Nuanced. - 272. Carolyn Wilkins: Trump’s Tariffs vs. Canada’s Internal Problems — Former Bank of Canada Deputy Governor Explains

Episode Date: September 18, 2026

Carolyn Wilkins, former Senior Deputy Governor of the Bank of Canada joins to explain why Canada’s economy is underperforming and how inflation, interest rates, tariffs, deficits and weak investment are affecting Canadians with host Aaron Pete. Send us Fan MailSupport the shownuancedmedia.ca

My name is Carolyn Wilkins. I'm an ex-central banker from the Bank of Canada. You raised what happened during COVID. During that period, having a lot of economists say, we're not expecting to see any high-running inflation. We believe that this would be transitory. Did economists broadly get that wrong? Economists, generally not all, did get it wrong.

Central banks waited too long to raise interest rates and to pare back their quantitative easing. Do you think a lot of Canada's issues are the Trump tariffs right now? or is it our own internal policies? So clearly the Trump tariffs are bad news for Canada. It's not helpful for Canadians. It's also not helpful for the U.S. That being said, Canada has had structural deficiencies

or has been punching below its weight in the economic sense. The Prime Minister has mentioned that he doesn't think the relationship is ever going to go back to what it was. Why do you think that is? They usually don't get unwound. And so they've gone up a lot. Maybe some of the extraordinary tariffs, 50% would come off. But in general, I wouldn't expect the average tariff rate to come down to where it was prior.

How worried are you about where we are in terms of a potential recession? Carolyn, thank you so much for being willing to join us this morning. I'm honored to have you on the show. Would you mind briefly introducing yourself for people who might not be acquainted? Yes. My name is Carolyn Wilkins. I am currently a senior research scholar visiting at Princeton University where I teach a course on financial crises. I'm also at the Bank of England as an external member of their financial policy committee. And I'm an ex-central banker from the Bank of Canada. Tremendous. Well, I wanted to start with a low-hanging fruit question because I find that central banks are very important to democracies, particularly to the West. And yet many people don't. understand what they are or how they operate. So for someone who has never studied economics,

what is the central bank? Why does it exist? And what does it actually do? Well, the Bank of Canada was founded in 1935. And the reason at the time was a little bit different from the reason it exists today. At the time, it was during the Depression. And you'll remember, historians will remember just how much pain there was in the Canadian economy and economies around the world. And so the Bank of Canada was designed to provide a centralized way to provide credit to the economy, including agriculture and maybe particular agriculture at that time. It's evolved to have many functions, but the one that is most front-facing for Canadians

is their control of inflation and the use of the overnight policy rate to achieve that. And one of the reasons that central banks evolved to that is because history found that high and variable inflation really got in the way of economic stability, people's standard of living, and that committing to low and stable inflation like the Bank of Canada does was really the best thing that a central bank could do to support the well-being of Canadians. When the Bank of Canada changes its interest rates, how does that decision actually affect somebody's life through their mortgage, employment, savings, or their business? It has a number of effects. So when the Bank of Canada's overnight rate changes, that induces quite a number of changes in the rates,

through the interest rates, or borrowing rates, savings rates throughout the Canadian Funding. financial system. And the most visible way would be for a family that has a mortgage. And if interest rates go down and they happen to have a variable rate, well, then their variable rate on that mortgage will decline immediately. If it's a fixed rate and it comes to term, well, then they will renew at that new rate, whether it's higher or lower. And of course, the most recent experience is that interest rates have been declining. But of course, before that, after COVID, they rose quite a lot. people were and are still renewing at higher rates. But they affect a number of other rates

in the system, what corporate borrowing might be, what kind of savings I get if I'm living on a fixed income and I'm a pensioner. And overall, what happens in the economy is if the central bank needs to slow the economy to get inflation down, they'll raise interest rates, because overall what that's going to do is create less consumption. investment, less economic activity, which will create the space for prices to come down. Of course, the opposite is true. If inflation is too low, then lowering interest rates will induce more consumption, perhaps more investment depending on the investment environment, and that will get inflation back to target.

