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Boycotting the U.S. may be harmful to your investment returns


Many Canadians are unhappy with U.S. President Donald Trump’s escalating trade war with our country.

So they’re fighting back in their own small way. Some are boycotting U.S. produce – easy to do in the summer, not so much so in January. Some are refusing to buy California wine. Others are searching for “Made in Canada” lapels on clothing – good luck with that; you’re far more likely to find “Made in China” or “Made in Vietnam.”

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President Donald Trump said 4 per cent growth was achievable, despite what critics said.  (Evan Vucci / AP)

Ottawa hasn’t called for a boycott of U.S. goods. But Prime Minister Justin Trudeau doesn’t discourage the idea either.

“I’m always one to encourage Canadians to discover our extraordinary country, to take vacations here at home, to continue to buy Canadian, and if Canadians are looking for extra reasons to do so, then so be it,” Bloomberg quoted him as saying at a recent press conference. “I think it’s important for Canadians to make their own choices about how they want to spend their money.”

Personal boycotts may make us feel more patriotic but they can also inflict serious harm on your finances if taken too far – for example, by refusing to buy U.S. stocks.

Whatever you may think of Trump’s actions – and most Canadians don’t like them, according to the polls – the U.S. economy is on a roll right now. Annualized GDP grew at a rate of 4.1 per cent in the last quarter. Critics scoffed when Trump claimed during the campaign that 4 per cent was achievable, saying it was impossible in a mature economy. But here we are. It probably won’t last, but Trump is touting the second-quarter numbers at every opportunity.

U.S. unemployment is at its lowest level in years. Corporate profits are booming, thanks in part to the Trump-inspired tax reform measures approved in December.

U.S. stocks have responded as expected. Despite the recent setbacks in the technology sector, the S&P 500 is ahead 5.7 per cent this year (as of the close on Aug. 2) while Nasdaq has gained 13 per cent. They’re the top two major market indices in the world. As for Canada, the TSX shows a year-to-date gain of only 1.2 per cent – barely above break-even.

Clearly, boycotting U.S. stocks could have a significant impact on your financial health.

Of course, all this talk of boycotts would quickly fade away if the trade differences between Ottawa and Washington were resolved. Unfortunately, that isn’t happening. The U.S. trade representative, Robert Lighthizer has been holding top-level meetings with Mexico, aimed at reaching a quick deal. Canada has been frozen out.

Why? Look to Trudeau’s “We won’t be pushed around” rhetoric. It may play well with the electorate, but Trump deemed it to be a personal affront and publicly vowed to make all Canadians pay dearly for it. He hasn’t forgotten. We’re on his enemies list, at least for the moment.

How do we get off it? Take a page from the playbook being used by Mexico and the European Union. Like the Three Wise Men, come bearing gifts.

Last month, European Commission President Jean-Claude Juncker came to Washington to meet with Trump. So little was expected of the talks that no closing press conference was scheduled. Then, at a hastily convened late afternoon media briefing in the Rose Garden, the two men announced that all new tariffs on both sides would be put on hold and that negotiations would begin to explore ways to reduce or eliminate trade barriers between them.

This marked the first meaningful trial in what until then had been a rapidly escalating trade war between Europe and America. What happened?

Juncker came bearing gifts – specifically, proposals aimed at assisting Trump in two problem areas. For starters, he said Europe would immediately start buying more U.S. soybeans, partly easing the pressure on Midwestern farmers resulting from new Chinese tariffs on this trial agricultural commodity. As a follow-up, he promised Europe would also buy more U.S. liquefied natural gas, which could help reduce the continent’s dependence on Russia for energy.

It was an olive branch that was gratefully accepted by Trump, who has been feeling growing pressure from Congress over the negative impact his tariffs have had on agriculture exports and certain industries. In a dramatic shift, Europe went from being a “foe,” as he described it only two weeks earlier, to a buddy.

Although we haven’t seen specific details, it appears Mexico has adopted the same tactic in the auto sector. That’s why they were at the table with Lighthizer last week while our foreign affairs minister, Chrystia Freeland, sat on the sidelines, twiddling her thumbs.

It’s becoming increasingly clear that the best way to deal with this mercurial U.S. President is to hand him a few victories he can trumpet to his base – especially with the midterm elections coming up. That appears to be the fastest route to getting off the enemies list and becoming pals again.

Gordon Pape is editor and publisher of the internet Wealth Builder and Income Investor newsletters.

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About Gordon Pape - Special to the Star

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