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Feb. 28, 2025 10:59-12:03 - CSPAN
01:03:55
Discussion on U.S.-Canada Trade Relations
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greta brawner
cspan 01:21
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Speaker Time Text
greta brawner ▲ ● ▼
With Moody's Analytics, he's here to talk about the U.S. economy and this new report on high income earners.
Here's how we've divided the lines this morning.
If you make under $100,000, dial in this morning at $202,748-8,000.
If you make between $100,000 and $250,000, your line this morning is 202-748-8001.
And if you make over 250,000, that 10%, call us at 202-748-8002.
We welcome your comments and your questions this morning.
Mark Zandi, before we get to calls, let's take some headlines this morning from the papers.
The Wall Street Journal, U.S. vows to raise tariffs on three countries, Mexico, Canada, China.
The China move slated to take effect Tuesday, along with the Canada and Mexico actions, doubles up on the previous 10% additional tariff trumps Trump placed on China's products this month.
There's that headline in the Wall Street Journal.
And then there's this in the business finance section of the Wall Street Journal this morning.
Tariff threats hit S ⁇ P and NASDAQ.
Fresh tariff threats and a tech sell-off drag stocks lower with the S ⁇ P 500 surrendering the last of its gains for the year.
Are the two tied in your opinion?
And if so, why?
unidentified
Yes.
You can watch this in its entirety online at c-span.org.
We leave it to take you live to the American Enterprise Institute for a discussion on trade relations between the U.S. and Canada amid recent tariff and trade disputes.
You're watching live coverage on C-SPAN.
President Trump definitely has the attention of our northern neighbors because of the tariff threats that have been made.
So this is also upending Canadian politics.
We're going to talk about all these issues, the issues of allied burden sharing that President Trump has raised, border issues, politics on both sides, what exactly has happened, just the facts of the case, what's likely to happen, and how can they be resolved.
So we're very lucky to have three distinguished panelists with us to cover this topic.
Jamie Tronas, to my right, is Executive Director of the Center for North American Prosperity and Security based here in Washington.
To her right is Hendrik Brackle, Director of Federal Practice at the Sussex Strategy Group.
He's joining us from Ottawa.
And Derek Scissors, our very own, is the farthest right, in more ways than one, is a senior fellow here at AEI.
All of these panelists have written and spoken widely on these various subjects.
So what I'm going to ask them to speak for between five and ten minutes each.
The division of labor will be that I think Hendrik's going to kick things off talking a little bit about the politics of these issues on the Canadian side.
And then Jamie will zero in on the policy side from the Canadian angle.
And then finally, Derek will give us the inside scoop on how this looks within the Trump administration and what we can expect looking ahead.
So we'll kick things off with Henrik.
Thanks so much, Colin.
It's a pleasure to be here.
And I'd written the paper from trade wars to trade wins, how to build a much more positive and close economic union between Canada and the United States because we were looking at the reopening of tariff and trade issues.
I thought, well, there's two possibilities here.
Canada can go along with the grudging, foot-dragging, defensive.
We don't want to talk about all this stuff.
Just leave us alone.
Or you're working with the quintessential dealmaker Donald Trump.
You could open up some of these topics.
If we want to talk about economic security, there's a consensus for Canada to spend a lot more on the military.
So why not talk about an Arctic base and subs and heavy icebreakers?
There's a huge consensus to do a lot more on rare earth minerals and building up the northern infrastructure to really have an investment powerhouse there.
That we could deepen the trade and investment relationship with the United States and Canada.
And I think there's a strong consensus, certainly among conservatives to deepen that relationship.
And you saw that with the Ontario Premier who got elected yesterday.
He talks all day long about the Amcan relationship or the ANCAN fortress.
And certainly Pier Polyev, the Conservative leader, was just up in Ikaluit in the north of Canada talking about Arctic bases, talking about a deeper economic relationship, more trade and investment.
So there was this appetite, and then, unfortunately, the politics went right off the rails.
And it's difficult to see where it started.
I suspect it's, well, Mr. Trudeau and Mr. Trump really don't like each other.
There is a personal animosity there, which is deep.
I don't want to get into all the psychological reasons of why this is the case, but I mean, Trudeau blasted Trump at a G7 press conference in Charlevoix, and Trump responded and called him two-faced Trudeau, and they disagree on everything.
And Trudeau gave a speech about a couple months ago where he scolded Americans for not voting for Kamala and saying that this was a setback for women's rights, but that Trudeau has always been a feminist and it could always be.
And so these two people really, really don't like each other.
And so when we see these meetings that go awry, against conservatives, we used to joke that if Canada had sent Greta Thunberg and Rosie O'Donnell to meet with Trump, it could not have gone worse.
And so that first meeting where they got together, Trudeau talked about the impact of tariffs and this would be devastating to Canada.
And Trump raised this 51st state, Governor Trudeau stuff.
And it's got a reaction, and then it got repeated and repeated.
And it has taken on a life of its own to the point where now Trudeau said that the 51st state thing is a real thing.
And you see where the Liberals are using it as part of the political spiel and the stuff that they're raising.
So in the Liberal leadership debate, Mark Harney said that before Trump just wanted our markets and now he wants to take our country.
And Ms. Freeland was talking about how Canada has to develop a coalition with Panama and Denmark and other like-minded countries to oppose the United States.
And it's sort of morphed and Canadians, what you see in the polling now is that Canadians are very upset about this.
48% of Canadians think that the future of Canada could be jeopardized by this, potentially the future of Canada could be jeopardized.
And so it's pressuring the politics to the point where the Conservatives about a month ago were ahead by 38%.
Now the Conservative lead has dwindled to about 5 to 10%.
And the polls are showing that if the election were held tomorrow, Conservatives would get a narrow majority.
But the problem is the election is not going to be held tomorrow.
It's going to be held in a month or two.
And so we learned yesterday that potentially the tariffs for border security and fentanyl could potentially come in on March 4th, so that's next week.
And that the broader tariffs could come in on April 2nd.
April 2nd, unfortunately, that could be the first week of the federal election campaign in Canada.
So the problem is that this debate about tariffs and the United States has sort of hijacked the whole Canadian political discussion where the left is now having a tough guy competition who can say, you know, I'm going to be tougher with Trump than the others.
And so what we're seeing, what we're really seeing is how do we get back to a policy debate?