You raised what happened during COVID, and I would just be interested in your reflections on what took place, because I was in law school at the time studying tax law. and one of the first sentences in the intro of the book was when governments print money or put more money into the economy, inflation can happen as a consequence of that. And during that period, I remember very vividly reading that book and then going to the TV and having a lot of economists say, we're not expecting to see any high running inflation at any point in time. We believe that this would be, I think they said transitory. in nature and not last at all. And then we did see it spike significantly. And what I thought was unusual was I do think the leader of the official opposition, Pierre Paulyev, called it very early

on before anything was spiking. And then we saw that come in. Did economists broadly get that wrong? Or am I just remembering maybe one specific outlier case where somebody was saying that? What are your reflections on what took place during that period? Economists generally not all did get it wrong. And not only in Canada, but in the U.S., the UK and many other jurisdictions that experienced inflation. I've done a number of external reviews of central banks, including in Australia and in Sweden, and could see that there were very similar things going on. And I think central banks have done some good reflection about what went wrong and how they missed it. And so if you give me a minute, I could just say that,

you know, at the time when COVID hit, we knew that, this would be a very different kind of event or shock than we had seen in many, many years and perhaps since the early part of the 20th century. And so there wasn't a lot of data to go on, but we knew that there would be really a lot of employment losses, potentially GDP would fall, and there would be downward pressure on inflation, and a lot of market turmoil, which especially happened at the beginning. And so many things, central banks, including the Bank of Canada, and I was there at the time, decided that we needed to quickly establish order in markets so that the financial system could do its job for

Canadians and businesses. And then we lowered interest rates and made operations that were intended to create a bridge to stabilizing the economy and getting inflation back up to target. And so I think what I observed from that situation is that the start was was fine, mostly fine, given what we knew, you got to remember, playing hindsight quarterback is really easy. I left the bank in December 2020 and things were still very, very uncertain and they were for many more months. I think what happened in Canada and elsewhere is that these supply shocks that we saw, the, so remember if you wanted the couch, you had to wait six months or longer, you couldn't find a car. These things were driving up prices in a way that economists, not just central bank economists, thought would be temporary, and that we should look through that.

We shouldn't try to slow down the economy or slow the recovery because of a price. that was not going to continue to rise, it was going to stabilize and so then would inflation and it would eventually fall. As it turns out, what was wrong in many jurisdictions, as it turned out, was that these supply shocks just kept happening. Many, many products, broad-based products, were affected, and in fact, demand popped back much faster than expected, because remember, as a Canadian government was prioritizing, keeping people's incomes where they should be if they lost their job or to keep them in their jobs. And so people were spending a lot of money and precisely on the goods that were hard to come by.

So prices rose. Central banks waited too long to raise interest rates and to pare back their quantitative easing. And they had to react faster and buy more than the... they would have otherwise because of that. These are easy lessons to talk about afterwards at the time. I don't want to judge I was no longer there. I just know that what I've seen from the Bank of Canada's own post-mortem and from other central banks' external reviews that I've participated,

there are serious lessons to be learned and, yeah, a little bit of humble pie. This kind of leads into my next question, which is all of this operates somewhat outside of elected governments, right? There's supposed to be a Chinese wall or a separation between government practices and monetary policy. And I'm wondering how you think about that in light of President Donald Trump, who has tried to significantly influence the U.S.'s Federal Reserve and where their interest rates are. but I would also say on a much lesser, a much lesser degree, Prime Minister Mark Carney, who actually comes from being the governor of the Bank of Canada and moving into a role as Prime Minister.

And so ending up holding both roles within our society. And so we can say in earnest that we wanted to be a certain way, and it has been historically a certain way. But we see two players who have kind of occupied that territory more so than we've seen historically. And I'm just wondering how you think about that. I'm going to start with this a lot there. So it's a great question. So I'm going to start with the fundamentals,

which is what does that mean the Chinese Wall or the independence? And it's very clear in my mind that independence is operational only. And by that I mean, the elected government gives the Bank of Canada and in many other countries it's the same, either legislated or a renewed mandate to achieve something. In our case, it's 2% inflation within 1 to 3% inflation bans. The independents comes from saying, okay, given our tools, we are independent to move around those tools in a way that will achieve our mandated target. Okay? It doesn't mean any more than that. And on top of that, it means a lot of accountability. And so we need to be accountable to

Parliament to Canadian citizens. And I see we in a central bank way, I'm no longer at the Bank of Canada with a hard habit to drop. We need to be accountable. So when we do well, great, when we have, when we've stumbled, we need to be accountable for that. And so, and I think that where, where central banks have, have at least the Bank of Canada and others have done well is to take that accountability seriously and do the kind of building they need to do to avoid making the same mistake again. With respect to what's happening in the U.S., it's, I think it's legitimate for an administration and for Congress to ask questions to the Fed about what they've done and why. And it's upon Congress, it's upon the Fed to respond to that seriously.

