Front Burner - Will Trump's tariffs crush Canada?

Episode Date: November 28, 2024

It's time for Canada to pay "a very big price." That was the message from president-elect Donald Trump this week when he announced a 25 percent tariff on literally everything coming into the U.S. from Canada and Mexico. The tariffs will come into effect January 20th, Trump said, and stay in effect until "Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country! "This isn't the first time Trump has threatened to impose major tariffs or followed through on his threats. And while previous levies didn't last - but they were around long enough to be a thorn in the side of Canadian negotiators reworking The North American Free Trade Agreement.So, is this most recent threat a negotiation ploy, political bluster or the first salvo in a trade war that could end in economic ruin?For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. It's time for Canada to pay a very big price. That was the message from President-elect Donald Trump this week when he announced a 25% tariff on literally everything coming into the U.S. from Canada and Mexico. The tariffs will

come into effect on January 20th, Trump said, and stay in effect until, quote, drugs, in particular fentanyl and illegal aliens, stop this invasion of our country, exclamation mark, end quote. This is not the first time that Trump has threatened to impose major tariffs, and it wouldn't even be the first time he has followed through on these threats. Imposing widespread tariffs was a major promise in his recent election campaign. And back in 2018, during his first term in the White House, he slapped a 25% tariff on Canadian steel and a 10% tariff on aluminum. Those levies didn't last, but they were around long enough to be a thorn in the side of Canadian negotiators reworking the North American Free Trade Agreement. So is this most

recent threat a negotiation ploy, political bluster, or the first solvo in a trade war that could end an economic ruin? We're going to be talking to friend of the show today, CBC reporter Alex Panetta. He's based in Washington, and he's been following all of these developments. Alex, hey, it's great to have you. Good to be here. I want to start by asking you, what is Trump demanding? I want to start by asking you, what is Trump demanding? He wants Canada and Mexico to curb the flow of drugs and illegal migrants.

What's the reality check on that? How much of an issue are drugs and migrants at the Canadian border? In comparative terms, relatively small. And let's tackle each of those things separately, because I think one is actually more substantive than the other. things separately because I think one is actually more substantive than the other. On fentanyl, seizures from Canada were about 20 kilos over the last year compared to 9,500 kilos from Mexico. Fundamentally, all it takes is one bus worth filled with fentanyl, a couple tons worth, and you could supply the United States for an entire year. Now, good luck trying to stop

a bus worth of any given product entering the United States for an entire year. Now, good luck trying to stop a bus worth of any given product entering the United States clandestinely. And, you know, the idea that Canada's spot on that bus is like less than one seat, right? I mean, it's farcical that you would crash the economy for fentanyl out of Canada. I just, I don't think that's what's happening here. So migration is a slightly bigger issue when you're talking about Canada. And so even there proportionally, the percentage of, of, of people stopped between border checkpoints by the U S border patrol from Canada, um, is like 1% of the Mexican total, right? It's, it's, it's tiny. That said, it's gone up a lot the last few years. Like it's

multiplied several times and, uh, proportionally, uh, the people stopped coming from Canada are likelier to be on a terrorism watch list. So then, you know, that's, it's,

it's not a, it's not an issue that has no substance whatsoever. And so Trump is raising, what's not clear is what he's asking for. Like, you're not going to have nobody crossing the border clandestinely. You're not gonna have no fentanyl entering the United States. It's not clear exactly what his metrics are and what the,

what the barometer is for success. Right. And just to put a point on that, It's not clear exactly what his metrics are and what the barometer is for success. Right. And just to put a point on that, do we have just any sense of what it would take for him to not go through with these tariffs? That is the multibillion dollar enigma rippling through the capitals of North America right now. Nobody really knows exactly. And other than him, perhaps in a handful of people close to him, nobody else knows exactly what he's, he's asking for. I mean, they know they have a general sense of the topics he's raised, but they don't know what, you know, what the bar is for, for, for success.

