Gordon Pape Advice
Jan. 1, 2019
The year of wake-up calls. That's how 2018 is likely to be remembered.
We rudely discovered that a lot of the supposed realities we took for granted were nothing more than idealistic illusions. And the phone didn't ring just once. It rang several times.
The first call came May 29, when Prime Minister Justin Trudeau announced the federal government would buy the Trans Mountain pipeline from Kinder Morgan, thereby confirming that Ottawa's entire energy policy was a colossal flop.
Ever since being elected, the Liberals seemed to genuinely believe their sunny ways outlook on the world would translate into some kind of social contract between environmentalists and the energy industry that would allow Canada to both have its cake and eat it too.
To that end, they killed off Northern Gateway by banning oil tanker traffic off the northern B.C. coast and effectively shut down TransCanada's ambitious and sensible Energy East project by imposing tough new regulatory requirements. With Keystone XL caught up in the labyrinth of U.S. politics and courts, only Trans Mountain offered a viable option for getting Alberta crude to tidewater. Putting all the eggs in one basket, as it were.
It should have been a slam dunk. Kinder Morgan already had a pipeline to the Vancouver area; all they wanted was to twin it. But then B.C. had an election. The NDP narrowly won and took power with support from the Green Party. Trans Mountain, already facing intense opposition from environmentalists, some Indigenous groups and local politicians, morphed into a political faceoff between two western provinces with Ottawa caught in the middle.
The announcement the feds would buy out Kinder Morgan and build the pipeline themselves was supposed to resolve the issue. It didn't. The courts intervened, ruling that the approval procedure was flawed and ordering new consultations and a report on the effect of increased tanker traffic on whales. The whole process came to a shuddering stop, and no one knows when, or if, construction will resume.
The result of all this prevarication is an oil glut in Alberta. The spread between West Texas Intermediate crude and Western Canada Select rose to its highest level in history as companies kept pumping oil that had nowhere to go. Alberta was finally forced to curtail production in response.
A few years ago, Canada was being touted as a new oil superpower, whose energy industry would help support the economy for decades to come. That dream has been rudely shattered.
The second wake-up call came just a couple of days later, on May 31. That was the day President Donald Trump announced he was imposing tariffs on steel and aluminum exports from Canada in the name of "national security."
We were shocked. Until then, we had always thought of the U.S. as not just our number one trading partner but our closest ally. Our soldiers had fought alongside their troops in many wars. We had generally supported U.S. foreign policy (the Iraq War being an exception). We had a "special relationship" with Washington - or so we thought. Then, suddenly, we were branded a security risk. Canada's Foreign Minister, Chrystia Freeland, called the rationale behind the tariffs "absurd," and Ottawa moved to impose tit-for-tat retaliatory taxes on not only U.S. steel and aluminum but a range of other products as well.
Many people assumed the U.S. move was simply a negotiating ploy by the president to win concessions for a revised NAFTA deal. But the new treaty, called the USMCA, has now been signed (but not ratified) and the tariffs remain in place. Trudeau said in year-end interviews his government is working hard to get rid of them. If they're making any progress, it's not evident. At least for as long as Donald Trump is in power, Canada and the U.S. are no longer best pals.
The third call came on Nov. 26. That was the day General Motors announced it would close its plant in Oshawa by the end of next year, along with four operations in the U.S. The shock stunned not just Oshawa but all Ontario. Automobiles have been the cornerstone of the province's manufacturing industry for a century. Now GM said it would shut down its key facility and no pleas, subsidies or legislation would change its mind. The automotive industry is heading in a different direction, with electric vehicles and driverless cars. Oshawa didn't fit with such disruptive changes.
That raised the obvious question - what about the rest of Ontario's auto sector? Is Oshawa just a prologue to the winding down of an entire industry? For as long as we can remember, cars have been the bedrock of Ontario manufacturing. That's another myth that may be on the way out.
We're on the cusp of entering 2019. What wake-up calls will the New Year bring? Stay tuned.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.