Cost of Living·Analysis

Trump, China and the trade war that could send the global economy into the ditch

The Cost of Living looks at how uncertainty elsewhere in the world is affecting Canada and businesses close to home.

Why does uncertainty matter, and what does a chill look like?

Tariffs from the Trump administration have led to uncertainty in Canadian industries such as steel. (Carlos Barria/Reuters, Stacey Janzer/CBC)

The trade war between the United States and China has many around the world — and here in Canada — feeling their economic futures are more uncertain than ever.

While the world's two largest economies could settle their differences and skate through their current tariff disputes, that's not a sure outcome by any means.

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Just the threat of a continuing trade war could send the global economy into a recession, with economic uncertainty weighing heavily on the mind of businesses large and small — even if they aren't directly connected to China.

Ryan Jordan, of Windsor, Ont.-based RJ Steel, understood that concern first-hand after steel and aluminum tariffs were imposed on Canada by the U.S. last year.

Ryan Jordan, president of Windsor, Ont.-based RJ Steel, understood that economic uncertainty first-hand after steel and aluminum tariffs were imposed on Canada by the U.S. last year. (Stacey Janzer/CBC)

His company lost work, as it had to build potential increases to material costs into its prices. Accordingly, the company's bids were higher on potential jobs — and it lost out on contracts.

RJ Steel also gave up on purchasing new equipment, such as a shear to cut large pieces of steel, and dropped plans to hire at least one new worker. Existing employees started to worry as well.

"They want certainty. I don't blame them. I would, too," said Jordan, in an interview with Paul Haavardsrud on CBC Radio's Cost of Living.

Despite the Trump administration dropping the tariffs against Canada in May, it's still not business as usual at RJ Steel.

The company isn't adding the new equipment or the new employee. It's just one example of the continuing uncertainty that remains.

Multiply that caution across companies around Canada and around the world, and the issue compounds.

Whether it's businesses holding off on investments or worried employees passing on major purchases because they are concerned they won't have work, a lack of confidence itself leads to what amounts to a holding pattern for a large part of the economy.

More worried than during 2008 financial crisis

In Canada, people are more worried right now than during the financial crisis of 2008, according to at least one indicator.

Economists at Stanford University are actually tracking the level of worry in something they call the Economic Policy Uncertainty Index. It measures how often terms related to precariousness are used in the news.

"This is really a unique period of quick changes and large changes in trade policy and uncertainty about future trade policy," said Scott Baker, one of the index's creators.

"At every point in time when it seems like we've stabilized a little bit, there seems to be some new shock or new event or new tweet that comes out and makes everyone a bit less sure of what's going to go on," he said.

U.S. Trade Representative Robert Lighthizer, centre, gestures as he chats with Chinese Vice Premier Liu He, right, while U.S. Treasury Secretary Steven Mnuchin looks on, in Shanghai on July 31. (Ng Han Guan/Reuters)

While the ongoing disputes between the U.S. and China could be considered a big driver of global uncertainty, the question marks around Brexit are contributing as are potential economic slowdowns in Germany and Venezuela.

"It's hard to say exactly where things are going to land," said Baker.

With files from Paul Haavardsrud and Anis Heydari


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