By Brian Dunn
As Laura Dawson, Director of the Wilson Centre’s Canada Institute, Washington, DC, sees it, a combination of U.S. unilateralism, a softening demand for Chinese exports and imports and the Brexit fiasco, has resulted in global instability. To make matters worse, President Donald Trump will probably get re-elected in 2020 as there’s no viable alternative.
“We feel Canadian trade representatives are doing a very good job (in the U.S.) and it’s a relationship to be managed, not cured. Our organization is non-partisan and we work with Canadian businesses to make sure Canada is not part of any collateral damage,” she said during the 18th annual conference of the Shipping Federation of Canada in Montreal on May 22.
During the 1940s, the Breton Woods Agreement and the General Agreement on Tariffs and Trade were established to stabilize international trade but the world is reverting back to those unstable times, said Ms. Dawson, who added that current tariff wars could lead to the dissolution of the World Trade Organization.
Seventy six per cent of Canada’s exports go to the U.S. Canada’s next biggest market at four per cent is China, which presents Canada with a “diversification conundrum. The President loves tariffs, but it’s detrimental to the rest of the world and the U.S. is destabilizing supply chains. And now, a lot of Canadian companies are investing in the U.S. to hedge against uncertainty.”
The Trans-Pacific Partnership (TPP) and Comprehensive Economic and Trade Agreement with the EU will only result in marginal gains, although new market access in Japan is a positive, especially since the U.S. backed out of the TPP. Any U.S.-China deal will result in high geopolitical stakes, with limited economic returns, said Ms. Dawson. It will also align China with the rest of the world, but any deal needs to include allied trading partners.
As for the Canada’s trade relations with China, there is nothing Canada can do to resolve the problem resulting, among other things, in this country getting stuck with a 3.5-million tonne surplus of canola this year.
The direct impact on global trade from all these squabbles will be masked, but could include stockpiling, inefficient supply chains and investment chills, Ms. Dawson noted. “Canada’s policy choices will be based on what kind of economy we want. The tax gap between the U.S. and Canada is growing, and business investments are muted as we wait for better days. Canada suffers from over-regulation, too much provincial debt, internal trade barriers, low infrastructure spending, and inconsistent carbon levies, all of which makes it an unattractive place to invest.”
“There is also a disconnect between the policies the Liberals have enacted and the ones we need. But I would still rather be in the transportation business than the agriculture or oil business, because Canada still has a lot of commodities that need to be moved.”
Peter Sand, Chief Shipping analyst, BIMCO, the world’s largest shipping association based in Copenhagen, commented that the global economy is expected to see slow growth from unresolved trade tensions. The main challenge for the shipping industry is to manage overcapacity. For dry bulk, there will be no improvement in 2019, while much stands in the way of profitability for containers and any recovery rests on the hope for lower fleet growth.
But it is imperative trade barriers are eliminated, said Mr. Sand. “There are no winners in a trade war and the impact on shipping will be hard. The China-U.S. dispute is resulting in $200 billion worth of goods facing tariffs, affecting 2.75 million TEUs of Trans-Pacific shipments to and from the U.S.” Weekly U.S. soybean exports to China have dropped from three million tonnes in 2015 to less than 0.5 million tonnes. In March, 2018, 24 per cent of U.S. oil exports went to China. This March, they were down to four per cent.
When it comes to the trade environment, CN Rail always takes a long-term view, according to Jean-Jacques Ruest, CN’s President and CEO. In addition to moving oil by rail, CN is always looking for other businesses to move into. “After NAFTA, we became too reliant on the U.S. market. What we make here, the world needs. If not soybeans, maybe we’ll move more wheat.”
The best solution to increase west coast cargo handling capacity is through the proposed Terminal 2 at Deltaport which would add 2.4 million TEUs, said Mr. Ruest. “We want to see more capacity, but the weakness is too much concentration at one port which presents a serious challenge. We need to increase capacity at Prince Rupert as well.”
Noting that east coast ports are “old,” the CN boss would like to see a modern port on the St. Lawrence as both Montreal and Halifax are running out of room, and he supports a new port like Contrecoeur. He also expects to see more Asian cargo coming in via the east coast over the next 10-15 years and later added that there needs to be a Prince Rupert type port on the east coast to accommodate larger vessels.
Looking down the track, Mr. Ruest said CN will always remain relevant to Canada as long as it embraces new technology like driverless trucks and automated track and fleet inspections. “In order not to become the next dinosaur, we have to have people coming from other industries.”