Because ultimately what's going to happen is that Canada and the United States are going to come to some sort of deal or some sort of agreement on tariffs, we hope.
But the politics are really strained right now.
And so how do we get back to a thoughtful discussion of policy?
And so I'm really happy to hear with you and talk about some of the policy issues.
Great.
Thank you, Hendrik.
Jamie.
Yeah.
Well, first of all, I want to also suggest, too, that the 51st state threat, you know, serious people here don't take it seriously.
And I know that Canadians are very concerned and worried about it, but I would suggest that some of that hype and these hot mic moments have really raised the chances for the Liberals.
And so Canadians should be a little cautious about politicians kind of making people freak out perhaps a little bit more than I think the reality is.
In fact, yesterday in a press conference with Kier Starmer, President Trump said, okay, that's enough.
Let's move on when a question about the 51st state was asked, effectively shutting it down and not wanting to talk about it and wanting to move on.
So I think that there's some data points there that the administration has heard, that this is shifting political winds in Canada in a way that maybe they're not pretty keen on because there is no love loss between not just Trudeau, but also Christia Freeland, also other members of the Liberal Party between them and senior members of the Republican entourage, shall we say, here in DC.
But in terms of what Canada has been doing policy-wise to respond to this threat, there's been quite a few things.
Ostensibly, the initial tariff threat was about fentanyl and the border issues.
And certainly in 2024, we saw the three years between 2021 and 2024, there was a 600% increase in people crossing the border illegally between Canada and the United States.
Now, all of that, which is to say, that 600% is still a pales in comparison to the southern border.
That's not to say it's not a problem.
The fentanyl issue that was raised with Canada, I think Canadians would say that there's more drugs coming into Canada than there is coming down into the United States.
And I think the bottom line is really, you know, Canada has been trying to do something on it.
They've appointed a fentanyl czar.
The provinces and the federal government have invested a number of a billion dollars, I believe, to collectively protect the border.
There has been a lot that's been done.
Now, whether or not that matters is the second question, however, because as we've seen, Trump has threatened not just Canada and Mexico, but basically the EU, all other countries that have tariffs with the United States with reciprocal tariffs.
If he were serious about reciprocal tariffs and said, you know, if you tariff us, we'll tariff you, then Canada really wouldn't have any tariffs to worry about except for maybe dairy and some other small industries.
And so Canada would gladly take that deal that he's offering to the rest of the world, but that's not on the table for Canada.
For some reason, the deal on the table for Canada is one that would punitively hurt the Canadian economy.
50% stack tariffs on aluminum and steel, for example, 25% across the board with no carve-outs.
These are tariffs that would really dramatically affect the Canadian economy in a huge and immediate way.
And that would make it far more difficult for Canada, which is barely hanging on to its status as a G7 country as it is after years of stagnation in the economic innovation sector and productivity.
Canada is not well positioned to weather out a tariff war.
That being said, Canada is willing to do whatever it takes to maintain its sovereignty and try and fight as best it can.
But I've argued this before, and I'll continue to argue it, that you cannot have a secure North America if you impoverish Canada.
You know, you can have a Mexico on your southern border, or you can have a G7 country on your northern border that's trying, at least trying, to rearm itself and trying to do the things that America is asking of it, which is to rebuild the military, to get to over 2% spending on its GDP, to build the early warning systems with NORAD, to fight against China both domestically and help with sanctions internationally on Chinese-made goods,
and to do all those things that America really is requesting of Canada, and things like building infrastructure for critical minerals.
These things all cost a lot of money, particularly doing them in the Arctic.
Things cost like 10 times more to do in the Arctic than they do anywhere else because there's no roads up there.
In a lot of places, there's no rail lines.
And so if America is very serious about Canada doing what we need to do to secure our borders, tariffs are not going to help because Canada simply won't have the funds to do those things.
And so the policy of it, it's really making Canadians very concerned for the long-term outlook.
And it's also creating a lot of instability in terms of investment in Canada.
So the Canadians are doubling down on where their free trade agreements are.
They're trying to look for, I think, further free trade agreement possibilities, maybe to take advantage of an emerging free trade block that will exist outside of the United States if tariffs continue, so that the market of the U.S., which will be dealing with reciprocal tariffs on tariffs that it will impose, Canada and people based in Canada and the European Union will be able to trade freely in a different kind of trade block.
And so Canadians are trying to actively divest and move some of their products and export markets to new locations in order to make that a reality.
That's going to take time, but that's basically where we're at right now.
Great.
Thank you, Jamie.
Derek.
I'm not sure I can actually do what Colin wants me to do, and I'm not sure anyone can do it because it implies that there's some sense to U.S. trade policy.
And it's not clear that there is.
Let's take yesterday.
Yesterday, President Trump put a post up on True Social dated February 27th, which if he had written it January 27th would have made perfect sense.
It reads as if he forgot that it was February 27th and he still thought it was January 27th.
The other option is worse because the other option is he just pulled a 10% China tariff out of nowhere that no one had been discussing in the administration, that there was no discussion of potential Chinese retaliation, that no one was ready for.
And if you can do that, then you can start pulling tariffs.
By the way, I'm totally in favor of the 10% tariff.
It's not the outcome.
It's the process.
There wasn't one.
He either forgot that he'd already put an additional 10% tariff on, or he just randomly decided we should have another 10% tariff.
And if you don't think that story is compelling, wait till April 2nd, when we're supposed to have the rollout of U.S. trade policy based on reciprocity all around the world.
There is absolutely no way the U.S. government can do that.
It couldn't do it for tariffs, much less including non-tariff barriers.
What will happen is they will just make something up And something might end up being the magic number for reciprocity is 25% for everything, because that seems to be the U.S. tendency so far.
Or we could get something sensible like we're just going to do the EU, which you might disagree with, but at least it could be justified, or we're just going to do a few sectors.
I think it's up in the air whether U.S. trade policy makes any sense and is worth discussing.
And we're going to get a little bit of information next week and more information in early April.
Let's pretend it's worth discussing.
Last year, last year, last term, U.S. trade policy was organized by Robert Lighthizer.
You don't have to agree with what he did.
I don't think it was successful, but it was organized and it was rational, at least to a considerable extent.
This year, there's no one organizing it.
The way Howard Luttnick, who is the obvious Lighthouser successor, speaks about trade, he doesn't know anything and he doesn't care.
He could get up to speed.
