Good morning. In the coming weeks, the United States is expected to set in motion a renegotiation of the 2018 trade pact with Canada and Mexico – reviving old fights over market access and unleashing fresh strains over tariffs that will determine the fate of North America’s tightly bound economy. No biggie! That’s in focus today, along with a look at the week ahead.
Up firstIn the news
Tech: Canada’s spy agency is warning Canadian tech entrepreneurs about showcasing their wares at international pitch competitions organized by China, events it cautions pose a serious risk to their intellectual property.
Travel: Air Canada flight attendants who were on strike last month have voted against a deal to ratify a new collective agreement reached between their union and the air carrier, a step focused on wages that will not result in another work stoppage.
Office space: Downtown Toronto landlords are cutting back on years of tenant perks – from months of free rent to cash for office build-outs – as rising demand shifts power back in their favour.
Power struggles: Nova Scotia’s electrical utility proposed rate hikes that could prompt a showdown with a provincial government bent on improving affordability – and the utility’s credit rating hangs in the balance.
On our radarKey this week: A U.S. inflation report on Thursday will shape bets on the Federal Reserve’s rate decision next Wednesday. It’s largely expected to cut. (So is the Bank of Canada that same day.)Tomorrow: The NFIB Small Business Economic Trends Survey provides a snapshot of monthly hiring, earnings and plans for expansion in Canada.Thursday: Markets are expecting the European Central Bank to hold its lending rate steady after a report last week showed price growth remained in its comfort zone last month. Friday: Statistics Canada reports building permits for July.Earnings this week include Giant Tiger parent North West Co. after markets close today and Sobeys owner Empire Co. on Thursday.Open this photo in gallery:
Photo illustration by the Globe and Mail/iStockPhoto / Getty Images
In focusIt’s fun to litigate the USMCA
When the United States, Canada and Mexico signed the USMCA in 2018, they broke with the tradition of open-ended trade pacts. The agreement carried a “sunset clause” – a mandatory six-year review, framed as a way to keep the deal current but criticized as a built-in doomsday clock.
Robert Lighthizer, then the U.S. trade representative, called it a correction to the “eternal” life of most trade pacts: “Most trade agreements, for reasons that don’t make any sense to me, are eternal … this one is temporal.”
In the coming weeks, Washington is expected to bring the deal’s temporality into focus, triggering a review ahead of an Oct. 4 deadline that will determine whether the pact is renewed or allowed to wind down.
From there, months of consultations and congressional hearings will shape negotiating goals, leading into a two-year contest over the pact’s future.
The review will test whether North America’s integrated economy – its auto plants, supply chains, and farm exports – can hold together under a U.S. President who has already imposed punishing tariffs on Canadian and Mexican goods, sparing only exports that comply with USMCA’s rules of origin.
For Canada, the risks of an unravelling free-trade pact are becoming more evident with every key economic report:
Statistics Canada reported last week that the country’s unemployment rate jumped to 7.1 per cent — the highest level since 2016, outside of the pandemic.Exports to countries other than the U.S. fell 8.6 per cent in July from the month before, after a 4.2-per-cent drop in June, a stark reminder that the push to reduce the country’s exposure to its largest trading partner will be a long process.On Friday, the agency’s release of building permits data will highlight Ontario’s “substantial underperformance” in housing starts, RBC economist Nathan Janzen said – a drag on the national picture linked in part to the province’s trade-dependent industries.
The possibility that the White House walks away from the pact entirely remains in play – endangering an agreement that shields exporters from duties that have climbed as high as 35 per cent on some products. “CUSMA, in a very different trade environment, is going to look different,” Prime Minister Mark Carney said last month, using the Canadian variation of the trade agreement’s name. “And what we need to do is to make sure we’re focusing on areas where the mutual benefits are very clear.”
Ottawa has withdrawn its retaliatory tariff measures in an effort to restart talks. Washington, meanwhile, is preparing to reopen disputes that cut to the core of the agreement – dairy quotas, auto content rules, digital regulation and Chinese investment in North America.
Globe economics reporter Mark Rendell writes that the successful renegotiation of the North American free-trade agreement during Donald Trump’s first term, and the President’s decision to exempt USMCA-compliant goods from the harshest tariffs, offer a sliver of hope. But there will be months of white-knuckle uncertainty before the trajectory of trade between the two countries becomes clear.
Christopher Hernandez-Roy, deputy director of the Americas program at the Center for Strategic and International Studies in Washington, told The Globe that Canada can still expect a rocky road.
“The President is very unpredictable, and so like they say in the stock market, past performance is not a prediction of future performance,” he said.
Read more
ChartedA precious pause
This year’s meteoric gold rally has been driven by war, lingering inflationary pressures, erratic U.S. trade policies and President Donald Trump’s attacks on Federal Reserve independence, making the metal a winning hedge against a world turned upside down.
Gold investors now need to brace themselves for what comes next, David Berman writes: Boredom!
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Morning update
Global markets rose after dismal U.S. labour data on Friday appeared to seal the case for an interest rate cut this month.
Wall Street futures were in positive territory, while TSX futures pointed higher on hopes of a Bank of Canada cut later this month.
Overseas, the pan-European STOXX 600 was up 0.32 per cent in morning trading. Britain’s FTSE 100 edged up 0.16 per cent, Germany’s DAX gained 0.73 per cent and France’s CAC 40 climbed 0.39 per cent.
In Asia, Japan’s Nikkei closed 1.45 per cent higher, while Hong Kong’s Hang Seng advanced 0.85 per cent.
The Canadian dollar traded at 72.40 U.S. cents.