Canadian officials unveiled a spending plan to bolster border security in an effort to allay concerns over U.S. President-elect Donald Trump's pledge to impose 25% tariffs on imports from North American trading partners until those countries curb the flow of immigration and illegal drugs.
Canadian Prime Minister Justin Trudeau's government said on Tuesday it would spend C$1.3 billion ($900 million) over six years to improve border security.
Officials say the extra cash will be used to buy police dogs, drones, helicopters, mobile surveillance towers and deploy hundreds of new border agents.
The Canadian government spends about $2.2 billion a year on border enforcement and management, according to the latest spending documents.
Avoiding tariffs is critical to the Canadian economy. Most economists predict that Canada will experience a recession if Trump follows through on his 25% tariff promise. Bank of Canada Governor Macklem said the 25% tariff has created significant new uncertainty for the economy.
Against this backdrop, it will be difficult for businesses to make decisions, Macklem said this month, "and there is a risk that (business) investment will weaken."
How quickly the government will be able to start using the money remains unclear. Officials said they may initially need to rent helicopters to do some of the extra work and redeploy personnel from other agencies to the Border Patrol.
Treasury Secretary Dominic LeBlanc, who also oversees public safety, said he spoke this week with Trump's nominee for commerce secretary, Howard Lutnick, and his nominee for border "czar," Tom Homan, and expressed optimism the two countries can reach an understanding on border security.
“I am confident that as we continue to work with our American partners, they will see that our resolve is strong and that we fully share their concerns about the integrity of our border,” LeBlanc said.
Trudeau, who was embroiled in a political crisis this week after arguably his most loyal and trusted ally in cabinet, Chrystia Freeland, left in shock over the direction of fiscal policy, said the extra funding showed Canada was "stepping up to keep our border strong and secure," noting it would help curb fentanyl production and money laundering.
In a public letter to Trudeau, Freeland expressed concern that the government was on the wrong track, relying too much on fiscal stimulus and not enough on attracting capital and investment to counter Trump's economic nationalism.
Some Liberal MPs are now publicly calling for Trudeau to step down. Neither Trudeau nor his office has commented publicly on Freeland's departure.
Bloc Québécois leader Yves-François Blanchet told reporters Trudeau should call an immediate election to get a mandate from voters to deal with U.S. President-elect Donald Trump.
Brancheau also criticized the border security spending plan, noting it is spread over the rest of the decade. "It's thin," Brancheau told reporters in French, and expressed doubt that the Trump team would be reassured.
Canadian provincial leaders, alarmed by the impact the tariffs will have on their economies, have also called for stronger border controls.
Leaders in oil-rich Alberta unveiled a plan earlier this month to build a new C$29 million force with officers, drug-sniffing dogs and 10 drones to monitor the province's 185-mile border with Montana.
The Canadian dollar is "suffering a thousand cuts"
The Canadian dollar fell to a new low since the COVID-19 pandemic on Tuesday due to political turmoil. Skylar Montgomery Koning, a foreign exchange strategist at Barclays, said the recent political turmoil "reflects the larger problems facing the currency, which is that the economy is not performing as well as the U.S. and now there is the threat of tariffs. We think the Canadian dollar will continue to be under pressure."
Deutsche Bank strategist Michael Puempel believes Trump is more likely to enact tariffs on Canada after recent political angst. "In short, unless there is more stability in Canada's political leadership, we think it is likely that Trump will continue to take an extremist approach to trade with one of the United States' largest trading partners," he wrote in a note to clients on Tuesday.
He said his base case scenario is a Canadian election in the first quarter of 2025 and an eventual move to tighter fiscal policy.
“The Canadian economy is on thin ice right now, and it’s getting worse with the political unrest there,” Jim Caron, chief investment officer for cross-asset solutions at Morgan Stanley Investment Management, said in an interview. He added that in addition to the interest rate gap between Canada and the United States, the political situation is also weighing on the currency.
Brad Bechtel, global head of foreign exchange at Jefferies, believes that USD/CAD could even move higher to 1.4668 in the coming weeks, driven by “holiday liquidity.” This level was last seen on March 19, 2020.
The Canadian dollar has fallen more than 7% against the U.S. dollar so far this year and is on track for its worst year since 2018. Hedge funds increased their short bets against the Canadian dollar in the week ended Dec. 10, the latest data from the Commodity Futures Trading Commission (CFTC) showed.
The Canadian dollar is “suffering a thousand cuts of debasement,” Kit Juckes, head of currency strategy at Societe Generale, wrote in a note Tuesday. “The Bank of Canada has removed its rate support, uncertainty over tariffs has increased, and the government is struggling to stay unified.”
Article forwarded from: Jinshi Data