He has other responsibilities.
That's going to take quite a while.
Jamison Greer, the United States Trade Representative, knows plenty, has no political heft.
So we're in a situation that is much worse in terms of the quality of trade policy than we were in the first Trump term at this time.
I already mentioned the administration will not be able to do what it says it's going to do on April 2nd and evaluate reciprocal tariffs, including non-tariff barriers for the world.
They won't get close.
We're going to get either a big pullback of that, which would be sensible, or we're going to get utter nonsense, where they say, I found a value-added tax, so you get a 25% tariff.
Fine.
Something, notwithstanding the fact that there's no sign U.S. trade policy makes sense, something is going to happen on trade.
We're heading there with China, but I can say fairly confidently that President Trump wants to make a deal with China, starting with a deal on TikTok.
And so, you know, where we've taken steps so far on trade that could make sense, I think will end up getting curbed, which is the China side.
I think the EU is the prime target in early April.
And I don't think we're going to make a deal with the EU because the EU can't negotiate anything in less than three years.
Start to finish, doing the research to justify the proper tariff, creating the new schedule without having it become a form of corruption, the economic diplomacy to negotiate with countries that want to negotiate, including Canada but not limited to them, evaluating the inflationary impact, which I'll say more about later.
They're not capable of this, and they're not capable of it in the next month because someone has to be in charge who knows what they're doing and can organize the effort, and that is not the case.
Either the President, Secretary Lutnick, or there is no other candidate at the moment.
Maybe something, someone will emerge, but they haven't yet.
A bit of actual economics, which is not involved in U.S. trade policy at all.
Just go back to that Trump hates Trudeau.
That's more important.
For the U.S., if we just hit Canada with tariffs, with exemptions, which is very similar to what we did to China, and they have similar, they're not similar trading partners, but they have similar quantitative role in U.S. trade, it's not going to matter to us.
We're not going to notice.
I mean, that's just a sad fact.
The U.S. is much bigger than everyone else, and we're not very trade-dependent.
Maybe it's not sad.
It is a fact.
It's sad for some of our partners.
Canadian retaliation, depending on what it is, might matter.
But that's not really the problem.
The real problem is if we hit the EU also.
So we hit Canada and the EU with broad, durable tariffs that are high, not a little bit higher, or lots of exceptions, or they last three weeks, all of which could happen.
Not denying that.
But if we hit Canada and the EU both with broad durable tariffs, they overlap a lot in Their trade profiles with the U.S. Though that combined volume is roughly twice of China's in 2018, and China got exemptions, the inflationary impact will be more than twice the China inflationary impact, considerably more.
Reasons being that there's no substitute for Canada and the EU together.
There was a substitute for China, which was Mexico.
Small shipments under de minimis, which China used to skirt U.S. tariffs, not really sensible for the higher value-added goods that the EU and China, EU and Canada provide.
The EU and Canada can't subsidize over tariffs nearly as easily as China can and did.
And transshipment from Canada, especially, really doesn't make a lot of sense.
China is effectively transshipping goods through Vietnam.
Canada really, you know, economically, it doesn't make sense to send goods to Vietnam and then send them to the U.S.
So, all the ways in which the tariff impact was minimized in the first term on China, they don't apply if Canada and the EU are both hit with tariffs.
And there's just no sign the administration understands that they are.
They can do things that won't cause inflation.
The U.S. is big, and we're not that vulnerable to trade.
But if you do too many of them, especially with partners that overlap, you will get an inflationary impact.
And then, you know, oh, who knew this was going to happen?
And people get fired because U.S. trade policy makes no sense.
I could just rant about this for the next, the whole rest of the time, but I'm just going to close with: there's no sign President Trump is capable of creating an economically, strategically, or politically rational trade policy.
And there's plenty of evidence that he's capable of creating one that makes no sense at all.
There's no second-term person to substitute for him the way Lighthizer did in the first term.
We need that person to emerge.
That would be a big step.
We don't have them.
And just to close on a really fun note: if you think the possibility of a deal next week is fairly high, or if it's not next week, it's before April, and this gets postponed, okay, fine.
How long do you think the deal will last?
I do think it's better than 50-50.
The Canada tariffs are not applied, or they're only applied for a few weeks.
Fine.
And I also think we'll be talking about this again end of next year, 2027, for sure.
So all you're doing is buying time.
And the reason all you're doing is buying time is because U.S. trade policy makes no sense.
Well, that was bracing.
Thanks, Derek.
So maybe I will play the role of devil's advocate, so to speak, and ask the three of you.
In fact, I'd like to start with Jamie and Hendrik in whatever order you like.
Let me just respond, as I think some supporters of the administration might, which is to say, okay, this is rough around the edges, but Canada has, in fact, been a free rider on military issues for over a decade.
I mean, even a lot of Canadians admit this.
We've had them down here as guests.
So even apart from the trade issue, there is a real sense that there is a burden-sharing issue that has some validity.
And I think for a lot of Trump supporters, it's not so much about this or that specific matter as far as what's crossing between Windsor and Detroit.
It's more about the big picture, which is that the U.S. has carried a disproportionate role in the world.
The expense militarily, in human terms, and economically for playing this role, and it wants its allies to step up.
Okay.
So I think we probably agree there's something to that.
Now, then the second part is: how are you supposed to get people's attention other than through some sort of shock therapy?
Because that hasn't seemed to work, right?
I mean, we've had U.S. presidents complaining for decades.
Obama actually said, I hate free riders, Barack Obama, right?
But that was more honey than vinegar.
And we didn't see dramatic increases in European defense spending or whatever else you want to point to.
So this is rude, as is often the case these days, but it's getting people's attention, right?
Now, I know that the politics are going off the rails.
There's no question about it.
Is it possible that shock therapy can work in the long term in terms of the U.S.-Canada relationship to make things better?
This would be the hopeful interpretation.
You get people's attention.
There's a lot of anger right now.
But eventually you have a resolution.
I don't think this is going to happen next week or next month.
But is that possible?
What would have to happen politically on both sides?
And what would that resolution look like?
Yeah, I think it is possible.
And to your point, you know, something that as a Canadian living here in D.C. that I've seen that's frustrated me to no end and probably as well is just the level of tone-deaf hearing that the Canadian government and the Canadian sort of political class have had towards the United States.
And to give that kind of some context, Americans have been complaining about a number of issues for a long time.
