Good morning, These are the top stories: A global trade war is brewing Story continues below advertisement The federal government is responding to U.S. steel and aluminum tariffs with a vow to retaliate “dollar for dollar” to the American measures (for subscribers). Prime Minister Justin Trudeau said Canada will slap levies on $16.6-billion of U.S. imports, saying the Trump administration’s actions are “an affront to the long-standing security partnership” between Canada and the United States. And Foreign Affairs Minister Chrystia Freeland called it the “strongest trade action Canada has taken in the postwar era.” The European Union and Mexico also announced retaliatory measures against U.S. imports; the EU trade commissioner said it was “a bad day for world trade.” Canada’s target list: Ottawa is planning to impose tariffs on U.S. steel and aluminum, plus scores of other goods from sailboats to whisky to refrigerators. The list has been designed to more heavily target products produced in Republican-held regions to apply pressure on Washington, a Canadian official said. Trump’s rationale: The President has justified the steel and aluminum tariffs by saying they are necessary to ensure American “national security” to improve capacity for making tanks and warships. Freeland called that rationale “absurd,” and Mr. Trudeau said the idea that Canada would be considered a security threat is “inconceivable.” NAFTA fallout: U.S. Commerce Secretary Wilbur Ross blamed the tariff action on a lack of progress in North American free-trade talks. Ross said there is “no longer a precise date” for when a deal might be reached. Trudeau said he hoped to sit down this week to reach an agreement, but as a condition for holding a summit the U.S. demanded a sunset clause provision that would automatically terminate the deal in five years unless all three countries agreed to extend it. Here are some views on the trade actions: John Ibbitson: “ By imposing punishing tariffs on steel and aluminum against Canada and the European Union, President Trump is further undermining the one thing that holds the West together: trust in U.S. leadership.” (for subscribers) Lawrence Martin: “On their own, Trump’s steel and aluminum tariffs are serious enough. Ninety per cent of Canada’s steel exports go to the United States. But the reverberating impact, the potential collateral damage, is worse. The continent now appears headed for commercial turmoil. A brutal extended trade war is well possible.” (for subscribers) Story continues below advertisement Editorial board: “ Canada has reacted appropriately so far. But it’s hard to predict how things will play out in a confrontation with a reckless and erratic bully.” This is the daily Morning Update newsletter. If you’re reading this on the web, or if someone forwarded this e-mail to you, you can sign up for Morning Update and all Globe newsletters here. Kathleen Wynne says she ‘doesn’t recall’ being told about accusations against one of her cabinet ministers A Globe and Mail investigation published this week detailed how, in 2013, Ontario’s then-infrastructure minister Glen Murray invited the then-mayor of Caledon, Ont., Marolyn Morrison, to a meeting at Queen’s Park. After the meeting, Morrison says Murray asked all staff to leave the room to speak with her privately. After the door was closed, Morrison says Murray told her that he had “complaints” about her and that “he could make them go away” if she supported residential housing in a certain area of her town. She says she refused. Murray disputes the mayor’s characterization of the meeting, calling it “pleasant.” Morrison says she told Wynne, in a 2014 phone conversation, about the meeting with Murray, and that the Premier told her “I’ll be dealing with him.” Wynne told reporters yesterday that she did not recall being told about the incident: “I don’t recall a contentious exchange with Glen Murray, I just don’t recall.” Ontario NDP Leader Andrea Horwath said that Wynne appears to have turned “a blind eye” to the allegations. Murray was an acquaintance of Spiros Papathanasakis, the man at the centre of The Globe’s investigation who has operated as an unregistered, underground lobbyist. Murray said all of his conversations with Papathanasakis were about “local community issues” in his riding. Story continues below advertisement Leaders of Italy’s anti-establishment parties reached a deal to resurrect their coalition Italy’s right-wing League and 5-Star Movement parties have come to terms on a coalition following days of uncertainty that rocked global financial markets. The breakthrough came after the parties agreed to drop their pick for economy minister, an 81-year-old economist who said Italy should have a contingency plan to ditch the Euro. Giuseppe Conte, a law professor who wasn’t elected but has ties to 5-Star, will be Italy’s next prime minister. The new government is vowing to challenge EU fiscal rules and crack down on immigration. Got a news tip that you’d like us to look into? E-mail us at