and openly. Where I see the trouble is when an administration tries to direct interest rates or direct what the central bank does, whether it's the U.S. or any other country. And that's because there's a fear that the government has the wrong incentives. The U.S. is a lot of debt. So they need to renew it at now higher interest rates. And so the worry is that the incentives the government is to have lower interest rates where the incentive of the central bank is to meet its target. And at the end of the day, it's not a question of who gets their independence and that sort of power play. It affects citizens because if inflation gets out of control and interest rates because bond markets react go up, well, it's citizens that pay that price. And so you talked

about Mark Carney. I worked with Mark Carney when he was at the Bank of Canada and subsequently in International Forum when he was at the Bank of England. And he understands and executes central banking very well. I have not, I have not witnessed, and this isn't to defend him or not defend him. I have not witnessed any misunderstanding about whose job is whose at all. And I think that central bankers are the first to know just how important it is to keep that separate. While at the same time making sure that the accountability and the clarity of the mandate are there so that there is trust on the part of the Canadians that unelected officials are acting on behalf of the government and are accountable for that. Fascinating. I guess the only reason I ask is because I am like a deep fan of democracy within my community, but more broadly.

And I get, I think a lot about where issues arise and where citizens think they can go to. So like the central banks can influence employment, housing prices and the value of people's savings. And yet I don't think most people understand who operates, what are the rules, like all of these mechanisms that I think you understand in a really deep way. And I do think we've benefited from really good faith actors operating those positions. but we can't take that for granted, right? Like, we can't assume that will continue forever. So I just wonder how you think about the democratic process when things are going, like we have a housing crisis.

People don't have a lot of savings. Things aren't working in our economy in terms of employment right now as well as they have historically. And so when these things are going on, a lot of anger is being pointed at politicians and rightfully so. But I also think that the central bank plays a role in that. They don't control everything. but I don't think they participate in the conversation the same way that like we look at our elected politicians to.

And many people are not coming to the debate stage to discuss monetary policy and best practice and quantitative easing and all of these things. So I just wonder like you study these and try and give central banks advice. What are your thoughts on the democratic process and and these systems? Yes. I would I would say three things. The first is starting where you started, which is, which is democracy is important. People need to be represented by elected officials. And in my mind, that's just table stakes.

I think there is a utility to delegate in a very clear way. It's already done to departments, at government departments and in other things, with clear mandates and with clear expectations and accountability, certain tasks because it's just not practical. that politicians are going to do all that. They've got a lot of things on their plate that are very important. So that's kind of the first set of points. The second is that is that Canadians are right to feel that things are not quite right. On the Canadian economy point of view, we've been underperforming. People talk about underperforming the U.S.,

underperforming the U.S. I would just say we're underperforming our potential. given the labor, given the resources that we have, given the rule of law, we have so many advantages, and we're not, we're missing the mark. And so, and I think because of the cost of living and the other things you mentioned, yes, they are feeling uncomfortable and saying, how can this be happening? We need to be careful to understand who can achieve what. And I think over time people have accredited the central bank with more powers than it actually has. Yes, in the short run, we can cause employment to go up or down and GDP to go up and down, but at the end of the day, or housing to be a little bit more expensive or less expensive, but at the end of the day, the policies are

in the hands of the elected officials because those are what I would call structural policies, they're tax policies, they're where they spend the money, the rules of the game that they put in place to determine how many houses get built. How long does it take to get a permit? How much does it cost to get a permit? It's not just a federal government. It's all levels of government. And so sitting around the kitchen table, it's really complicated to explain who does what and who's responsible because it looks like everybody is and so no one is. But the clarity that one needs to have when asking for change is to know where the responsibility lies. And I believe first, that the responsibility for many things that we're worried about, including in housing,

lies with governments at all orders of government, because the problem is supply. And so, and it has been for many, many years, the problem with affordability. Yes, it's inflation, but in part, inflation is a function of our economy's capacity to grow without creating inflation. So things like labor restrictions across across provincial borders, things like time to get a permit or time to or costs of getting a permit. Those all add to cost at the end of the day are paid by Canadians. Just to follow up on that, would you be open to, so say the liberals enter another election and would you be open to the idea that they should tell Canadian,

before being elected as part of their party platform, what they would give the mandate to the central bank, like what their vision of what that mandate would look like ahead of time so people can think about it. Because as I said, that's just a piece where they are giving a mandate. I'm sure they'd think about it beforehand, but it's not something that usually reaches the normal. And like maybe I'm just a nerd on these things

and I'm interested in how they think about these things. But I wonder about how they think about that and how Canadians would be able to vote in support of one mandate or another mandate? You know, these are these are excellent options and you're talking to a nerd. So, so I'm happy about these questions. There's more than one way to do it. Countries do this in many different ways.