And we've kind of treated those as a few little tiddly things here and there, like the digital sales tax, which absolutely unfairly targets American companies.
And that's a tax that Canada had implemented on digital companies.
Totally, completely, 100% agree that it absolutely, the way it was set up, targets American companies.
Secondly, we definitely have been free riders on defense.
And there's no denying that in Canada.
We have not even presented a plan to get to 2% in a real credible way.
We finally gave people a deadline.
But to give you an idea of how we got to that point, you know, this is sort of emblematic of the problem.
I liken the relationship to a marriage where you have to put in the work, you have to listen to your partner, and when they raise issues with you, you know, you might not pay attention to them until one day, you know, you're fighting over something stupid and you're like, it's not about who took the last ginger ale, Karen.
It's about the fact that you're not listening to me.
And so I have to scream at you.
And that's where we get to.
And this is the prime example of Canada's way of doing business and taking this relationship with the U.S. for granted.
So at the NATO summit last summer, Justin Trudeau came down here with his entourage, Melanie Jolie and Bill Blair.
And he was getting an earful on Capitol Hill about the Canadians not reaching and not having a plan or not even giving out a year which we would get to 2% spending on GDP for the NATO commitment, a commitment that Canada had made and in fact pressured other countries to do.
We weren't signing on to do early warning systems with NORAD.
There's a number of other things that we have with our second alliance with the United States that Canada hasn't really gotten a credible plan to do.
So after all of that, you know, the earfuls and the talk and the fact that everybody's writing op-eds and even the Estonians and the Latvians and everyone's getting mad at Trudeau, what does he do?
He unveils the NATO Climate Change Center of Excellence, funded by Canadian government to be based in Montreal.
Like, there's a war in Ukraine, man.
Like, what are you doing?
Everybody was just like, this is not helpful.
But that is how Canada's kind of dismissed the relationship.
Like, yes, we hear you.
Defense spending, here's a climate change center of excellence for our NATO allies.
Like, what are you doing?
That is not what we want.
That is not what we're asking you for.
Karen, stop drinking my ginger ale.
It's that kind of fight, right, where you have to kind of think about what you're doing and who you're speaking to.
And Canada really hasn't been putting in the work on this relationship.
And there's been such a disconnect.
And if you think it's liberals to Democrats, that was the previous administration where that happened.
And they were just as mad at him as the Republicans were.
And so imagine now if you're Donald Trump and you're taking that frustration and you're just going to give it a shock and awe treatment in order to get the Canadians to finally listen to you and do all the little piddly things that you need them to do to protect North America.
That could be an argument for it.
And I do see that here in DC, that Canada really just hasn't been putting in the work to maintain that relationship at a level that it needs to be maintained.
And I'm not just saying that it's our diplomats or our government.
It's also the Canadian political class, the Canadian businesses, the Canadian automakers, the Canadian steel makers.
None of those people have really felt that shock until now.
The only ones who have actually kind of stood up for their industry and done anything have been energy, because they had that shock.
When Keystone XL was denied and some of the companies lost billions and billions of dollars that they had invested, that was a big shock to the energy sector and they got their act together.
And they are the most well-represented Canadians in Washington.
That's why their tariffs are 10%, I would argue, rather than the 25%.
If that holds true, again, to Derek's point, we don't even know what's going to happen.
But that shock is sometimes necessary in order to get your partner to pay attention to you when you have such a strange relationship.
I think that's right, Jeannie.
And I would say if you wanted to look at the bright side of the battle over Trump and tariffs, it's astonishing the extent to which there is now a consensus in Canada on massive investments in energy infrastructure, on building on investments in the military.
Even Christy Freeland, who's built her whole leadership campaign around fighting Trump, has said we can get to 2% by 2027, which everyone says, well, wait a second, you know how slow military procurement is.
But anyways, there's, you know, if you want to get energy prices down, well, let's double energy production in North America.
You know, let's recognize each other's regulations.
There's a lot of appetite and excitement about it.
But Pierre always warns, he says, if you want conservative policies, you have to vote for conservatives.
And what we're seeing is the Liberals are just soaring in the polls now because, as I said, the left are having this sort of battle over who could be tougher on Trump.
And one of the problems with the political rhetoric is that, so Carney says, you know, Trump thinks that we're going to cave, but we will never, we will always stand up to bullies and we will never back down.
And the problem is that it sort of he's boxing himself in, and there's sort of any deal is perceived as caving or something.
What we have to do is say, look, we're going to come to some deal at the end of the day.
So let's figure out what makes a lot of sense for both countries.
Let's put some exciting stuff on the table in terms of economic union and boosting trade and investment, and let's see what we can get.
So I think you're right.
The shock therapy has worked, but I think if it goes too far, it sort of can push us into that.
Derek?
Yeah, I think you guys are giving the U.S. way too much credit.
Remember that.
I mean, there are tons of partners, all of our partners we have problems with.
I mean, I spend my time thinking, you know, talking about the Chinese deliberately target foreign firms for IP theft and then try to subsidize them out of business.
They're the biggest economic predator the last 80 years by far.
So we have problems with other partners.
The EU does something similar, sounds like, to what Canada does, discriminating against American tech firms for being better than their tech firms.
So there are problems with our partners.
But the Canadian tariffs were justified repeatedly by the administration as it's not an economic thing.
It's a drug control thing.
I mean, give me a break.
It is not a drug control action.
It is a, I don't like Trudeau.
I'm throwing a tantrum action.
That's all.
If you really wanted to have a policy to induce Canadian defense commitments, meanwhile, Trump is saying the U.S. should cut his defense budget by half.
So he's really concerned about national security.
That's a top priority.
His Secretary of Defense is super qualified.
If you wanted to do something like that, you would say, look, You have six months or some reasonable amount of time to get something done.
And then we're going to double the tariff rate from its low rate.
And then you have six more months and we're going to double it again.
And then we're going to double it again.
You don't say, I'm putting tariffs on right away because of fentanyl, which is just absurd.
So, you know, maybe there's someone in the U.S. administration, there's certainly people in Congress who have an idea of like we could get to a better Canada relationship.
That's not what U.S. trade policy toward Canada is doing.
It's a tantrum.
All right, let's turn to the audience for questions.
If there's a mic that can be circulated.
I'll start with one that we have from our online audience.
Why is Derek in such a bad mood?
