The first period of this month (June 1-15) has been marred by precarious international trade relations, as nations across the globe brace grapple with President Trump’s newly signed Proclamation, which imposes tariffs of 25% on U.S. imports of steel and 10% on U.S. imports of aluminum—a decision that makes some Canadian business leaders “want to scream”. Longtime trade partners of the U.S., including the EU, Canada, and Mexico, are finally coming to terms with the United States’ newfound unpredictability; each of which has launched retaliatory tariffs as somewhat of a collective resistance to Trump’s “America First” agenda, which day by day seems more intent on eclipsing the ambitions of even its most stalwart allies. However… this kind of pushback against American foreign policy–which has taken centre stage in the form of NAFTA–is not without its repercussions, especially for the TSX Venture.
One could find it ironic that the U.S. has never gotten along better with its adversaries, while worse with its comrades. As the US and DPRK meet at the Singapore Summit to sign a historic agreement that could usher in a new era of global peace, Trump and Trudeau remain increasingly at odds over trade, with the former continuing to hurl disparaging comments at the Prime Minister and Canadian trade policy. Unfortunately, the strained relationship between Trump and Trudeau—which has become symbolic of the volatility between the US and Canadian markets—could leave Canadian investors caught in the crossfire.
A recent Bloomberg report suggests that NAFTA’s entry into political purgatory, (in addition to a slew of other economic factors, including the global market turbulence seen in May), is eroding Canadian consumer sentiment. That sentiment could continue to worsen, with Trump recently avowing to make Canadians pay for Trudeau’s passive-aggressive stance on US-Canadian trade relations.
Steel & Aluminum: A Proxy War for NAFTA?
Trump’s business acumen can hardly be questioned. He’s spawned hundreds of successful businesses throughout his career, and according to Forbes, is worth upwards of $3B—a testament to his prowess as a dealmaker.
However, its his ability to unwind decades of trilateral trade agreements that draws skepticism from his North American neighbours. And rightfully so; it would be foolish to dismiss the years of work that it has taken highly skilled U.S. politicians and economists to create the United State’s present day trade policy.
By deploying harsh steel and aluminum tariffs on Canada and Mexico, Trump may hope to bend the respective knees of both countries by creating an economic reality that is just too difficult for them to bear, at which point they will cede to the demands of the United States. The tariffs, in essence, could be thought of as a proxy war for NAFTA concessions.
But how long will such a war drag on, especially as untimely elections threaten to delay already gridlocked NAFTA proceedings?
With the Mexican General Election taking place on July 1, 2018, and the U.S. Midterm elections following shortly thereafter, it is not hard to imagine that NAFTA discussions could see unofficial suspension until next year. And as trade matters remain unresolved, uncertainty in the markets can fester… leading to severe consequences for Canadian investors.
Recent Canadian IPOs
Medmen Enterprises (CSE: MMEN)
With a pre-money valuation of $1.65B, MedMen Enterprises is a California-based cannabis retailer that has become one of the first, and largest, U.S. marijuana companies to list on the CSE. In addition to 12 licensed retail outlets across the states, MedMen has a 45,000 sq. ft. cultivation facility in Nevada, with plans to expand cultivation operations throughout California. MedMen commenced trading on the CSE May 29, 2018, closing at $4.69 by June 15, 2018, a -6% drop from its initial trading close of 4.95. (See more here)
3 Of The Best Performing Dollar Active Stocks on the TSX Venture
1. Hunter Oil Corp. (TSXV: HOC) 0.87 to 1.77 (+103.45%) — 10 Day Average Volume: 15,695
2. Covalon Technologies Ltd. (TSXV: COV) 6.87 to 8.65 (+25.91%) — 10 Day Average Volume: 29,491
The continued upwards trend for Covalon Technologies Ltd. may be related to a May 28, 2018 news release, which discussed “major corporate initiatives” and second quarter results. (See more here)
3. Gold Reserve Inc. (TSXV: GRZ) 2.95 to 3.68 (+24.75%) — 10 Day Average Volume: 8,070
3 Of The Worst Performing Dollar Active Stocks on the TSX Venture
1. Blockchaink2 Corp. (TSXV: BITK) 0.76 to 0.42 (-44.74%) — 10 Day Average Volume: 38,981
Blockchain2k Corp., which began trading on May 31, 2018 after a Change of Business from Africa Hydrocarbons Inc.—dropped from 1.25 to 0.76 just a day later, sliding further to close at 0.42 by June 15, 2018. (See more here)
2. Distinct Infrastructure Group Inc. (TSXV: DUG) 1.41 to 0.94 (-33.33%) — 10 Day Average Volume: 141,387
Distinct Infrastructure Group Inc. began to fall after resuming trade on June 6, 2018. An IIROC Trading Halt was issued following a Cease Trade Order by the Ontario Securities Commission on May 4, 2018 for failing to file financial statements. (See more here)
3. Cobalt 27 Capital Corp. (TSXV: KBLT) 12.25 to 9.61 (-21.55%) — 10 Day Average Volume: 378,678
Darkest Before The Dawn
When asked about Trump’s behaviour, French President Emmanuel Macron was quoted saying “no one is forever”—a statement that rings the same poetic truth as the old Persian adage “this too shall pass”. Investors should understand that Canada’s depressed consumer sentiment will pass as well.
Perhaps quicker than we think.
Not only does the impetuousness of the Trump administration give hope (albeit a mercurial one) that logic will prevail and agreements will be made, but Canadians may feel some relief as the federal government presses onwards with the newly nationalized Kinder Morgan pipeline. The growing divide between US and Canadian trade policy is an inevitable consequence of America First politics… and while it introduces a new element of uncertainty into the global markets, it also creates an opportunity for better North American trade, and thus new opportunities for investors—so long as Trump and Trudeau can play nice.