CIBC economist Avery Shenfeld argues that Canadian shipments to the United States will probably continue to enjoy duty-free treatment despite an uptick in antagonistic trade language from Washington. That assessment underpins the bank's current economic forecast, which assumes most Canadian exports destined for the U.S. will not be subject to new sector-specific tariffs.
Shenfeld says much of the present discord echoes the fraught negotiations that accompanied the original drafting of the United States-Mexico-Canada Agreement. He urged readers to discount the President's public criticisms of Canadian trade practices, saying the administration's tone has been seen before.
"We’re setting aside that White House rhetoric, because we’ve seen that movie before," Shenfeld noted regarding the President’s public complaints about Canadian trade practices.
The economist highlights the legal architecture of the existing trilateral accord as offering multiple mechanisms that support a stable baseline for the Canadian economy. Shenfeld observes that even if the tripartite review process does not produce a conclusive finding, the agreement would in all likelihood remain effective through its scheduled 2036 sunset date.
Political dynamics within Washington also shape his reading of the situation. Shenfeld notes there is pressure against extreme measures that would upend continental trade, pointing to support for extending the deal among U.S. business interests as a counterweight to more aggressive options.
"Greer, and others in the administration, have also heard a lot of support for a trade deal extension from US business groups," Shenfeld wrote in his analysis.
Financial markets appear to be siding with CIBC's base case rather than expecting a dramatic escalation. Shenfeld argues that if investors truly anticipated a high-tariff outcome, pricing would reflect a different outlook for Canadian monetary policy - specifically, markets would not be discounting an unchanged Canadian overnight rate for the remainder of the year.
Even with that relative calm in asset prices, Shenfeld warns the persistent possibility of withdrawal from the pact is already creating a drag on long-term business sentiment south of the border. He concludes that while exports may continue to expand, lingering uncertainty will act as a brake on capital expenditures in the goods sector aimed at enlarging Canadian industrial capacity.
"remaining doubts will be a headwind for goods sector capital spending" intended to expand Canadian industrial capacity.
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