The Conservative Party specifically, just curious to ask our Canadian guests, what is the position that the Tory leadership is in right now?
I mean, obviously, it's a rough patch, right?
The thought was it was going to win in the landslide, now they've been thrown off the front page.
So how does the Conservative Party get through this?
And if they actually win the next election, how are they going to deal with Donald Trump, which will be a challenge no matter who the Prime Minister is?
Well, I think the way that Pierre Polyev, the Conservative leader, is framed is he said, okay, there's two options here.
You can go down the tariff route where you turn a loyal ally into a reluctant neighbor that will have a weaker economy, weaker growth, less trade, less investment, higher costs on both sides of the border, less energy investment.
Or we can build a much stronger North America together.
More investment, more energy, more trade, a whole lot of innovation stuff.
There's regulatory harmonization.
There's a whole we call it Canada first, but it's about North American economic security and the Arctic military base.
So it's sort of providing those two options.
And then he finishes off with the red-blooded nationalism that we need to hear that there will never be a 51st state, we will never be part of the United States.
And so he's trying to find that balance because his liberal opponents are shooting at him.
So Mr. Carney says that you can't send Pierre to negotiate with Trump because he worships Trump.
And so the Trump stuff is being used as a political football.
So I think it's just Canada needs some space to go through this election.
And fortunately, we're having the election at the exact same time that the tariffs are coming in.
So it's sort of taking over the other stuff.
But I think right now the Conservatives are still in the lead.
And I think on a lot of the issues around cost of living and the jobs in the economy, they're still doing okay.
But there's a long time.
The election could be two months away.
There's a long time in two months.
There's one thing I would add to that is that Canada has been parroting and talking a lot about its Team Canada approach.
Everybody on deck, the premiers are coming down.
The ministers are here all the time.
I've met more Canadian cabinet ministers and premiers in the last couple months here in Washington, D.C. than I'd previously ever met in my life.
And I worked in Parliament.
So there's a lot of people here, and they're all trying to talk to people in the administration, people in business, people everywhere to get the message out that we need to get through this election, and then we can dance after that.
But there's one person that hasn't been invited to that party, and that's Pierre Polyev.
Well, Jagmeet Singh, too, but the leader of the far left party.
But the problem is, it's Team Canada, but it's really Team Liberal.
The Liberal Party has not even extended an offer to Pierre Polyev's office to participate in any of these discussions, to come down and have these talks, to my knowledge anyway.
And so we actually have no idea what Pierre will do in these situations because he hasn't been invited to the table.
What we're seeing right now are the results of the governing party negotiating with the government here, and those results are still us getting tariffs.
So, you know, we really don't know.
And then to Derek's point, we assume that there's a plan.
But to Derek's point, maybe there isn't a plan.
We just don't know what to expect on the American side, which makes things even more of a challenge.
So, you know, I have to give Pierre a little bit of slack here in that he's not been looped into anything.
You know, he's probably finding out stuff on Twitter just as all of us are.
And that that's not really a Team Canada approach.
You know, having, you have a McDavid and you're putting him on the sidelines.
Why are you doing that when the whole country's at risk?
The Americans do not understand that.
Sorry, he scored the winning goal in the audience game the other day.
So Connor McDavid, Edmonton Eulers, go Eulers.
But yeah, so that's kind of an issue that I think Canadians, the Liberal Party will have to defend itself on in this election.
Well, and it's not as though Trudeau's a lame duck.
It's not as though he's in a strong position.
And I get the impression that this is just, they feel like they've been handed this issue, so just run with it.
I mean, it's not as though they're taking this.
I don't get the impression they're taking this terribly seriously on policy grounds alone.
It's a political issue, right?
Yeah.
That's right, but I think the Canadians are a bit baffled.
To Derek's earlier point, the Canadian government has been briefing business.
And the first question business asks about the border security fentanyl tariffs is, are we doing enough?
What's going on?
And they list the things the listing Mexican cartels as terrorists and the billion dollars spent and the fentanyls are and all the rest of it.
And then they say, we've got great cooperation with Customs and Border Patrol, but we don't know, right?
We don't know what we're supposed to do.
As you said, the executive order didn't say Canada must do the following three things, or it just says there's a problem with fentanyl and therefore there are tariffs.
The Canadians are a bit baffled on this.
So that's why it sort of goes off in all these different directions.
And I think when I read papers about how we can do a grand bargain, some of the pushback I get is they say, well, you guys think you can negotiate a deal, but actually the objective is not a deal.
It's actually revenue and that the tariffs are coming in because there's a $4 billion tax package and a $1.8 billion deficit.
And so this is a revenue generating tool.
I wanted to ask you, is that true?
That's what you hear on the American side.
I'd love to take a shot at that.
Look, there's a real problem.
This is, okay, I've been very dismissive of U.S. trade policy because there is no one in charge of it, and there is no thought behind it.
And it doesn't mean our trade partners are all wonderful.
It just means that 25% tariff is not the solution to Mexican border control problems, totally different Canadian border control problems of orders of magnitude less, and unequal auto access, and the problems in the American pharmaceutical supply chain and Chinese transshipment through Vietnam.
25% tariff is not a solution to all those things.
And yet that's what we keep hearing from the boss.
So this is absurd.
Less absurd, but more politically interesting in the long term in the U.S. is, if you're going to say we need tariff revenue to balance off our tax cut, what you're saying is we need imports to stay really high the whole time we're taxing them.
First of all, that's counter to Republican philosophy, which I agree with, which is when you change taxes, there's a response from people.
But this is like, oh, no, no, no, no.
We can just heavily tax stuff and their behavior will stay exactly the same and therefore we'll raise money off the taxes.
That's the sort of philosophical problem, a big one.
But the political problem is Donald Trump has for decades, long before he was a political candidate, this is really in his DNA, as far as we can tell, thought that imports cost American jobs and that trade deficits mean we're subsidizing other countries and they're robbing us.
He has said that repeatedly.
That's an AFL-CIO, standard trade union position.
His language in the 2016 campaign was just taken from the trade unions, labor unions.
So if that's true, on one hand, and on the other hand, we need imports and trade deficits to stay high so we can raise tax revenue, Republican budget plans rely on undermining what Donald Trump has said he was going to do, bringing manufacturing back, replacing imports.
Otherwise, your tariff revenue has to drop like a stone.