I happen to like how Canada does it, so let me just tell you what it is. And so the mandate for the central bank is renewed every five years. It's done with a lot of research and specific questions. interaction with academics and communities and a lot, I guess a lot of research. I think I might have said that twice because there is a lot of research to see what would be the economic effects of different monetary policy objectives. And that's agreed to with the governor and whoever happens to be the finance minister at the time. And obviously the finance minister gets cabinet to agree. The finance minister would never do that unless the cabinet agreed.

And it's done. The reason that it's long enough to, and it's not with an election cycle, is because if you politicize either directly or inadvertently the inflation target regime, you could cause a lot of uncertainty with investors, especially in the bond market, about what the rules of the game are going to be. And so there is an advantage to doing it on a cycle that's not always, not always synchronized with elections. Elections can come very quickly, so you really want every two years if there's that to be renewed. And so I think that it's a really good compromise. And the fact that the government goes to parliament used to appear, at parliamentary committees in the Senate a couple of times a year. It's a perfect opportunity to

ask questions leading up to the next renewal, but why is it like this? Why is it not another thing? We did get asked questions like that. Like, why is an inflation target 3%? Or why don't we have it at 0%? Or there are lots of questions that can happen that will feed into the next renewal. So you could do it, as you say. I think that would create unnecessary uncertainty in an economy like Canada's, and I think we've benefited a lot in terms of our access to markets and stability of the regime that benefits Canadians in a way that isn't permanent. It doesn't mean that they're locked into any particular regime. You can still change it if the economy or if circumstructural circumstances in the world

mean that another regime would do better. Interesting. We've got to get into current politics. I'm wondering, I've been following the bond markets just out of curiosity. I wonder what is driving the current rise in long-term American bond yields? And what is the bond market communicating about inflation, government debt, and the direction of the American economy? So you're going to get 16 different answers depending, you know, if you talk to 12 different economists, okay? So, so, uh, And so the, as many people know, the yields in, especially longer-term yields in the U.S. Treasury market have been rising and are now at a level that we haven't seen in a number of years. And there's discussion about why that is. The candidates are just worried about the government debt and how, how, not just the current level, but where the projections are going. another worry is related to inflation and whether or not the Fed will do what it takes to get it under control.

There could be many other reasons, including one where there's just an excess competition in the treasury market because corporations, especially those related to technology, are competing for funds. And so that means that the Treasury has to pay up. I think it's a little bit of all of the above. The most recent rise seems to be more about expectations that the Fed interest rates are more likely to go up than people had thought before and maybe up by more than people had thought before rather than any particular new concern about the U.S. debt. But clearly risk premiums over the last year so have been rising after having being really unusually slow. I mean, low. You may not remember this, but there was a time when

we were wringing our hands about low for long and why people weren't pricing and risk in the yield curve. So a little bit of a return to normal and a little bit of, and a little bit more worry about higher interest rates in the U.S. and U.S. debt. That spills over to Canada. It matters. There's less. Interest rate movements in the U.S. have always felt over to Canada, especially at the long end. This time, we have not been affected as much. Our fiscal situation is in better shape. I'm not saying it's in the kind of shape we want to see in the long run, but it's in better shape.

And the credibility of fiscal policy is our credit rating is high. high. And so I wouldn't take that for granted, but we're in a reasonably good position relative to the U.S. in that regard right now. A few other reasons that I've heard is that more central banks are looking at gold as a reliable investment to hold their money in. What are your thought on that? I, you know, yes, there are, I'm not sure to what extent that is actually having a large effect on bond markets, especially when you think about the volatility. That's been more of a slow kind of accumulation.

There are some central banks that feel that gold is a good store of value, others that are banking more on their fundamentals to do that work. So I wouldn't put that down as a big factor. I think one thing I wanted to say that I didn't, I don't think Canada should be complacent about its fiscal situation. Yes, we need to invest and yes, there's good ways to spend taxpayers' money that will hopefully expand capacity, but you never, you never turn your back on the bond market because they can react quickly and they can smell fiscal imprudence from quite far. Fascinating. What would a genuine loss of confidence in the American government debt look like? And how do we distinguish that from an ordinary bond market adjustment?

