On September 26, the U.S. Department of Commerce announced that it would impose a 220% duty on Bombardier, Inc. (TSX: BBD.B) CSeries planes. The department ultimately came to the conclusion that Bombardier had benefited from government subsidies that led to an unfair environment, vindicating the original challenge from Boeing Co.
The response from Bombardier, Canadian, and even officials from the United Kingdom has been sharp and swift. It is more evidence that the U.S. government is willing to back up the protectionist rhetoric of the current administration, even in the face of international pressure.
The ruling gives NAFTA negotiations a new sense of urgency, and reports from recent meetings show that progress has been slow. Investors must now make note of other industries and companies that could be impacted by this brand of economic realpolitik.
Saputo and supply management
Shares of Saputo Inc. (TSX: SAP) have declined 9% in 2017 and 5% year over year. Second-quarter results posted on August 1 saw net earnings increase 13.4% and revenues grow 9.9%. Nonetheless, there has been some anxiety surrounding the fate of the Canadian supply-management system. In 2016, Saputo CEO Lino Saputo Jr. expressed optimism that the end of the system could actually be very good for the company and its ambitions for global growth.
President Trump made comments in Wisconsin earlier this year that indicated the U.S. may take aim at the supply-management system. However, no reports have as of yet emerged indicating movement on this issue from either side.
Softwood lumber is under fire
Softwood lumber received the first shot across the bow in June when the U.S. Department of Commerce increased the levy on Canadian lumber shipments from 19% to 26%. This move was justified by the U.S. federal government as a measure to combat Canada “dumping” lumber on U.S. markets at artificially low prices.
Vancouver-based supplier Acadian Timber Corp. (TSX: ADN) has climbed 5.4% in 2017, Canfor Corporation (TSX: CFP) has risen 53.5%, and Interfor Corp. (TSX: IFP) is up 31.6% on the year. There is an expectation that the June move will be rescinded when the two sides reach an updated agreement regarding cross-border trade on this issue. In any case, lumber stocks are at risk of some volatility, depending on what kind of agreement emerges, if any, when it comes to this industry.
Auto manufacturing and Magna
Early reports from NAFTA talks suggested that auto manufacturing would play a big part. This came as no surprise, as shifts in manufacturing trends were a common talking point during the 2016 U.S. election. Ahead of the third round of talks in Ottawa, U.S. Commerce Secretary Wilbur Ross telegraphed that the administration will seek higher U.S. content in auto manufacturing.
Canadian automotive supplier Magna International Inc. (TSX: MG)(NYSE: MGA) stock has increased 14.2% in 2017. Magna can boast that its diversification offers it a good deal of protection. The company has a plant in South Carolina with over 1,000 employees, and it just agreed to an expansion of its Birmingham, Alabama, location.
With this in mind, I like Magna to come out of NAFTA negotiations largely unscathed and with its long-term outlook still positive.
