also condemning violence in Hong Kong in the wake of escalating tensions between pro-democracy protesters and police.

“The Canadian side should be cautious on its words and deeds when it comes to Hong Kong,” said a Chinese government spokesperson.

Manufactured products have always been a main staple of the Canadian economy. On the automotive front, Ford and General Motors are both taking precautionary steps in the event of a prolonged economic downturn now that an ongoing trade war between the United States and China seems to be intensifying. Tariffs applied by both countries have resulted in a number of cost increases for raw materials, especially the auto industry.

Ford has saved $20 billion in cash for a potential downturn event while GM has about $18 billion in cash, with the potential to pay two years of dividends.

Fear of a recession has dominated volatile trading on Wall Street following President Donald Trump’s announcement of a new round of tariffs on goods on August 1 that could be worth as much as $300 billion.

Canada is the 12th largest export economy in the world but has a negative trade balance of $11.3 billion when you deduct its annual import total of $399 billion from its export total of $387 billion. Canada’s GDP is $1.3 trillion, which equates to a GDP per capita figure of $44,000.

Brexit

When Boris Johnson took over as leader of the British Conservative Party and Prime Minister from Theresa May he was forced to instantly jump into the Brexit fire and set a course that will ultimately determine the economic future of the United Kingdom. In holding a minority mandate in Parliament Johnson’s job is made much harder, but that is not preventing him from pushing forward even if it means having a “no deal” Brexit.

Johnson is not only taking a tremendous amount of grief from Jeremy Corbyn and the Labour Party, which is the official opposition. He is also having his feet put to the fire by members of his own party. Meanwhile, a no-deal Brexit is now “the only acceptable deal” according to Brexit Party leader Nigel Farage, who claims he will support it.

Johnson made the controversial decision to prorogue Parliament, meaning its closure for 23 working days. That would leave little time between its return and the Brexit deadline of October 31. Protests immediately began denouncing the move.

Critics of Johnson’s decision to prorogue Parliament by sending MPs home for 23 working days say it is undemocratic. There is no doubt that such a move by the Prime Minister is a move that makes it much harder for Parliament to influence Brexit, thus providing a smoother path for the UK to leave the EU without an agreement. Those who support Johnson’s stance maintain there is nothing undemocratic about it, since it assists in the execution to leave – as expressed by voters in the 2016 referendum.

Former Conservative cabinet ministers have met with Johnson, including the former justice secretary David Gauke, who believes national interests would come first if he faced deselection for opposing a no-deal Brexit.

Gauke is one of a handful of federal ministers who resigned from the cabinet after Johnson became the UK’s prime minister. He is among a number of ex-cabinet ministers who will back moves in Parliament to legislate against no deal.

A cross-party alliance of MPs opposed to no deal are expected to begin moves on Tuesday to table a bill mandating Johnson to ask the EU for a further extension to the UK’s membership, which they hope to complete including passage through the House of Lords by the beginning of next week before parliament is prorogued.

Gauke said he hoped Johnson would not follow through with reported threats that any Conservative MP who voted against the government next week would face deselection at the next election. Gauke said he disagreed with the planned prorogation of Parliament for five weeks but stopped short of calling it a coup.

As a member of the European Union, the United Kingdom, France and Germany contribute the lion’s share of funding to keep the alliance alive. A sore point for many Britons is that billions of British pounds are sent to the EU coffers and then divvied up amongst the weaker economies, such as Greece, Portugal and even Spain. There is a growing sentiment that the UK would be better off going it alone, even if it meant having to renegotiate separate deals throughout Europe. Johnson and his team have been buoyed with positive responses from both the U.S. and China on having increased trade relations. UK-Canadian relations have always been strong and that’s not likely to change much either way.

In a no-deal scenario, the UK would immediately leave the EU with no agreement about the “divorce” process. Great Britain would leave the single market and customs union – arrangements designed to help trade between EU members by eliminating checks and tariffs (taxes on imports).

Leaving the EU in a ‘no-deal’ scenario also means immediately leaving institutions such as the European Court of Justice and the law enforcement body Europol – similar to Interpol. Memberships that govern rules from medicine to production trade would also end. The United Kingdom would also no longer have to contribute to the annual EU budget, which is currently the equivalent of just less than $11 billion U.S.

At this stage nobody really knows with certainty what would happen with the Irish border. No-deal supporters believe technology could maintain an invisible border but EU law dictates a physical border presence would still be necessary for such items as good and certain products.

The Scottish parliament’s information centre has published a briefing on a no-deal Brexit today. “Potential border checks present the most likely immediate form of disruption following a no-deal Brexit which might result in long queues at the UK-EU borders as goods travel through customs and are subject to standards checks,” it says.

The results of each of these three issues are among the three biggest in terms of having immediate impacts on Canada’s economy moving forward.

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