tips@globeandmail.com Need to share documents securely? Reach out via SecureDrop IN CASE YOU MISSED IT The CRTC wants streaming services including Netflix and Spotify to support Canadian content Canada’s broadcasting regulator wants foreign-based digital companies to contribute to the production of Canadian cultural content. “It should be on par with what a Bell puts in and a Quebecor and a Shaw puts in and an Amazon,” CRTC chair Ian Scott said. “It should be proportional and equitable.” Ottawa has already rejected a sales tax on services such as Netflix, but there have been continued calls from a number of groups to level the playing field as digital players increase their footprint over traditional providers. Story continues below advertisement MORNING MARKETS Stocks mixed Global stocks rose and bond yields fell on Friday as investors welcomed an apparent end to a political crisis in Italy, although prospects of a full-blown trade war put a dampener on gains. Tokyo’s Nikkei lost 0.1 per cent, and the Shanghai composite 0.7 per cent, while Hong Kong’s Hang Seng inched up by less than 0.1 per cent. In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 0.7 and 1.2 per cent by about 5:25 a.m. ET.<doc-sep>Share this Story: Andrew Coyne: A trade war Canada will lose to its larger, louder counterpart Andrew Coyne: A trade war Canada will lose to its larger, louder counterpart It is difficult to see how a trade war will succeed, especially when dealing with a man who tweets 'trade wars are good and easy to win' Photo by Kevin Dloietsch / Bloomberg Article content Presumably Donald Trump was warned of the furious response he could expect from the United States’ trading partners were he to proceed with his threatened tariffs on their exports of aluminum and steel. He went ahead and did so anyway. This is one problem with trade wars: they seek to achieve in retrospect what they failed to achieve in prospect. Were he likely to have been deterred by retaliatory tariffs, of the kind that Canada, Mexico and the European Union have just applied to a fantastic assortment of U.S. goods, he would have been already. We apologize, but this video has failed to load. tap here to see other videos from our team. Try refreshing your browser, or Andrew Coyne: A trade war Canada will lose to its larger, louder counterpart Back to video And yet, deterrence having so conspicuously failed, they feel obliged to carry out the threat regardless. It is difficult to see how the reality of a trade war is more likely to succeed than the anticipation, especially when dealing with a man who tweets “trade wars are good and easy to win.” Perhaps its advocates are right to believe that retaliatory tariffs will so focus congressional and public anger on Trump, notably in the states most affected, that he will be forced into a humiliating retreat. Perhaps Trump is right to calculate that people do not necessarily put cause and effect together quite so logically — his people in particular. They may even be moved to rally around their besieged (as they see it) president and country. Wasn’t it precisely to “fight back” against these scheming foreigners, with their long history of preying upon American naivety, that Trump hit them with the tariffs in the first place? Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content Canada has treated our Agricultural business and Farmers very poorly for a very long period of time. Highly restrictive on Trade! They must open their markets and take down their trade barriers! They report a really high surplus on trade with us. Do Timber & Lumber in U.S.? — Donald J. Trump (@realDonaldTrump) June 1, 2018 At any rate, while we are testing this theory, matching the U.S. tariffs we decry as madness and ruin with mad, ruinous tariffs of our own, it is our consumers and businesses who will be the victims. This is the other problem with trade wars. In a real war, the guns are pointed at the other guys. But tariffs are self-inflicted wounds. This is a hard point to get across in the heat of battle. Suggest that retaliation is unlikely to work against them and certain to hurt us, and the response is a volley of patriotic oaths: We have to do something! So you’re saying we should just sit there and take it? You have to stand up to a bully! Why don’t you just take out U.S. citizenship then? It is neither appeasement nor treason to refrain from costly, futile measures that at best are unlikely to succeed and at worst will trigger an escalating series of attacks and counter-attacks. It is simply facing facts. The U.S. economy is more than 10 times as large as ours. Its exports to Canada account for two per cent of its GDP; our exports to them are 25 per cent of ours. Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content Even in concert with the other countries targeted, it is unlikely that we can cause Trump to alter course, for the simple reason that he is Trump. A normal president in possession of a rational mind might well be dissuaded by the united opposition of much of the democratic world. Trump is not that president. If he were he would not have slapped the tariffs on us in the first place, in open defiance not just of economic sense or international trade law, but of the very “military security” invoked as its justification. Suggest that retaliation is unlikely to work against them and certain to hurt us, and the response is a volley of patriotic oaths This is a point that bears repeating. The sheer enormity of Trump, the impossible combination of every conceivable malignant quality in one man — comprehensive ignorance, pathological dishonesty, thoroughgoing corruption, and a seeming determination to use his time in office to cause as much damage in as many ways as he possibly can — is a constant invitation to denial. The mind does not want to believe what the eyes and ears are telling it, that an emotionally disturbed man-child has control of the White House. But it’s true. The nightmare is real. Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content It is folly, then, to expect him to respond as other presidents might. What we can do is learn from this experience. Trump cannot be reasoned with, and he cannot be appeased; he can be flattered, but not with any expectation it will be repaid. His word is worth nothing, and while he can be frightened or bought, he absolutely cannot be relied upon. He will do what he will do, and there isn’t a lot the rest of us can do about it. This goes far beyond the odd tariff. It was evident from the start that Trump represented a total break with all previous norms and expectations of how a president should behave or what he should believe in. Among those norms, it is now incontrovertible, is much of the international order successive American presidents helped to build over many decades.<doc-sep>Send this page to someone via email The White House announcement of U.S. tariffs on Canadian steel and aluminum could, or at least, should not have taken anyone in this nation by surprise. The Trump administration was quite clear in March that while Canada, Mexico, Australia, Argentina, Brazil and the European Union would benefit from temporary tariff reprieves of 25 per cent on steel and 10 per cent on aluminum, a final determination on any permanent exemption would not be long in coming. 1:12 Why is President Trump instigating a global trade war? Why is President Trump instigating a global trade war? – May 31, 2018 WATCH ABOVE: Why is President Trump instigating a global trade war? At the time, I said the Canadian government should spare no effort to gain entry to the exemption list. After all, the Prime Minister had just returned from his disastrous trip to India, where his daily choice of colourful traditional native garb was gleefully mocked by his opponents. Story continues below advertisement Indian journalist Shivam Vij, who found Justin Trudeau’s clothing foray amusing, also shared on air that the Indian government was not in favour of the Trudeau visit and understood it to be an effort to appeal to the large ethno-Indian community in Canada, rather than a mission to improve relations with New Delhi. The Prime Minister returned from India with what could, at best, be described as minimal trade success. Now, surely, Justin Trudeau would throw himself into the Canadian steel and aluminum tariffs matter, while simultaneously exercising federal power by driving the Trans Mountain pipeline extension to the finish line. The PM accomplished neither. A one-day pipeline meeting with the premiers of British Columbia and Alberta was even short on meaningful soundbytes. Canadian steel and aluminum tariffs? Nada. Story continues below advertisement Then, last week, the announcement of federal monies to the tune of perhaps $4.5 billion would be pouring down Trans Mountain extension, verified a prediction I made on air weeks ago. Clearly, Canada was prepared for a tariffs declaration because within hours of the Trump administration’s announcement, the pushback was revealed. Some $16 billion of U.S. goods entering Canada will be subject to import tariffs. Keeping that in mind, consider that just over 70 per cent of our exports nationally are reliant on the U.S. and we’re still not free of inter-provincial economic threats over economy-supporting pipelines. So while we’re wrestling each other, we’re now going to load the slingshot for the Americans? That’s nonsense. Aggressive Canadian chatter six months prior to U.S. midterm elections is a non-starter. There was even a template of sorts available to Justin Trudeau and his Liberal government. While the South Korean trade pact with the United States was harshly criticized by President Trump, Seoul nevertheless became the first American ally to benefit from an indefinite steel tariffs exemption. Story continues below advertisement Under new terms of U.S. and South Korean trade, American automakers will gain increased access to the Korean market and that country’s steelmakers will reduce exports to the United States by 30 per cent of the 2015-2017 average, leaving about 