So if you say, oh, I can get a trillion dollars out of 10 years of this tariff, and it isn't like $5 billion at the end, you're saying, sorry, Donald, we're not trying to do what you want to do anymore.
We've completely shifted ground, and all of this is about a tax cut.
Forget everything you said about trade.
And so the Republicans are going to have a problem the more people pay attention to this.
This period has been so chaotic and there's so much going on.
But eventually someone's going to stand up and say, wait a minute, the only reason you can justify this tax cut is if imports are still denying millions of American jobs the way President Trump has said.
That's a pretty interesting way for Republicans to break away on budgeting.
That I'm standing up for what President Trump ran on and what he's believed for decades.
And you guys are just trying to put money in the hands of corporations and rich people.
And the Democrats can say that, but Republicans can say it too.
Interesting.
Okay, let's shift to Corey.
Corey Schocken, our four policy and defense leader here at AEI.
So it's, first of all, congratulations, Colin, because two days after your excellent piece on the effects of President Trump talking about the 51st state, the president stopped doing it.
So that's measurable policy effect.
Well done.
I'm sure he read the blog.
I'm curious what the panelists, including you, Con, think, has so much damage been, I mean, given that this is now the major plank of political contention in Canada's elections, and the Liberals have picked up so much momentum on it, is it too late for toning down the rhetoric by the president, by President Trump, to have any effect?
Or is it still recoverable for the Conservative Party?
I think the challenge is with the timing of the tariff.
So everyone's waiting to see what will happen March 4th.
We hear there's frantic negotiations going on behind the scenes.
Canada and Mexico are scrambling to sort of find a last negotiation.
But coming back to what Jamie's point was, what exactly are they negotiating?
There's no not really clear that there's people in charge.
It's not clear what the demands are, the asks are.
So it's not clear what the negotiations.
My concern, or the thing that I'm really worried about, is the April 2nd tariffs that come in after all those reports and the American trade policy reports go in and the tariffs come on April 2nd.
That would probably be, if you look at the timing, would be the second week of the federal election campaign.
And so the campaigns usually run between 37 days and 57.
So that's going to hit in the second week.
And how is that going to land?
It's going to land like an anvil.
And what will Prime Minister Carney will do?
Will he have to suspend his campaign and go off to Washington trying to negotiate with President Trump?
That sounds crazy.
What if he didn't go?
You're off giving speeches in Thunder Bay and kissing babies while those tariffs come in and wreck the auto industry.
So I think the timing of the tariff threats are going to be worse.
So I think, oh my gosh, the 51st state stuff, if that goes away, that would be a huge relief, I think, to the Conservatives or to all of the parties to sort of tone down that rhetoric.
But I think it's all going to hinge on the tariffs now.
Just to follow up on that, it would be a big positive, you think, if the tariffs were put off for two months.
Like if we went to May or June.
That's all.
Yeah.
Yeah.
Okay.
Just clarifying.
Yeah.
If the White House were to say, we recognize that this is going to interfere in the Canadian elections out of respect to the Canadian people and their sovereignty, we will take a breath and we will dance this dance with whoever their prime minister is at the end of this election.
That would put that issue on, not necessarily to bed because it'll still be an issue, but it would take it kind of out of the front and center every day of the Canadian news cycle, which it is very much right now, every single day since January.
This has been a top story of who's down there, what's happening, what's the latest, even if there's no latest.
So that would really, I mean, that would be something, a way to do it.
And then that would pave the way for a potential reset after the election is over as well, which might be badly needed by then.
Very good.
Other questions?
In the back?
The Donald Trump playbook is well established going back to his real estate investment techniques.
If the seller wants $100 for his building, you offer him $30 and then you sue him.
And if that doesn't help, then you file complaints about him.
If that doesn't help, then you go to the press and start.
So I think there's every reason to believe that the escalation into membership in the G and the G7 or the five I's may be brought up as techniques to bring about whatever the result is.
And that's obviously the question that most people are trying to figure out.
Well, what is it we're trying to bring about?
And I wanted to ask two possibilities and see what the panel thinks about as to what the real goal is here.
Number one possibility is more enthusiastic followership.
So, you know, if the United States says it wants to retake the Panama Canal, well, our followers will then immediately say, what a great idea that is.
And, you know, explicit followership, I think, may be the real objective here.
The second real objective this president brought up years ago with Japan, and that is we'll put bases all over Canada and you pay us in cash for defending you.
You reimburse us because we're defending you and you owe us money for that.
So two possibilities that help get to the question of what is the real objective behind the tariffs and other things that are being raised.
Thanks.
I just, I don't, I mean, you know, you can declare bankruptcy and walk away from a real estate deal.
I'd prefer Trump didn't do that with the United States.
So I understand the business model.
It's an ugly one when brought to the White House.
More helpfully, maybe.
The second one, we put bases all over Canada and they pay for it.
Canada's not in that much danger that we should be putting bases all over Canada and they pay for it.
And the reason I think you get that idea is what's really going on in a lot, this is my opinion, it's not proved, it's way too early to prove it, is that we're having a really hard shift back to isolationism.
And we're just seeing the beginning of it now.
And so, you know, when you're isolationist, you have to control the Panama Canal and Greenland because they're right near the United States.
And you have to have bases all over Canada because you're creating a fortress and no one can touch us.
And that's not really a reflection of threats to the U.S., but it's a justification for we're going to spend more at home, we're going to spend more on defense at home, we don't want to be involved in these far-flung places.
So I think your second possibility gets at something that I think is important.
I've even made the joke that it's muscular isolationism spelled with a K instead of a C.
And so I do think we have to watch for that.
I think there are a number of important people in the administration, including to some extent the president himself, who are isolationists.
And in an isolationist view, Canada is really important as for defending the homeland, as is Greenland, as is Panama, and so on.
And I think to your point about negotiating strategy, you see the negotiating strategy.
Well, you oppose the tariffs and then you negotiate so that you've got that extra leverage on top of it.
But I think the unintended consequence of that is that you get the political party that is less likely to enact all the important things around economic security and investment and trade and things.
Yeah, I mean, it would just be nice to know what America wants.
Like, just Canada keeps asking, people from home keep asking me, what do they want?
What's the list?
Give us the list.
Tell us four things, whatever it is you need, and we'll just start working on it.
But there's no one giving us a list.
It doesn't exist.
It's just vague claims on fentanyl and immigration.