And, you know, I've talked to people, you know, senior people in Ottawa. Um, I've talked to people who have described the Trump-Trudeau phone call. Trump did not get specific in that call with Trudeau. You know, they had exchanged some pleasantries. They caught up for a few minutes. Then, you know, Trump basically repeated his tweet or his social media post to Trudeau. Trudeau talked about things Canada's already done at the border and basically mentioned that Canada is not as big a problem as Mexico, kind of throwing Mexico under the bus. But no, they didn't get specific in that conversation. It was a good call. It's it's this is something that we can do, laying out the facts, moving forward in constructive

ways. This is a relationship that we know takes a certain amount of working on and that's what we'll do. And I talked to the former number two in Trump's White House National Economic Council in his first term, and he's not sure what's going to happen. So, yeah, I mean, are these tariffs going to happen? Maybe, maybe not. Just explain to me how much of what we're seeing here with Trump is a replay of what he did last time and how much of it is new. So he's done this a few times using tariffs as a negotiating ploy. I mean, he threatened tariffs on Mexico in his first term if they didn't take steps to control migration. They did. It worked. He threatened trade penalties against Canada and Mexico if they didn't renegotiate NAFTA. They did. But the thing about a negotiating ploy or a bluff is once in a while you got to be willing to follow through or else people stop believing them, right?

And so he actually has followed through sometimes on these things. Today I'm defending America's national security by placing tariffs on foreign imports of steel and aluminum. He has imposed steel tariffs and aluminum tariffs on the entire world, including Canada and Mexico, temporarily in Canada and Mexico, because he removed them. Steel is steel. You don't have steel, you don't have a country. So, you know, I don't think it's impossible that he would follow through here if there were no off-ramp, right? But I suspect there's going to be a lot of effort put into finding an off-ramp so that he gets to declare a win before inauguration day. Let's say there isn't an off-ramp and let's say that these tariffs are imposed 25% on everything. What impact would that have on like your everyday citizen?

I mean, it's catastrophic. You know, I've seen estimates over the last year about the potential range of damage to Canada from Trump's various tariff and economic statements. And, you know, and the estimates are that his policies would slice anything from a half point of Canada's GDP or, you GDP or slice away up to like five percentage points of GDP, which is catastrophic. You're in depression territory there. And that was based on an assumption that he would follow through on a 10% tariff, right? Now he's talking about 25%. And then you don't know whether Canada will retaliate. And then you get into the potential for a trade war and it gets even worse.

And that's, yeah, it's every Canadian would feel that pain regardless of what sector they work in, because there would be ripple effects throughout the economy. And just what businesses, what industries would be the hardest hit, you think? Number one, export from Canada to the United States, oil, followed by other energy products. So the oil sector would be severely damaged. And it's strange because Trump has been spending eight years talking about the need for the Keystone Pipeline. And there are rumors that he might re-approve it. I'm not sure it'll ever get built, but he's talking about re-approving it maybe. By putting a 25% surtax on Canadian, uh, oil, you're basically destroying the economic rationale for that pipeline. You won't need it anymore. Uh, so it's very strange.

And that would be the number one, uh, uh, uh, most affected product and the number two, uh, cars. Uh, and I, and I think this is, you know, assuming he doesn't go through with a tax, uh, or a tariff on oil, which would hurt Americans just as much as it would hurt Canadians, if not more. Cars would be the one that I'd be most worried about because that really fits into Trump's strategy to reorient manufacturing to the United States in a way that, you know, punishing Canadian oil doesn't. This might be part of his strategic plan. So I'd be sweating a little if I were in Southern Ontario's car industry right now. You know, after that, there are a whole bunch of other, other products that will be affected,

but those are the big two. Right. And just, you were just talking about ripple effects to the economy. I don't want to freak people out too much here, but I mean, we are talking about major, major job losses. Just take it down the line here for me a little bit more, the effect that this will just have on regular people. I mean, sure. Just as a point of comparison, from, you know, the peak to trough during the Great Recession of the mid-2000s, U.S. GDP, U.S. economy contracted 4.3%, right?

