9 Canada would be caught in the crossfire of a U.S.-China trade war oncerns about Canada’s most important trade rela- 2017 Global Exports tionship eased when the USMCA deal was struck in and Imports Clate September. It’s true that bilateral irritants remain and the USMCA has yet to be ratified. Nonetheless, the focus in Canada has shifted to possible repercussions from the escalating trade spat between the U.S. and China. The good news, if it can be called that, is that the U.S. administration is U.S. $5.3 developing a reputation for ramping up rhetoric in disputes before ultimate- trillion ly agreeing to a “new” deal with relatively minor tweaks. We saw that with the talks to update NAFTA. As it stands, the administration and China have agreed to a trade war truce to start the year. And while the US$360-billion of China $4.6 U.S.-China bilateral trade that has already been targeted with tariffs is an trillion eye-catching number, it pales in the global context. U.S. exports and imports totaled about US$5.3 trillion in 2017; for China, it was US$4.6 trillion. Yet a meaningful escalation in the U.S.-China trade dispute can’t be ruled out. The impact on Canada would be mixed, but tilted to the downside. Model simulations from the IMF’s latest World Economic Outlook have even shown some potential near-term benefits to Canada and Mexico, as Chinese and U.S. businesses and households shift trade to other partners. That would please Canadian exporters looking to develop more significant trading relationships with China. RBC Economics Research | Navigating 2019 - 9 big insights for the year ahead | January 2019 22