And, you know, there's nothing really concrete for Canada to work on.
There's also no one, as to Derek's point, for us to really work with.
And then on the Canadian side, there's no one.
While we have a government, right, we know that government is not long for this world before we go into an election.
And therefore, it makes it difficult for Canada to actually create a position which it can shore up in order to create that negotiation space.
Well, if that's true, then I mean, politically, the dominant strategy for Kearney, if he takes over from Trudeau, is just wave the Canadian flag, run on this issue, do as well as possible.
And what's the point in really getting serious about negotiating?
I think that's correct.
You don't, as Jamie just said, you don't have someone who has established the authority where the president says, you're going to talk to this person, they can speak on my behalf, not me making true social posts.
They're going to speak on my behalf.
They're going to handle the negotiations.
I obviously can't focus on just negotiations with Canada.
I have a billion other things to do.
And, you know, you might get some staying power out of that deal.
As it is, Canada doesn't know what it needs to do now.
And guess what?
The grounds will shift.
As soon as it's convenient politically for President Trump, the grounds will shift.
You will be renegotiating all of this.
He just signed USMCA five years ago, right?
And now it's terrible and everything's terrible.
That was a formal agreement negotiated over an extended period of time with bipartisan support that was supposed to fix all the previous problems.
Gone, gone.
And so, you know, you are going to be renegotiating this.
And the U.S. demands, if they were clear now, will change later.
There has to be somebody who imposes some stability on this process, and it's not the president.
And until somebody, you know, he says this is the right person, no matter who it is, we all hate them, whatever, it's still a step forward if there's someone actually in charge.
Otherwise, we're just getting random, I'm irritated today comments running U.S. trade policy.
Yeah.
And I think that's right.
And that's the biggest pushback we're hearing: is that even if you negotiate some sort of deal to replace USMCA or to fix USMCA, how long would that last?
Two years and three years, then you'd be right back to start one.
Exactly.
That's true.
So it sounds like the big picture, the big question from the Tory's point of view is going to be: when is that big shift going to come from Donald Trump?
The timing of that's going to be crucial, both for this election and for whatever happens afterward.
Okay, there's a hand up in the back.
Yeah, sorry, just to kind of follow up to that, you know, what do you think would be the kind of impetus for the big political shift?
Would it be kind of economic pain at home, you know, the Rust Belt states struggling with the auto industry tariffs?
I mean, what do you think that would look like to actually get the administration to start kind of changing its mind about some of these more blanket tariffs instead of the targeted ones?
So obviously, I do think we don't have any of these other than tariffs on China, which is there's a fairly easy substitute for the Chinese, as long as you don't tariff them as well.
We haven't done any of this yet.
So we don't have a configuration that I think will cause inflationary problems to the United States yet.
And if we do have a configuration, if we say we're going to tariff the same goods from all the part providers so there's no substitute, I think President Trump thinks factories will magically appear out of nowhere in pharma or semiconductors when those take years if you can even get the environmental clearances.
It's going to take a while for the inflation to hit.
So one possibility is we have to actually adopt really stupid tariff policy and then we have to suffer for it.
This is not really enjoyable for me as an American as a way for our policy to be corrected.
That could happen.
We're not on that path yet, but we're talking about it constantly.
There's another possibility that I know we're all aware of is that happens much faster, which is the stock market.
And the stock market is going to try to anticipate, it's not going to wait for inflation.
It's not going to wait for the political reaction to inflation.
It's not going to wait for higher interest rates, which draw money out of the stock market.
It's going to say, you have put us on this path.
You were talking about it before and now you've done it.
We don't like it.
And the President, as we know, is very sensitive to the stock market.
So what I'm hoping is that we don't get the configuration of tariffs that would cause serious pain to the United States.
It would even be better if we don't get a configuration of tariffs that would cause pain to our friends and allies, but that may be too much to ask for.
And that if we do, the stock market cuts this off at the knees.
That suddenly President Trump is willing to take a Canadian offer that before he was just ignoring.
And it's not because the Canadian offer got better.
It's because he doesn't like the direction of the U.S. securities because he cares a lot about that.
So I hope we don't get on this path.
But if we do, we could either wait for a lot of economic pain or we can hope the stock market in this case comes to our rescue.
And I would add to that that they've been stress testing the market.
Every time he gives a deadline and changes it, there's a stress test for the market.
So he's looking to see if there's any reaction.
If, again, tariffs are postponed again, the market's just going to keep steadily moving on until one day it doesn't.
But there was a suggestion early on, I think, that the tariffs should be implemented slow-rolled.
You start low and then you move up as necessary, which is another nightmare because capital follows certainty.
And if there's no certainty in what the amount of tariffs are going to be, and if the president can change his mind at any time and just say, no, no, I didn't like that tweet.
You're going to be 10% now for you.
Capital does not like that.
And investment will not follow uncertainty.
So I would just pay very close attention, if anyone's watching on the stock market, to see all these stress tests, these little things they're floating to see where the market's at with tariffs.
If they decide to put North America later and then take tariffs on China first, I would say that would make sense, because the market's probably not going to react to that in the same way that it will to North America and to European Union tariffs.
And all the while, he's also very interestingly said something just kind of in a passing yesterday that I think was intended towards the market as well, which was that he told Keir Starmer there might be a path for no tariffs for the UK, which means he's given that hope to everyone, and he's making it feel like maybe if these tariffs do come in, they might just be temporary, because see, there's some exceptions if you do the right thing, whatever that is.
Again, there's been no understanding of what that is yet.
And that is a message to kind of the market and how it reacts to this.
The reality of it that we will see is if these tariffs go in as they are planned right now is we will have the auto market shut down within days.
We're not talking about weeks.
The reason is you can't, you know, if your door handles for your car are made in Canada or whatever part, you can't make a full car with you know without creating a door handle factory in the United States and there's no investment for that.
There just isn't.
Nobody's going to do it.
And so people are stockpiling parts.
They are making enough to fulfill the orders that they have now.
But when the price of a North American and really an American-made vehicle goes up by $5,000 potentially, the demand is going to go through the floor.
And the automakers know their market.
They don't make a surplus amount of cars unless they've made a mistake.
And when they do that, their shareholders will punish them.
And so there's going to be some very immediate effects that will happen that they cannot control, that are just realities of the market and the marketplace.
