Posthaste: How Canada can capitalize on the $4.6 trillion trade that's in play amid U.S. and China showdown

Posthaste: How Canada can capitalize on the $4.6 trillion trade that's in play amid U.S. and China showdown

Financial Post



Good morning!

The pandemic and the pandemonium in the White House is upending global trade. Seamless global supply chains are in knots as bottlenecks emerge and new barriers go up.

It’s no longer about the lowest cost alternatives or the most advantageous locations, but companies have to grapple with who their politically correct partners are going to be in the new world trade order.

A new report by McKinsey Global Institute states that COVID‑19 is accelerating some of the trends that were already manifesting within the world’s value chains, including the regionalization of trade and production networks, the growing role of digitization, and the focus on proximity to consumers.

“We estimate that 16 to 26 percent of exports, worth $2.9 trillion to $4.6 trillion in 2018, could be in play — whether that involves reverting to domestic production, nearshoring, or new rounds of offshoring to new locations,” McKinsey said in a new report, adding that it’s not a forecast but a rough estimate of how much global trade could potentially relocate in the next five years.

Companies are taking note of the shifting political sands under their feet, with 93 per cent noting in a McKinsey survey that they are planning to increase their supply chain resilience. This is important as there are 180 key products that are primarily sourced from a single country (accounting for 70 per cent or more of exports), creating the potential for bottlenecks.

The frequency of trade disruptions has risen, too, with viruses, financial crisis, cyberattacks and large-scale natural disasters becoming more frequent, so much so that companies can expect to lose 45 per cent of an year’s earnings to shocks over the course of a decade, McKinsey estimates.

The world’s political temperature is going up, too, which has real, on-the- ground economic consequences.

“Protectionism has taken root in some of the Western democracies that were once champions of free trade,” McKinsey stated. “Borders have gone up again in Europe after decades of integration, and the full implications of that are not yet clear. There is a real chance that tariffs and non-tariff barriers will continue to rise, reversing decades of trade liberalization. Companies have to be prepared to respond to rapid shifts in regulatory policy, tax laws, and tariffs.”

For Canada, expanding the automotive sector is a low-hanging fruit to take advantage of the new trade order. McKinsey notes that China exported $44 billion of automotive parts to the world with $17 billion to the North American markets alone — and that could emerge an area where the continent can reduce its dependence on Beijing.

Despite the largely regional nature of automotive production, auto manufacturers continue to rely on some imported Chinese parts — as such the initial COVID-19 outbreak centered in Hubei Province quickly produced global ripple effects in the industry.

“Trade disputes are an ongoing concern, leading companies to build in more flexibility and redundancy. We estimate that a relatively modest share of auto exports, between 15 and 20 percent by value, has the potential to shift in the medium term, driven predominantly by non-economic factors,” McKinsey noted.

Other sectors that could benefit from a shift to regionalization could be pharmaceuticals, a $377 billion potential at the higher end, aerospace ($110 billion), communication equipment ($363 billion), semiconductors and components ($184 billion), and agriculture ($149 billion), McKinsey estimates. Canada has a strong foothold in at least some of these industries.

The Liberal government is reportedly drawing up plans to revive the Canadian economy — it may want to look beyond its renewable energy obsession and focus on examining these sectors’ potential.


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*PEOPLE POWER:* A Lebanese protester during clashes with security forces in the vicinity of the parliament in central Beirut on August 10, 2020 following a huge chemical explosion that devastated large parts of the Lebanese capital.

Lebanon’s prime minister announced that his government has stepped down from their roles after weekend-long protests by the public due to the Beirut explosion last week. Read the full story here. Prime Minister Justin Trudeau has also announced an additional $25 million in aid to help the people of Lebanon struggling to recover from the blast.



· Canadian Housing starts data in July from CMHC
· Minister of Indigenous Services, Marc Miller, to announce support to urban and off-reserve Indigenous organizations in Montreal through the Indigenous Community Support Fund
· House of Commons ethics committee hears from Ian Shugart the clerk of the Privy Council at 12:30 p.m., Youth Minister Bardish Chagger (2 p.m. via videoconference) and Employment Minister Carla Qualtrough (3 p.m. via teleconference) and Benoit Robidoux, Associate Deputy Minister at ESDC (also at 3 p.m. via videconference)
· Federal Minister of Environment and Climate Change, Jonathan Wilkinson and B.C. Transportation and Infrastructure Minister Claire Trevena announce safe restart funding support for the transportation sector
· Business leaders launch Low Carbon Advantage Plan in Vancouver as part of a strategy to address climate change and spur economic recovery
· Federal Reserve Bank of Richmond President Thomas Barkin speaks on “Perspectives on the Economy and What is Next for Recovery” before a webinar hosted by the Center for Regional Economic Competitiveness
· *Notable Earnings: High* Liner Foods Inc., Dorel, AirBoss of America, Hydro One, Canada Goose





· Trudeau taps Carney for help in crafting recovery plan
· Trump says considering cutting capital gains tax, income taxes for middle-income families
· Canada Goose posts wider loss as coronavirus hits demand
· S&P 500 futures hit record high on stimulus bets
· Air Canada unveils new loyalty program that allows families to share benefits
· Winter is coming: Businesses’ problems far from over as economy reopens
· Spies, lies and dormant ties: How to use and abuse LinkedIn
· Global banks lost nearly US$1 trillion in market value in the pandemic’s first wave — and there’s another one coming
· Over half of Americans oppose Trump tariff on Canadian aluminum, survey suggests
· Trudeau government announces additional humanitarian aid to Lebanon
· Ottawa sets minimum unemployment rate at 13.1 per cent for EI calculation



European bank stocks have plunged 39 per cent this year compared with a 13 per cent fall in the benchmark Stoxx Europe 600 index. In the U.S., the Nasdaq Bank Index has fallen more than a third, while the S&P 500 is flat for the year. That has wiped out a combined US$987 billion in shareholder value, Citi data shows. Financial Times report.


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And if you’re already a homeowner, refinancing your mortgage at one of today’s bargain rates could save you thousands of dollars a year. But these ultra-low mortgage rates won’t last forever, so if you’ve been thinking about buying or refinancing you should snatch up a cheap rate now — before it’s too late, advises our content partner MoneyWise.


Today’s Posthaste was written by  Yadullah Hussain (@Yad_Fpenergy), with files from The Canadian Press, Thomson Reuters and Bloomberg.

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