Year of the Tariff: The Good, the Bad & the Ugly

Wars, battles, standoffs, tactics, negotiations...they're likely all words you've heard in recent weeks and months to describe trade-related events. We're only four months in, but this year could very well go down as the "year of the tariff."

At least that's how Eric Lascelles, Chief Economist of RBC Global Asset Management, describes it in a piece published in The Globe and Mail newspaper recently.

"Financial markets today are in a state of high alert, responding spasmodically to an onslaught of macro- and company-level shocks. Among these, protectionism has been a particularly central and recurring villain. Just how bad might the 'year of the tariff' turn out to be?" he writes.

Lascelles goes on to lay out the good, the bad and the ugly in the "year of the tariff." Here's a snippet of how he breaks it down:

The Good:

Some countries, Lascelles points out, are working to deepen international trade. Among the examples he points to are:

• The Trans-Pacific Partnership trade pact (in which Canada and 10 other countries – minus the U.S. – agreed to a new Pacific Rim trade accord)
• Recent trade deals between the EU and Canada and the EU and Japan
• NAFTA – while no final deal is guaranteed, Lascelles says the risk of the North American Free Trade Agreement being destroyed has fallen to 15 per cent from 40 per cent previously

The Bad:

Still, Lascelles points out that any time protectionism is an issue, there's lots of "bad" news out there. For example:

• U.S. President Donald Trump has already implemented tariffs on softwood lumber, washing machines, solar panels, steel and aluminum (minus Canada and Mexico on the last two)
• The recent Chinese tariffs are far more significant than any seen in the past (a 25 per cent tax on US$50 billion of imports)
• The protectionist trend isn't limited to the U.S., Lascelles says, pointing to Brexit in particular

The Ugly:

While Lascelles expects protectionism will "merely act as a pesky drag on global growth," he does caution that "one must acknowledge something like a 20-per-cent chance of a rather uglier outcome: a full-blown trade war."

"…alongside an aging business cycle, protectionism must surely be acknowledged as the key macro risk for the coming year," he concludes.

Eric Lascelles' full commentary originally appeared in The Globe and Mail newspaper on April 6, 2018 with the headline The good, the bad and the ugly sides to the year of the tariff.

To read more on trade issues, check out:

What's Up With the Trade War Talk?

Five Potential NAFTA Deal-Breakers for Canada

NAFTA: A Look at 2 Scenarios for Canada

What's Up With Softwood Lumber?