And that was like the worst recession since world war ii right um you know if you get to five percent which is what i saw in one study from an economist at the university of calgary uh a few months ago as the absolute worst case scenario based on a 10 tariff not 25 i mean that's worse than the great recession remember how bad things were in 2008 we'll imagine something slightly worse i mean that, that's the scenario we're talking about here. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. I want to talk with you a little bit about what we could see from Canadian officials here. So Ontario Premier Doug Ford has come out and said that if these tariffs go forward, Canada will have no choice but to respond. I found his comments unfair. I found him insulting. It's like a family member stabbing you right in the heart.

Trudeau told reporters he started a good conversation with the Trump team. There's work to do, but we know how to do it. Parliamentarians stayed up late last Tuesday night for an emergency debate on the issue. Donald Trump's threats of tariffs could threaten hundreds of thousands of Canadian mortgage-paying jobs. You and I are talking just before noon on Wednesday, and the premiers are all meeting later this afternoon. This will be devastating to workers on both sides of the border. It would mean a recession for our province. We can't have that happen. We cannot start a war, and we have to do everything we can to not have these tariffs. At the same time, Mexico's president wrote an open letter saying her country would meet Trump's tariffs with tariffs of their own.

Even Conservative leader Pierre Polyev seemed pretty somber, saying he would retaliate if necessary. We need a plan, a plan to put Canada first on the economy and on security. So what sort of impact do you think this international pushback might have here, if any? Yeah, so the international pushback is not the thing Trump is worrying about, right? Pierre Polyev doesn't vote in Michigan, right? Didn't get Trump elected. You know, the premier of Ontario is not an important American domestic political actor. And even, you know, grumbling in Congress is not necessarily a big deal because, you know, Congress grumbles about a lot of stuff. The thing that could be a problem is if businesses start

freaking out here in the United States and worrying about job losses. I mean, he doesn't want to be the job loss president or the stock market crashing president, right? It would ruin his legacy. So yeah, Canadians have limited cards to play. I would say Canada would have more cards to play if it were a more indispensable security partner. And this is the thing here. If you want to get into the American trade tent nowadays, security and trade and economics are increasingly fused. Canada would be able to say, look at all these critical minerals we're supplying you, all this lithium we're giving you for your car batteries and your phones and your intercontinental ballistic missiles, right? We're cutting that off if you slap tariffs on us. Or we can't guarantee we won't start selling stuff to China.

Right? That would be a card to play. But we don't have that card because it's taking us forever to get that industry launched to the point that the U.S. military, like the Department of Defense, is spending money. It's actually literally giving grants to Canadian companies. Right, just to help us do it. To help us do it because we've been so slow. Canada has not played its geostrategic cards to the fullest of their potential. And, yeah, so I would say, yeah, whatever Doug Ford says and whatever, you know, Polyev and Trudeau are saying these days. Canada has not played its geostrategic cards to the fullest of their potential. And yeah, so I would say, yeah, whatever Doug Ford says and whatever, you know,

Paul Yev and Trudeau are saying these days pales in comparison to what you're going to hear in terms of its impact from Wall Street and from American businesses. Canadian business leaders, I saw Shopify CEO Toby Lutka come out with pretty pliant statements on saying Trump, quote, wants the border to be a border, unquote, that Trump's demands are within his rights and that Canada should meet them. Just, I don't know, what did you think when you saw that? What's the reaction been more broadly within the business community here shopify's got to worry about its bottom line and it's a sign of the times i'm just going to give you a couple statistics all right um based on numbers in its annual report last year sales to canada or revenues from canada 388 million dollars million with an m

okay uh revenues from the united states4.6 billion with a B. Almost 10 times, much more than 10 times more. The company's directors, there are as many from the United States as there are from Canada. And that annual report describes regulatory issues that Shopify has to deal with everywhere it operates, including in the United States. It does not want regulatory problems in the U.S. of A. It's kind of reminiscent of Jeff Bezos, Amazon's founder, who owns the Washington Post. Remember Democracy Dies in Darkness was a Washington Post slogan,

which he apparently supported wholeheartedly a few years ago. Now he's like, we can't do an editorial against Trump. The Washington Post is in turmoil tonight after the publisher announced that the newspaper will not endorse a candidate for president. The Post itself reporting that the decision came from the paper's owner, Amazon founder Jeff Bezos. Now, the editorial page had drafted an endorsement of Kamala Harris before the decision was made, according to a source. Business is scared of Trump and his capriciousness and his erratic, erratic, uh, you know, tweets and, and, and, and, and threats. Um, you know, and I've heard people say that this is, you know, this is part