Yeah, I, I'm uncomfortable. speculating about that because I wouldn't put that in my base case. So maybe I can bring it back to a financial stability point that could come from loss of confidence or just a stumble or a wobble in the bond market or it could come from from a lot of the U.S. fiscal situation and confidence in that. It could come from some other shock. what can happen, and we've seen it in the past, we saw it a little bit at the beginning of COVID, is that if there's a sudden shock that requires holders of treasuries to sell them quickly,

okay, that's going to create spike in interest rates that have repercussions throughout the system. It's like a domino effect, and so you end up with things happening that just really, enforce that bad dynamic. I need to sell my treasuries. The price goes down. Others have to, the price of their collateral has just gone down, so they need to raise funds to put more collateral in, so they have to sell assets, and so on. And that can create the kind of financial instability that requires central banks to come in and provide liquidity. One episode that we did see was in 2022 in the UK in September when the government at the time issued a budget that did not garner market confidence and in a way that was severe enough that created a spike in guilt.

That created some spillovers that were quite serious in liability-driven investment funds that were related to pension funds and the Bank of England, had to come in at the time and buy gilts for a very targeted and temporary period of time. Now, confidence was restored because the budget was retracted, other changes were made. But you can see that, and at the end of the day, stability was restored rather quickly. It never unraveled to what it could have been had we not intervene. but that's the kind of thing that can happen that requires support from central banks

or even the government if it gets out of hand. So when you see like my province, British Columbia and the federal government are both running high deficits, how does that impact how central banks kind of look at the situation? Well, from a monetary policy point of view, it's about how much is fiscal policy at the time contributing to growth, okay? Is it, so in the COVID time, fiscal policy around the world was quite expansionary,

and so it was contributing a lot to growth. And that turned out to be in some jurisdictions more than others. One of the reasons, inflation, that wasn't just monetary policy. In fact, it was fiscal policy that boosted. demand to the extent that they created. And I'm not judging it. I'm just, that's just a fact from the studies that have been done. It could be wrong, but those are the studies that have been done. And so, and I think when, when you look at what rating agencies look at, they look not only, they look at the level of your deficits. So with the federal level, it's 2% of GDP around that.

the federal debt is about 41%. It doesn't see, you know, in the short term, you don't see a path to reducing it, but you've got interest payments at a level that are not insignificant but achievable, okay? And so rating agencies are going to look at that and they're going to say, well, what is the quality of spending that's happening? Is it consumption, something that'll just be here today and gone tomorrow, or is it to build capacity in a way that's likened capital investment, and so there will be return on it for the economy over time, increasing the tax base? I think what the governments I are trying to do is the latter,

the good kind of spending. It's much too early to know whether that'll bear fruit, but that's certainly the intent. And when you think about what Canada needs, it needs investment in so many areas. And to the extent the government can crowd in public and private investment and can create the conditions, not just through spending, but through changes in regulations and the rules of the game, I think that's, that's, it's worth it. If it's, if it works. So I've, fascinating. I've spoken to several economists now about where Canada is and they have a lot of, all of them confirmed that they think our internal regulatory policy, our own tax policies are the pieces that could be slowing down our economy. And then when I asked them about the tariffs, they say that's a factor,

but that's not the main piece that we need to address. They say obviously they are against the tariffs and they want to see all of that address. But we have roots here and many premiers and the prime minister talked about we need to address these internal regulatory processes. The whole reason the major projects office started was like, we're going to do this for a bit, and then we're going to be able to kind of redo the whole system. And all of their critique of Prime Minister Mark Carney to date has been, we haven't seen that kind of real analysis and real review of our own internal policies to date. Like updating our tax policy was something economist Trevor Toom raised in some other pieces. So I'd be interested. We're, we're

do you see the roots? Do you think a lot of Canada's issues are the Trump tariffs right now, or is it our own internal policies? So clearly the Trump tariffs are bad news for Canada. It's not helpful for Canadians. It's also not helpful for the U.S. The tariffs are actually being born by the U.S. citizens who are paying higher prices. That's part of the reason why their inflation is higher than ours. And so it's raising it. costs for businesses, changing supply chains in a way that hurts not only Canada, but the U.S. That being said, Canada has had structural deficiencies or has been punching below its weight in the economic sense and the prosperity sense for people for many, many years.