2.68 million tonnes of South Korean steel tariff-exempt. Statistics from 2016 reveal Canada and the U.S. to be each other’s number one destinations for steel exports. What lies ahead? An all-out trade war? We should all hope not. Such acrimony lengthened by several years and deepened significantly the Great Depression of the early 1930s. Roy Green is the host of the Roy Green Show on the Global News Radio network. Listen to the latest from the Roy Green Show Subscribe to the Roy Green Show Podcast now at Subscribe to the Roy Green Show Podcast now at Apple Podcast or Google Play Advertisement<doc-sep>The U.S. imposed new 25 percent tariffs on steel and 10 percent tariffs on aluminum, imported from the European Union, Canada and Mexico. So, with the confidence of a strong economy and rising stock market, "[Trump's] got his foot on the accelerator," Clifton said. Trump "got elected and campaigned on this, and he's tired of being told by his advisors what he can do," Clifton added. "I think more and more of the cabinet are becoming pro-trade, but I think the president is becoming more bombastic on trade because he believes the U.S. got a raw deal for decades," said Daniel Clifton, head of policy research at Strategas. Already, G-7 finance ministers, meeting in British Columbia over the weekend, chastised the U.S. for the trade skirmishes brewing across the world. Last week, Japan called for rational debate to prevent protectionism from harming the global economy. The heads of G-7 nations travel to Quebec at the end of the week for a meeting hosted by Canadian Prime Minister Justin Trudeau and including leaders of Germany, Italy, France, UK, and Japan, all countries subject to U.S. tariffs. There could be major developments on the trade front with China during the coming week, as well, and more clarity on whether revisions to the North American Free Trade Agreement can be concluded this year. With a lack of earnings and major economic reports, markets could focus more heavily on trade-related headlines in the coming week, and they could get nasty as President Donald Trump prepares to meet world leaders in Canada. The tariffs prompted swift retaliation and raised doubts about whether the administration will be able to reach a near-term agreement with Canada and Mexico on a revamped North American Free Trade Agreement. But many market strategists say those tariffs alone will not rock the stock market or economy unless they escalate. The bigger question is whether the U.S. can resolve trade disputes with China and come to a new NAFTA accord. As for China, Commerce Secretary Wilbur Ross touched down in Beijing Saturday, amid a widening disagreement over whether China would agree to commit to long-term contracts on U.S. energy and agricultural products. Clifton said there could be positive developments on China trade, but the outcome for NAFTA is unclear. "It could turn out we get a good China negotiation next week," he said, noting the disagreement over contracts could be posturing. "We will not have a better determination of what's happening in NAFTA until we see what goes on in China," he added. "As an investor, what you should be worried about is NAFTA going away. That is a meaningful change to the supply chain. That is different than the tit-for-tat tariffs on goods." The Trump administration announced the metals tariffs after Mexico and Canada would not agree to a sunset clause on the free trade accord, arguing it would be difficult to make decisions if the agreement is not permanent. The demand was made as the leaders of Canada and Mexico were discussing coming to the U.S. to close the deal. "The U.S. has to think of its leadership role and right now the direction we're leaning is not very constructive," said Tom Block, Fundstrat's Washington policy strategist. "I do think the economy right now is running on every cylinder. It's so strong. ... If you're quarter-to-quarter focused, the next few quarters look pretty good. But if you start to take a deeper look and say how sustainable is this, that's when the trade and tariffs are a problem." Strategists said the administration is coming down to the wire to reach a NAFTA deal and is just days away from a deadline under which it can still receive approval from the current Congress. "Everybody would be caught by surprise if something comes out in the next week," said Juan Carlos Hartasanchez, Albright Stonebridge Group senior director. "What's important is Mexico and Canada did not budge to the will of the U.S. ... That in itself reduces the tension to reach an agreement in the short term. Now the real-time horizon to reach an agreement for NAFTA has expanded to what we initially thought — more toward 2019," he said. In the week ahead, there is international trade data coming out on Wednesday, as well as productivity and costs data, which includes a look at inflation. The PCE data is the preferred inflation measure watched by the Fed. There are no Fed speakers in the coming week since it is the quiet period ahead of the June 12 and 13 Federal Open Market Committee meeting, when the Fed is expected to raise interest rates. "You can [worry] tariffs are going to be bad for the economy, but it's juxtaposed against strong numbers that we've seen in today's unemployment report. We don't have that [buffer of the data] next week. We could revert to what could go wrong, and we will hear more about retaliation," said Art Hogan, chief market strategist at B. Riley FBR. So far, Europe has pledged its own tariffs on products such as Bourbon and Harley-Davidson motorcycles. Mexico said it may attach tariffs to cheese, apples, rolled steel and pork, while Canada said it would put tariffs on steel and aluminum and other products.<doc-sep>