And I think also, to Derek's point, when it starts to affect the red states is when it's going to start to really affect Trump personally because he's very in touch with his supporters.
He doesn't want to, you know, he likes to reward their loyalty in a way.
So tractors, for example, made in Des Moines, Iowa are also partially made in Mexico.
And the crop dusters are made in this part of the world and that part.
All that is to say that the farmers are going to be paying a lot more for their equipment.
They're going to be paying a huge amount more for their fertilizer.
And America, the way the farming works here is you need a lot of fertilizer.
And the potash comes from Canada or it comes from Russia.
Those are the two options.
You're not probably going to get any from Russia.
You're going to be needing it from Canada.
We're right there.
And you cannot export potash mine.
It's in the ground there.
You can't just get it.
And there's some in Ukraine, sure, but is it economically feasible to get it from Ukraine when you can get it right here from Canada and Saskatchewan?
It's a no-brainer, right?
So farmers are very concerned about the cost of fertilizer.
They're concerned about the cost of equipment.
And they are in those red states where there's a lot of externalities to the ag producers and agricultural sector.
I could go on about every single possible sector out there and all the externalities, but I won't because we don't have time for that.
But you can imagine them yourselves and just get a sense of all the things that are going to trickle up eventually to the White House.
And you see how countries are trying to figure this out, right?
Japan came, the Prime Minister yesterday had the announcement of a trillion dollars of purchase of U.S. LNG, a whole bunch of new investment, I think $500 billion.
And sort of the hope was that the big announceable would say, well, that's an achievement.
That's what we've got.
We've negotiated something good.
But it's not clear that those announceables are working or that they're changing policy, right?
So I think there's a concern now that we really do have to see the impact of tariffs and feel that pain.
As you say, which I think you're right, what we've heard from the auto industry is that big parts of it, entire lands, are going to shut down because they won't be able to source parts.
And that a supplier with a 6% margin that suddenly has to affront cash for 25% tariff will say, I'm losing money on every single thing I produce.
I'm just shutting down.
And that supply chain problems that we saw in 2020 reappear.
And so I think that maybe we have to go through that.
There was one more hand over here.
Yeah, one thing that really sticks out in this conversation that I think hasn't been addressed too much yet is the common adversary in all of this, which is China.
And I was just wondering if you could comment.
Derek looks like he has some things to say.
And just curious if you could touch on China, how the tariffs might increase the dependency on that, and just kind of what you're kind of forecasting there, both from the Canadian and U.S. perspective.
Thank you.
All right.
So the big opportunity for the Chinese is the tariff on the Mexicans.
Mexico became the largest source of U.S. imports or largest total U.S. trade partner because they became relatively more competitive with China, and the Chinese are thinking about factories in Mexico and now watching the tariffs and rethinking their plans.
So as a first order effect, it's really Mexico that matters.
Now, where's the role for Canada?
If we tariff both Canada and the EU, so we don't have the obvious substitute, there's a lot of substitution possibilities if you only tariff one of them.
The Chinese will see that as an opportunity.
They are very well organized at seeing opportunities.
Like, do you remember when Europe had a solar industry?
They subsidized it and the Chinese said, thanks, and they took it, and now they're taking the European car industry too.
Good job, Volkswagen.
If you see sustained tariffs in goods that Canada and the EU are currently more competitive than China in, which are higher margin goods, that is a huge opportunity for the Chinese.
As I said at the beginning, they can subsidize over tariffs much more easily than anyone else.
They're faster about it.
They can mobilize the resources.
And they think, well, you know, I mean, we're subsidizing for a lot of low-margin exports.
Why wouldn't we want to subsidize for higher-margin exports?
So the answer there, there's an opportunity for the Canada side, for the Mexico side, there's an immediate opportunity for the Chinese.
For the Canada side, the opportunity comes from how long does this last?
And if you put tariffs on everybody else, you're making China more competitive.
It happens more quickly or more slowly.
In the Canada case, it would happen more slowly.
I don't know why it would be better to say, well, okay, it'll only help the Chinese later.
I don't think that's a justification for tariffs.
But yes, the trade policy we have now, which is singling out China, is the correct one.
The one we're threatening to have is going to help China and it's going to defeat the point of both the recent steps by President Trump and his whole first term.
No, and I think that's a great question, because the most maddening thing about the whole thing is that when you hear the debates around the negative impacts of trade and the impact on manufacturing and jobs displaced, always it goes back to the real impact here is China, and that's what the David Autor studies showed and the hurt and manufacturing jobs.
And people sometimes push back and say, well, China, you know, you guys said that about Japan in the 90s or Mexico in the 2000s.
But China really is unique in terms of the artificial manipulating their currency, the subsidies, which are about 4% of GDP, and the massive investments and the IP theft, which is unprecedented in history, more IP theft than anything we've ever seen.
And so as a consequence to that, there really is starting to be a consensus that we have to be much more serious with China.
And I think you're seeing that even in Europe, where they're saying, wow, we've brought in tariffs.
China can build an EV at $8,000 U.S.
So even if you put in 100% tariffs, it's still way below what Tesla or Toyota can come up with.
So we have to find a way to deal with people who are cheating the system and undermining trade and hurting manufacturing jobs.
China has a $1 trillion trade surplus last year.
And it is a trade surplus, not just with Canada and the United States.
It has a trade surplus with 158 countries around the world.
So the Chinese trade surplus is hurting a whole bunch of countries.
And you would have a lot of allies to say, okay, we're finally cracking down on China.
But the problem is we agree with you on China that it sort of spreads, as you say, into allies and other things.
So I think there really is, there would be a consensus to practice out on China for sure.
Okay, good.
Well, that's a good theme to end on.
If there is a protracted U.S.-Canada trade war, one of the big winners would be China and maybe Russia.
So we're out of time.
Thank you all very much, and thanks to our panelists.
We'll join you in.
Thank you.
Ukrainian President Volodymyr Zelenskyy is at the White House now.
Earlier, he was on Capitol Hill.
Senator Chris Koons of Connecticut posted this: just finished an encouraging meeting in Washington with President Zelensky and a bipartisan group of senators to discuss our ongoing partnership with Ukraine.
Coming up more on President Trump's meetings with President Zelensky, they're in talks on a mineral-sharing deal which President Trump is seeking from Ukraine.
We plan to show you several of their public appearances, including an Oval Office meeting between the two leaders and a joint news conference.
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