And that comes down to productivity and low investment, low capital investment. And so what that really means is that, is that we do need to do whatever we can that's, that's sustainable, okay, that makes sense constitutionally, given our constitutional obligations, our social obligations and desires to increase the expected rate of return on investment. Okay. And that, because it's not high enough. companies in Canada are just leaving or they're never growing in Canada, they're going to the U.S., or they're just not growing at all, or they're holding back. Part of it's the uncertainty about the tariffs, but part of it is the uncertainty with respect to how long is it going to get to make my project approvable and I can get a shovel in the ground? Is it 10 years? Is it five years? When I get

approval, is it going to be litigated? You know, what is it going to cost me to get those approvals? And what are the regulations going to be? Is there even a road to go to where I want to build a mine or somewhere so that I can actually get my products to market? Does the port have capacity? Does the train system have capacity? There's just all these questions. And I believe I'm a firm believer in private investment.

At the same time, I know that the government can be very helpful in enabling it by taking away those barriers that don't. achieve public policy objectives. I'm a regulator, okay, I'm being a regulator, and I've worked in government, and I could tell you that the intentions there are always good, but the results are not always, everything's not entirely needed to be in the public interest. You know, if you, there's a lot of time spent doing things that really don't add to your objectives and, in fact, could take away from it. And I think that's the project office is test driving a faster process in learning what works and what doesn't. And I totally agree with those other economists that

that can't be the permanent solution. The permanent solution means to be a whole scale rewiring of tax approvals, how we interact with the provinces and municipal governments, maybe even our risk tolerance needs to go up. Because if it doesn't, we're not going to get the investment we need. Even international investment. I'm really excited about the Investment Summit in Toronto that's coming up. You got to know, I work internationally. You've got to know that every one of those investors are going to evaluate the expected return of any investment here

with the expected return of investments around the world. So we're competing, not with ourselves. We're competing with the rest of the world that also has something to offer. You mentioned litigation, and with great respect, I think this is an opportunity for you to give me the cold, hard facts about indigenous communities and where we are. There are a lot of valid reasons why, and they have a right to take things to court when they see an issue. I'm a First Nations chief. I understand that we have the ability to do that. But I wonder how you think about the impact of that decision on investments. Because you mentioned litigation and I see First Nations being a primary driver when a major project comes up of being a litigant either against.

They weren't consulted enough and all of these things. And like my greatest fear out of that is that sometimes I don't think First Nation communities realize the broader system that they exist within. and that's not to be disrespectful to them. But as I learn about the economy and how all of this works, I go like, wow, this has ripple effects. This has a cause and effect to systems outside of our own purview. The decision to litigate over one oil pipeline can have downstream effects to other potential proponents who want to do things, even if it's not even within their territory, it can have downstream effects. And so I think this needs to be a conversation with First Nation communities,

and I just want to get your thoughts on whether or not I'm correct on my analysis or not, because the great risk from my perspective, looking at the First Nation situation, is that you have vulnerable children and families living in abject poverty while communities are deciding, and they're allowed to make these decisions about whether or not they support or want to fight a pipeline or not, but you can affect families' ability to rise out of poverty,

and you can affect our Canadian economy and the global economy in all of these ways that I just, I don't always know is factored into their decision making. But the more I learn about it, the more I'm like, oh my gosh, this has so many important effects. And you can make an informed decision about these things and go, okay, I am willing to litigate, even though it will have these downstream effects. But I think it's really important that we understand the downstream effects. And I just, I wonder what your reflections are on that. Those are really important issues.

And they're tied up with the motion, even just hearing you, I, you know, I can feel. the emotion. And clearly, clearly, at the end of the day, it's up to every community in their agency and their rights to do what they think feels best. There's no, there's no way to change that. And I don't think we should try. Where I see the opportunity is trying to avoid it getting to that stage. And maybe there's no way in some cases. But another case, I think there are and we've seen examples where it has worked better and it's it it means involving indigenous communities early in the process and not just because we need to you know ticking boxes but actually in trying to create a partnership

that yes equity is important but it's not just that it's it's the real partnership that creates a relationship of trust that creates the space for compromise that creates a space for moving forward in a way that people at the end of the day feel, I know how we got here, and I was part of it. And that's hard work for people that are so diverse, number one. And then it's hard work because historically, maybe we haven't developed those relationships as well as we should have.

and so, but I think it's worked that could be done and should be done. And it's not going to reduce the chance that it's going to eliminate that litigation risk, but it's going to reduce it in a way that I think will make it, yeah, we'll make it tractable. Fascinating. Canada is confronting a more protectionist United States while we have this domestic economic weakness. And I'm just wondering, how worried are you about where we are in terms of a potential recession? You may have heard the leader of the official opposition kind of trying to argue the fact that we're in a technical recession in the House of Commons. And I see a lot of fear about AI bubbles and what's taking place.

