China has long been a favorite target of Trump as our trade deficit with China stood at a whopping $347 billion last year. On the campaign trail, he branded them currency manipulators and threatened to slap a 45% tariff on Chinese imports.
But after meeting with China’s President Xi Jinping in Florida recently, Trump backed off the tough talk. He even declared victory after China offered concessions for better U.S. access to their financial markets, plus opening up access for American beef producers.
But now Trump has a new trade target in his sights: Our neighbors to the Great White North, and our largest trading partner, Canada.
U.S.-Canadian relations are quickly deteriorating as Trump intensifies a trade dispute by slapping tariffs of up to 24% on lumber imports from Canada. Apparently, this escalating trade war is retaliation for recent changes in Canada’s dairy policy that U.S. milk producers claim violate NAFTA.
The biggest losers so far in this growing trade war are the Canadian dollar, which slumped to a four-month low of 73 cents to the dollar … and American home builders, with lumber prices climbing to a 13-year high!
But there’s a whole lot more at stake here than the timber industry and Wisconsin dairy farmers, where this dispute got started.
Canada is the world’s largest purchaser of U.S. products, and it is the most important foreign market for 35 out of 50 U.S. States.
In fact, Canada is one of the few nations that we enjoy a trade SURPLUS with, exporting $337.3 billion worth of goods and services, versus imports of $325.4 billion … a surplus of nearly $12 billion!
And according to data from our own Department of Commerce, U.S. exports to Canada support an estimated 1.7 million U.S. jobs.
The Trump administration should consider carefully how it proceeds with trade policies. Just look what happened in the 1930s. In an effort to “protect” American jobs, the U.S. slapped tariffs on more than 20,000 imports, some as high as 59%. A trade war soon followed that only deepened the Great Depression.
Sadly, the cycles of history look like they are repeating, just as our E-Wave model predicted. And you can expect even more chaos in global markets as a result.
The chief reason why the U.S. runs chronic trade deficits with most of the world is because of our abnormally high corporate tax rates here in the U.S. That’s why tax policy should be right at the top of the Trump administration to-do list, rather than picking one-off fights with our trading partners.
The iShares MSCI Canada Index ETF (NYSE:EWC) was unchanged in premarket trading Wednesday. Year-to-date, EWC has gained 2.41%, versus a 6.72% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Money And Markets.