Last night’s just-before-deadline announcement that Canada and U.S. had reached a deal was met with a sigh of relief in many capitals but especially Ottawa. Reaching a deal on the two linked bilateral deals was definitely better than the alternative of no deal and related uncertainty for investors and certainty of a tough congressional approval process for a bilateral U.S. Mexico deal. It reduces the risk of a negative market outcome for one of the more integrated blocks, a fact that was largely priced in, but it is hard to see the deal as more than defensive.

In short, it seems to be a deal narrower in scope, one that was defensive (holding back on U.S. protectionism rather than creating space for new areas of growth), raising the question about the deployment of political capital on a relatively narrow set of policy changes. Next up – legislative approval in the three countries (tricky in all, mostly in the U.S.) and dealing with the bigger issue/challenge – China. The outcomes for both congressional passage and a deal with China may both be harder than markets expect.

​I spent some days last week in Waterloo, Toronto and Ottawa to give some presentations and try to better understand Canadian trade policy. With Canadians playing a starring role in the previous week’s excitements in Vietnam the week before last on TPP-11 or the Progressive Comprehensive TransPacific Partnership (CPTPP), it seemed a good time to better understand how the Canadians are viewing the trade outlook and especially its “progressive” element. A joint trade symposium from CIGI, the University of Ottawa and the University of Calgary provided a very timely place to discuss.

Interlocking nodes of trade talks in Asia, the Americas and Europe, suggest trade and investment policy will dominate much of the diplomatic energy over the next year, suggesting that trade and investment risks will remain relevant for markets perhaps more so if asset valuations become more stretched. Ongoing trade reviews, especially NAFTA and disputes are perpetuating uncertainty for business making it harder to plan. This uncertainty, along with rather limited changes in macro policy in major global economies (across the G20), suggest a cap on global growth and global trade acceleration next year.  And a downside risk from a major trade measure (more likely from Washington) remains in the frame. 
 
What I took away from my time in Ottawa was that Canada’s “progressive” trade agenda is still being defined in terms of scope, that Canada is slowly working towards some regional Plan Bs, which also extend to the security front, where the Caribbean and Venezuela are concerned. These will likely do more to extend investment and other economic norms, but will be harder to enforce as long as U.S. policy is moving to challenge those norms.