of a, of a, of a fear of authoritarian power that you have, uh, uh, uh, an incoming president who's willing to use power in unconventional ways, either to get policy aims or to make people do what he wants, like just basically to punish business enemies. And you're seeing the effects of that now with businesses being compliant and quiet. And basically even Canadian businesses telling Canadian policymakers do what Trump wants. Have we heard anything from other American politicians? I'm thinking even on the state level, right? Historically, Republicans have been pretty pro-free trade. Yeah.

So, you know, I was saying that the best allies Canada could have in the United States are business allies and, you know, to was saying that the best allies Canada could have in the United States are business allies and to a lesser extent members of Congress. You know, they're not screaming from the rooftops yet. You know, people are expressing some nervousness, but they're not freaking out yet. And this is reflected in the stock market, which has not crashed yet, because I think the prevailing assumption still is that this is probably not going to proceed. But there is some nervousness. And if it actually goes into effect, you'll have people screaming a little louder. Alex, who on the American side is going to be in charge of these negotiations and potentially enacting these policies? Yeah, I'm assuming it'll happen on different levels. You'll have Trump's conversations with Trudeau. You might have the Deputy Prime Minister Freeland talking to people in Washington.

The fact is we need them and they also need us. Canada is the largest market for the U.S. in the world, larger than China, Japan, the U.K., and France combined. It is also the case that the things we sell to the United States are the things they really need. You'll have civil servants potentially discussing some of the technical nitty-gritty of whatever gets worked out. But nominally, the person in charge of this file in the United States is the Commerce Secretary, Howard Lutnick, who was the CEO of Cantor Fitzgerald.

And he's made clear his own view that tariffs should not be used willy-nilly, that they should be used. They're part of the mix. They should be applied strategically on some products to some countries, but that an across-the-board tariff is maybe likelier to be a negotiating but that, you know, an across the board tariff is maybe

likelier to be a negotiating ploy in his view. This is based on stuff he's said over the last few months. When was America great? At the turn of the century, our had was tariffs. Well when you're running for office you make broad statements so people understand you. Tariffs are an amazing tool by the president to use. He understands don't tariff stuff we don't make right if we don't make it and you want to buy it I don't want to put the price up there it's pointless but use tariffs to build in America. If we want to make it in America, tariff it. Or if we're competing with it, tariff it.

But you got to remember. So, yeah, he's kind of like a lukewarm figure on tariffs. I'm not saying that, you know, he's certain to impose them or certain not to impose them. He's likelier to impose them, but no, within within reasonable limits. Alex, just before we go today, I did want to ask you, last time around, we ended up renegotiating NAFTA or the USMCA, and I assumed that that was just kind of good to go. But what could all of this mean for that renegotiated deal for the USMCA? that renegotiated deal for the USMCA?

Well, if this were to proceed, the USMCA would be functionally dead. I mean, yeah, you'd have a bunch of rules applying to a whole bunch of products. But what good are those rules if Trump has already applied the penalty for breaking those rules across the board, right? You know, what happens if you, if you, if you violate a trade agreement, as you go to an arbitration, uh, hearing, and if, and if, you know, the arbitration panel sides

with you, you're allowed to put on tariffs like punitive tariffs. Well, Trump will have preemptively said, I'm putting tariffs on everything. So the deal basically stops really working and it would be a fundamental reversal on decades of Canada-U.S. economic relationship. Basically going back to a world not only before USMCA, before NAFTA, before the Canada-U.S. Free Trade Agreement of 1987. It would arguably be returning to a world before the 1965 Canada-U.S. Auto Pact. It would be changing the world as we know it. Do we get there? I don't know. I guess we'll find out over the next eight weeks. Okay. So I have a feeling we're going to be talking to you again.

Alex, thanks so much. Thank you. All right, that's all for today. I'm Jamie Poisson. Thanks so much for listening. We'll talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.