Falling oil prices are adversely affecting Canadians, who must now grapple with the effects of Donald Trump's threat to impose tariffs against Mexico. (Cenovus)

Effects of Trump’s Mexico tariff threats carry to Canada

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Donald Trump’s threat to impose escalating tariffs against Mexico to slow the number of migrants crossing the U.S. southern border is spilling over into Canada.

Two major banks have now revised Canada’s 2019 ecomomic growth downward.

More are expected to follow if Trump follows through on his tariff threat.

Trump told a press conference in London on Tuesday that he was determined impose the new tariffs against Mexico this coming Monday, despite opposition–including from Republicans–in the U.S. Congress.

Later in the day, the Bank of America Merrill Lynch revised its Canadian economic forecast downward from 1.5 per cent to 1.3 per cent and made a bigger cut in its prediction for 2020–from 1.8 per cent to 1.3 per cent.

“We had already marked dowside risks to our GDP growth forecast for 2019 given lower oil prices and risks of trade war escalation,” Bank of America economists wrote.

“With the U.S. threat of tariffs to Mexico, trade wars have effectively escalated, and uncertainty over global trade increases, which is negative for Canadian investment and exports,”

The Bank of America economists also say that it is now “unlikely” that the Canada-United States-Mexico Agreement (CUSMA), which replaces NAFTA will be approved this year because of the tariffs.

Trainees practice laying down drill pipe on a rig floor near Nisku, Alta., in this file photo. Oil prices are sagging and Canada’s economy is lagging. (Jason Franson/The Canadian Press)

On Monday, the National Bank of Canada revised its Canadian forecast downward from 1.6 per cent to 1.4 per cent.

The revisions are not good news for the Liberal government of Prime Minister Justin Trudeau, which faces a general election in the fall and must deal with a lagging economy and sagging oil prices.

Statistics Canada reported Friday the economy grew at an annualized pace of 0.4 per cent in the first three months of this year–only slightly above the 0.3 per cent growth in the final quarter of 2018.

They were the weakest back-to-back quarters since 2015.

Economists had expected growth growth at an annualized rate of 0.7 per cent for the first quarter.

Bank of Canada governor Stephen Poloz has a lot on his mind–and hands–these days. (Sean Kilpatrick/GThe Canadian Press)

Meanwhile, oil prices continue to drop.

The price of West Texas Intermediate, the U.S. benchmark, has fallen almost 20 per cent since April while Western Canadian Select oil has fallen almost 30 per cent since April.

But, according to Krishen Rangasamy, senior economist at National Bank, it’s not all bad news.

She told CBC News’ Rajeshni Naidu-Ghelani that solid job gains, stabilization of the housing market, the removal of U.S. steel and aluminium tariffs and a weaker Canadian dollar are all reasons to be be optimistic about Canadian economic growth.

However, she cited the escalation of the China-U.S. trade war as presenting possible problems.

“The U.S.-China trade war can only be beneficial to Canada if it doesn’t escalate beyond a certain point,” she told Najudy-Ghelani in a note.

With files from CBC, Statistics Canada

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