How worried are you that we are walking this line as we just walked away from the United States trade negotiations? So I'm out of the forecasting business these days. but I have seen those comments. And there's no crystal ball here. We do not know what's going to happen with the situation with the United States. There are different scenarios that could occur that could create stronger growth and lower inflation than we expect. And there are just many scenarios.

You see some of them in the monetary policy report that the Bank of Canada put out. in July. And I think that's the right way to think about it. What we need to do is focus on what we can control, okay? And we can't control what, um, what President Trump, what other European countries want to do. We just, that's just not something we can control. We can control, though, how we prepare ourselves to be resilient and to grow over the long term and how to, if we do have significant slowdown and growth, how we can get through it and keep people and keep people relatively well, okay? And so I don't see, I don't see forecast out there that have recessions as a base case, partly because, partly because we've done some of the adjustment

already. I know that the last GDP numbers were really positive. There was a lot of investment, especially in machinery and equipment. So that was a much needed piece of good news. But to be careful, because one quarter isn't a trend. And so, and so I guess I'm not going to answer your question because I think that's not the most important one. And it's not, I know why, I know why Mr. Poitluev is talking about it because we need to be prepared and we need to do what we can to avoid it. I think the real business here for Canadians is, how patient are we going to be and how determined are we going to be and ambitious to create the winning conditions for families and for businesses over the longer term?

Because I don't think that the trade situation with the U.S. is ever going to go back to where it was before. I think we need to make it as good as we can and continue to trade with them and work on a positive relationship with them, diversify where we can. and make our economy, especially on an intertile economy, trading with ourselves as strong as possible. And once we've done that, we're going to be in a much better position to continue and improve how we face other really important issues like aging in the population in health care, housing affordability, how to build those houses, all those things that many of us have our heart set on. You've mentioned that, and I think the prime minister has mentioned that he doesn't think the relationship is ever going to go back to what it was.

Why do you think that is? Well, I think that the relationship between a president and a prime minister can improve and can be more friendly and even some more trust than there is today. Yes, of course. when I meant the trade relationship, I was really talking about the tariffs. If you look at in the first administration with President Trump, tariffs rose, and with the President Biden administration, they pretty much stayed where they were. They usually don't get unwound. And so they've gone up a lot, maybe some of the extraordinary tariffs, the 50% would come off.

but in general, I wouldn't expect the average tariff rate to come down to where it was prior. We can adjust to that. It's something that Canada can't adjust to. What is really difficult, and I hope does improve, is just the uncertainty of where policy is going. That applies to Canada, and that applies a lot to the U.S., Because that's where the investment environments and, I guess, even the confidence of Canadians really rests, kind of knowing what they're facing. How are they going to succeed, succeed in the future? And so that part, I think, I'm always going to have hope that that part improves.

The terrorist part, in terms of the average tariffs, I think they're just going to be permanently higher than they were when we started. What would you like to see Canada do immediately to start to improve the strength of our economy? If we were able to go back to our MLAs and our MPs and say, we've got to get moving on some things, what would you like to see take place pretty quickly here? Well, I'd like to see what's taking place right now. I'll get carried out and actually implemented. And so a lot of what I'm saying is something that is being tried right now. So faster approvals, more substantive.

of compliance between orders of government, so they're not all doing the same thing, doubling up on regulations. Thinking about how to enable investment through changes to the tax system, I know that takes time, but all these hard work to create a structural environment that's more appealing to domestic and international investors, that takes time too, because people need to agree to it. You have to decide what you're going to put on the table, and then you need to negotiate it. I know when I was doing Basel 3 in Basel on the new regulations for banks, it took months and months to get agreements on different kinds of proposed international standards. I don't think, I think that task was a walk in the park relative to what

Canada needs to achieve. And so what I would do is actually execute on what we've got on the table, which is a lot and get to work on the kinds of things the economists you were talking to have mentioned that are structural reforms that take time. One of my final big questions is just when you look at our global economy, I'm wondering how you take information in on that front because there's just so much going on that I don't feel like I grew up with to the same extent with things taking place like the war in Iran and how that's reached. shaping bricks and how they're starting to work together and they just met. I think it was India, China, Russia and Iran just met and had a conversation. There may have been more countries involved in that, but like they're trying to start to look at their own monetary system. How much time goes into those kind of global issues from your perspective? Well, given my work, a lot of time does because at the Bank of England, I'm interested in

in financial stability issues as they pertain to the UK, which is a financial center. Those stability issues require knowledge of what's happening in many markets, including the ones that you mentioned. I think that the, and that was the same. It wasn't much different when I was at the Bank of Canada. I think as a citizen, it's impossible to read it all. I would say three things. One is don't even try to read it all because it's impossible and confusing.