One of the curious and, to many, incomprehensible, stories of the First World War is how young Canadians joined up in droves and marched off whistling to one of history's most gruesome conflicts. Whether in a real war or in a trade war, waving the flag is politically popular in a way that is hard to understand to those who live through the ultimate consequences. In Canada, moves by the Liberal government to counter U.S. President Donald Trump's tariff threats were met with surprisingly broad approval. Criticisms of Canada's counter-moves, including a tweet by Opposition leader Andrew Scheer, faced criticisms of their own, and not just from the usual suspects. Patriotic protectionism For his part, Trump knows all about the popularity of blaming trade partners for his country's perceived problems. "The United States has been taken advantage of for many decades on trade," said Trump in a statement following Canada's counter-measures. "Those days are over." Speaking on NBC's Meet the Press on Sunday, Prime Minister Justin Trudeau called Trump's decision to place tariffs on Canadian aluminum and steel 'insulting.' It all may be part the president's political campaign to convince supporters he's making America great, says Canadian economist Matilde Bombardini, currently working at California's Stanford University. But it's not economics. "It's madness, from the economic point of view," says Bombardini. Bombardini, on sabbatical from her job teaching economics at the University of British Columbia, has been watching the U.S. up close. And she says the U.S. trade deficit has nothing to do with bad trade deals or unfair tariffs. Canada has treated our Agricultural business and Farmers very poorly for a very long period of time. Highly restrictive on Trade! They must open their markets and take down their trade barriers! They report a really high surplus on trade with us. Do Timber & Lumber in U.S.? —@realDonaldTrump "It's purely the result of their fiscal policy," she says, as the U.S. sells bonds to countries like China to make up Washington's soaring budget deficit. "They sell T-bills and they buy goods." Blowing things up And while Trump is clearly playing politics, hoping his strong nationalist line will rally support in the congressional midterm elections, there is still economics at the heart of that growing dissatisfaction among his many supporters, says Canadian business thinker Roger Martin. "Trump is unquestionably an effect, not a cause, just as is the case with Brexit," said Martin, director of the Martin Prosperity Institute at the Rotman School of Management, in an email conversation. "In both cases the electorate voted to 'blow it up' even if they didn't feel confident they knew what 'it' was and whether the desired new state would surely be better or whether the relevant politicians could actually deliver on promises made," said Martin. An explosion at an ammunition dump last year in Ukraine. Once begun, wars commonly escalate. (Gleb Garanich/Reuters) "I believe that very few Trump voters believed that he would bring steel production jobs back to the rust belt. But they did believe he would blow things up — and without question he is delivering on that promise." Such desperate political views, angry, without hope of practical resolution, sound like the kind of mindset that starts wars of all sorts. The question remains where, after the explosion, all the pieces will come fluttering down. Martin insists it's impossible to know whether the current global shakeup will end in something better or something worse. Left in the dust To go back a step, the reason Trump supporters decided they wanted to "blow it up" was that the vast majority of U.S. voters have been excluded from the New American Aristocracy, according to the cover story in this month's Atlantic magazine. Author Matthew Stewart makes the case that an exclusive new U.S. class system has emerged, consisting of an educated aristocracy of which he is a member and that constitutes the happy, healthy, richest 10 per cent of Americans. "We have left the 90 per cent in the dust — and we've been quietly tossing down roadblocks behind us to make sure that they never catch up," writes Stewart. The last time such an aristocracy existed was in the 1920s and the last time it blew up was the Great Depression of the Dirty '30s.