In the US stocks were also boosted by earnings from Caterpillar Inc. and McDonald’s Corp which fostered optimism that the US economy was thriving. Caterpillar stocks moved up more than 6 percent and McDonald’s 2 percent. As I write this the Dow Jones Index has risen 246 points to 21010 back over the 21000 mark. The Nasdaq composite rose more than 41 points to an all time high of over 6,000. Stocks in Europe also surged to near a 20-month high. Chinese markets however were going down except that they rose today. The Canadian dollar dropped,as Trump put a tariff averaging 20 percent and ranging up to 24 percent on Canadian softwood lumber.
However, according to a research note from Krishen Rangasamy, senior economist at the National Bank the tariff is likely to have limited impact on the Canadian economy. He said if softwood exports stopped completely to the US the net effect on the Canadian GDP would be about half a percentage point. The Canadian S&P/TSX had risen 66 points as I write this to 15,755 in spite of the softwood tariff.
However, Canadian Natural Resources Minister Jim Carr said that job losses are likely as a result of the tax and that the government is standing by to help provide essential services for those impacted. Carr said: “If we look at the history of these trade actions, there inevitably will be job losses. We will focus our efforts on doing whatever we can to ease the impact of those job losses; that is the reality of this countervail. It is going to result in some tough times for some operators across the country. We are prepared and well-positioned.”
Trump is also criticizing the Canadian dairy industry and promising to help US dairy farmers through renegotiating NAFTA. It is Canada that should be criticizing NAFTA for sections such as the proportionality clause which puts the US first in access to our energy resources and Canada second. Carr said the action will hurt not only Canadians but Americans as well by making wood building material more costly for them. However, it will help make the US softwood suppliers more competitive and no doubt produce some jobs in accordance with America First. Trudeau has not chosen to hit back at Trump but pointed out the obvious: “We are tremendously interconnected in our economy with that of the United States, but it’s not just a one-way relationship. There are millions of good U.S. jobs that depend on smooth flow of goods, services and people back and forth across our border.”
The market may also be moving up because the outline of the Trump tax reduction plan is to be announced tomorrow. Trump is expected to propose cutting the tax rate down to 15 percent from 35 percent now. This is a huge reduction. However, a senior administration official said that the 15 percent was just a negotiating figure and any approved plan would probably have a higher rate. The 15 percent rate would require some type of offsetting consumption tax or else there would be a huge budget deficit. In any event an official said that the Wednesday tax proposal may not have many details or to include ways that Trump expects to pay for the tax cuts. With NAFTA trade renegotiation in the wind, and increasing tensions between North Korea and the US, there could very well soon be a downturn in the market. So far the market appears to be discounting negative factors that could soon impact the market.
