No major changes to Canada-U.S. trade forecast by economists: Poll

Wed Feb 22, 2017 9:39am EST
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By Anu Bararia

(Reuters) - The United States is likely to refrain from suggesting major changes to its trading arrangement with Canada, according to a majority of economists polled by Reuters who also say the Bank of Canada will wait until 2018 before raising rates.

U.S. President Donald Trump has vowed to renegotiate the North American Free Trade Agreement (NAFTA) to make the terms more favorable to Americans. That unnerved Canadian policymakers, given Canada sends over 75 percent of its exports to the United States.

But at a joint press conference in Washington last week, Trump told Canadian Prime Minister Justin Trudeau that the United States has an outstanding trade relationship with Canada and he will only be "tweaking" it.

In a poll conducted soon after that meeting, all but four of the 23 respondents who answered an extra question said that the eventual tweaks won't be significant. Three analysts said they will be significant and one expected no changes at all.

The tweaks could include alterations to the dispute settlement mechanism and rules of origin criteria and cover the dairy and lumber industries.

"We don't have the details yet. But our assumption is that trade flows continue as normal, hoping that common sense prevails among policymakers because protectionist policies will hurt businesses on both sides of the border," said Krishen Rangasamy, senior economist at National Bank of Canada.

A recovery in oil prices, along with Trump's promises for tax cuts that could underpin the U.S. economy, have prompted economists to bring forward slightly their forecasts for when the Bank of Canada will begin raising rates.

Economists now see the central bank raising rates to 0.75 percent in the second quarter of 2018, versus the third in January's poll. However, forecasts have oscillated between the first, second and third quarters for the past five months.   Continued...

DAY 25 / FEBRUARY 13: President Donald Trump said the United States would be "tweaking" its trade relationship with Canada, stopping short of calling for a major realignment in a development likely to please visiting Canadian Prime Minister Justin Trudeau.

Trump has pledged to renegotiate the North American Free Trade Agreement (NAFTA) linking the economies of the United States, Mexico and Canada to make the terms more favorable to Americans.

At a joint news conference after talks, Trump said his biggest concern with NAFTA was the U.S. trade relationship with Mexico, which he has frequently accused of stealing American jobs.

"We have a very outstanding trade relationship with Canada. We'll be tweaking it," Trump said. "It's a much less severe situation than what's taking place on the southern border. On the southern border, for many, many years the transaction was not fair to the United States," he said.

Trump said the United States and Canada were stronger when they joined forces in matters of international commerce, and both countries benefited from having more jobs and trade in North America.

REUTERS/Carlos Barria