And so, but at the same time, don't rely on just one source to be your source of truth because truth is in silos these days. And so I try to look at the news that I would normally look at and then look at another stream, another silo that may have different views or have a different take on what happened than the traditional news. That way I get a fuller picture. I guess the second thing is do it with a purpose. Why do you want to know all this? Is it just for interest or do you want to know how it's going to affect your community, your personal finances? And that helps you find a triage to prioritize. Okay. And then the third thing is, don't despair. I have so much faith in Canada.

And I realize that what's in the news tends to be more the negative things and the positive things. And so to ground me, I look around at the community that I'm in and the communities that I'm in. and I look for news that shows the lighter side of what is going on as well and how kind we can be to each other and how communities can come together. And I find it really in COVID and in other times, I think that Canadians are up to that task. Final question for you. You studied economics at Wilford-Lorier and Western before spending two decades putting those ideas into practice at the Bank of Canada, and you have now returned to an academic environment at Princeton. What did making real decisions during an economic crisis teach you that textbooks and

economic models could not? Well, two things. One is that you don't have all the time in the world to look in your textbook to figure out what to do because it won't be there. Taking decisions is about taking a decision under uncertainty and sometimes very quickly. Number two, universities don't prepare you for the simple fact that if you're going to achieve crisis management, you're going to achieve really good decisions.

It's not about you. It's about you and your team. And that productive discussion, pulling together to make sure that everybody's got their thing to do, supporting each other. and in the crisis, say in the global financial crisis in 2008, COVID crisis, I couldn't have achieved half of what I did without the team and the relationships that I had built prior to the crisis hitting. Do you have any regrets or things you would have done differently based on those two major experiences? Oh my gosh.

I'm always looking at what I could have done better, so it's hard to just pick one. I'm proud of, I'm overall proud of what we did. I think that, I think that on the communication side, I think that central banks, and including me, are too restrained about what we say. We try to be so careful that sometimes our message. doesn't come across as well as it could. And so, and so maybe, maybe I would have, I'm not saying I would have said everything that came into my head, but I wish I had have worked more on how to, how to be clear to Canadians and speak in a way that, that is understood

and accessible and meets to people where they are. I tried to do it, but I still feel that I have some work on that front. How can people follow your work? Well, I have a, I have a LinkedIn page. I think there's a, there's a link to my, my CV that has a list of my publications and the speeches and work that I'm doing right now. But as I said, I'm on, I'm on LinkedIn. tremendous. Well, thank you for being willing to do this today and answer these questions. I find this area doesn't get a lot of coverage. Of course, within your realm, I'm sure you're talking to economists all the time, but outside of that, I find it's a really important area for people to learn about and start to understand all the factors, because I have this deep belief that if you're not informed on a lot of these things, the world happens to you rather than you being an active participant in. the process and the more you understand and it can seem boring to people but the more you understand the bond market and how the global economy is shifting and you're not going to get everything right

but the more you're kind of thinking how do I make decisions and project outwards how do I look outwards and go okay I think this is where the world's going and you do that even implicitly when you buy a house when you have children you're predicting that the future is going to be relatively stable and so the more you learn about its stability or lack thereof the more you're able to to adapt when COVID happens, when the 2008 financial crisis happens, the more you're kind of able to shift with the ebbs and flows of our society more broadly. And I really want to encourage people to move in that direction. The more information and the more grounded you are and where you are in the world, the more you're able to respond to different scenarios and circumstances

that come up. And that empowers you to lead other people and help them make more informed decisions and that's how we kind of ripple outward. So I appreciate you being willing to share this information today because I hope people take a lot away from it and just learn how complex these decisions are and how many factors have to go into them and how much research, I'm sure, goes in behind the scenes to try and make some of these informed decisions. Well, thank you so much for not only the invitation, but your initiative to do this. Thank you.