It’s difficult to imagine the world falling back into the pre-2017 order.
It’s easy to see the world trading order getting worse — much worse.
That’s what I concluded from reading the Bank of Canada’s July monetary policy report and seeing its news conference afterward.
It also highlighted to me the tough situation Canada and Canadian farmers are in: in the (to me, wildly unlikely) event that the United States-China trade war ends, China’s actions against Canada subside, and the world reverses its present protectionist tide, the main benefit would be recovering some lost economic strength and potential and stabilizing, after suffering recent body blows.
But, if the trade wars and protectionism markedly worsen, then the damage to Canada’s economy (and farmers, particularly) would be severe.
“By the end of 2021, the level of global gross domestic product is approximately three percent lower than in the base-case projection, while commodity prices are roughly 30 percent weaker,” says the Bank of Canada in its report, referring to its negative scenario of increasing trade wars.
“These developments reduce Canada’s terms of trade, which reinforces the global downturn and the supply and demand channels, generating an overall decline of about six percent in Canadian GDP. Much of this decline is associated with considerably weaker exports and business investment.”
That means you, if you are a farmer who invests heavily in a production system that exports its crops and meat.
This is an admittedly “extreme” scenario, Bank of Canada Governor Stephen Poloz said. Deputy Governor Carolyn Wilkins said it serves as a warning about the present trade war trajectory.
“That underscores how much we all have to lose if the trade war escalates,” she said.
Sadly, the bank’s positive scenario is not nearly as bullish as the negative scenario is bearish. Ending trade wars and disputes and returning to the pre-2017 world would return Canada to better export-led growth than the crimped situation today, but it would be returning to a long-term trend rather than creating a big new outlet for Canada.
The bank’s forecast for Canadian economic and export growth for the next couple years is for growth to weaken but continue, and exports to stumble for a year but then get back to decent growth in the early 2020s.
Poloz wouldn’t guess which scenario is more likely, or how likely either one might be.
“I’m not comfortable making up probabilities like that,” he said.
But I’m comfortable guessing. It struck me that it’s hard to imagine any way the world will return to the ever-expanding free-trading that characterized markets from the creation of the World Trade Organization in the early 1990s, at least any time soon. For every Trans-Pacific Partnership or a trade deal like CETA between the European Union and Canada, there’s a China-U.S. dispute, a Brexit or an India import restriction. If the present era of protectionism dissipates, it will be gradual, not sudden and dramatic.
But things could get much worse, and fast, depending on the mutual belligerence of U.S. President Donald Trump and Chinese President Xi Jinping, on how badly the EU-United Kingdom Brexit resolves, and how emboldened other players around the globe are by the tariff taboos being broken.
There’s not much Canadian farmers can do to reverse the world’s protectionist tendencies or mollify the world’s geopolitical tensions. I see people like Canadian Pork Council chair Rick Bergmann and the Canola Council of Canada’s Brian Innes doing everything they can to keep doors open and open new ones in markets around the world, and that’s probably the best thing we can do.
The Canadian government is doing the same, and there’s not much more it can do.
For farmers it will be a time of wait-and-see and wait-and-hope. They can survive in the Bank of Canada’s basic forecast. They could thrive in the best-case scenario.
But if the worst-case scenario comes to fruition, farmers and this country will be in a sorry plight.