The Agenda with Steve Paikin (Audio) - Who Are Canada's Trade Allies?

Episode Date: March 28, 2025

Where to now? That is the question Canadian businesses and trade representatives have been asking themselves since the United States began threatening to add tariffs to Canadian imports. More than 75 percent of our goods... worth almost $600B ... are destined for the U.S. every year. But Canada is also party to 15 global free trade agreements covering 51 countries. So, if the U.S. has become an unreliable trade partner, where in the world does Canada seek new trade deals, or strengthen existing agreements? Is it even possible to replace the U.S. as a trade partner? See omnystudio.com/listener for privacy information.

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Let's ask in the nation's capital, Meredith Lily, Professor and Simon Reisman Chair in International Economic Policy at Carleton University's Norman Patterson School of International Affairs. And here in our Toronto studio, Julie Nguyen, Chair of the Canada ASEAN at the York Centre for Asian Research at York University. ASEAN stands for the Association of Southeast Asia Nations. And Mark Warner, a Trade Investment and Competition Lawyer

at Ma Law in Toronto. Welcome to you both in studio and Meredith for joining us on the live. All right, before we start, I to show a chart that illustrates Canada's significant trade relation with the U.S. This is the share Canada's merchandise exports by region in 2023. Now you can see in this doughnut graph, a large swath of it, 77.1% in red. That's the United States.

Latin America and Caribbean in teal at 2.9%. The Indo-Pacific 10.8 in purple and in pink Europe and Central Asia. And then in blue, a little tiny little sliver there. The Middle East and Africa at 1.6%. Meredith, I'm going to come to you first. Different Canadian governments have talked about diversifying our trade partners for years, but there never seems to be much progress. What are the reasons Canada leans so heavily on the U.S. when it comes to our exports? Thanks very much for the opportunity to be here. So I think the reason that Canadian firms rely so heavily, despite the fact that as you say, different governments have

sought to open up market access through things like free trade agreements and trade missions and those kinds of things. The reason firms continue to trade with the United States is actually because it makes a lot of sense to do so. The U.S. is the world's largest market. It's right next door to Canada. It has very similar regulatory practices and a similar business environment to Canada. So for our firms, it's actually quite easy and profitable for them to trade with the United States. There's something called the gravity model in economics

that predicts that all of these factors mean the US can and should be Canada's primary trade destination. And so firms are going to only look to other markets if there's a business case to do so. And what they're going to be looking for is things like a stable business environment, opportunities to make profit, but firms are not charities. They're not looking to move to new markets to promote Canadian values or foreign policy. Those might be nice side benefits, but that's not what they're in it for. They're in it primarily to make money.

And, you know, the other thing I think you should be aware of is that for the most part, Canada's large firms are operating in multiple markets. They trade with the United States, but most, roughly half of them also trade with an additional market beyond the United States, but most, roughly half of them also trade with, with an additional market beyond the United States. And so when we're now looking to encourage other firms in Canada to explore new markets, we're mostly looking at small and medium business. And they have many reasons that you can imagine that it might be kind of daunting to explore new markets. So I mean, maybe we can get into it. I think the tariff situation might change that, but there are good reasons that Canadian firms

historically have mostly traded with the United States. Very quickly on that, when you talk about that stability, the small and medium businesses, Meredith, the Canadian Federation of Independent Business just came out with a report that said 47% of small businesses don't consider the U.S. a reliable trade partner. Is the U.S. a reliable trade partner? Looking at it right now where we stand. Right now today, I don't think it's giving the signals that it is. And actually, signals matter a lot. The signals of how reliable a market is can

be as important as the reality of it. And so at the moment, the signals being sent from the United States is that it is not a reliable trade partner. And so small firms, for instance, if a shipment was caught up at the border and that was caught up for a very long period of time, a large firm might be able to weather that and would have resources in place to help them kind of unstick the problems associated with that shipment being caught at the border. But a small business can necessarily take on that liability. And so these are, they have different considerations when they think about whether or

not the U.S. is reliable and whether they have the resources to help them weather those kinds of challenges. All right, Mark, I feel like I'm going to need a little history lesson here. But is the trend of the US becoming more insular when it comes to international trade new or not? I don't think it's really all that new. I think that if you look back at these things, as I spent my day doing this for the last 40 plus years, I think probably the United States started to move inward probably in the Clinton administration. It's a bit confusing for us in Canada, I guess, because it started right around the time that

NAFTA was, the old free trade agreement was converted to NAFTA and the Clinton got elected really campaigning against NAFTA and then let it go through by adding a labor and environmental hook to it. And then the work that had already been in progress towards a WTO agreement, that sort of was already on its way. But by that time, you can sort of see Ross Perot running a famously anti-trade third party candidacy that meant that Clinton didn't win a majority of the popular vote. And then he'd take it to the Bush administration and they're acting unilaterally.

And then I think that even after the WTO came into existence, early decisions of the WTO, especially after China joined, meant that the Americans pretty immediately were saying, that's not what we negotiated for. And every presidency since then has sort of seen a little bit moving backwards. I think what Trump changes is from the rhetoric to sort of real threats. I think the world had probably got used to, and especially us in Canada, just tuning it out. You know, 2% of NATO requirements. What did he say?

I didn't hear that. You know, what do you want me to do with digital services tax? Sorry, Mr. Biden, I didn't hear you. And Trump comes along, and it's the ultimate expression. Well, I'm going to say it in a way and do it in a way that you're going to listen to me. And he's not just doing that to Canada, but to the rest of the world. The old post-war, post-World War II model was a model where the United States

was the economic superpower and the military superpower. And it engaged in what maybe the rest of the world wouldn't like to admit, but asymmetric trade liberalization. It opened its large consumer market and said to the rest of the world, come and sell to us, which we'd been doing for hundreds of years here in Canada and the rest of the world, come and sell to us, which we'd been doing for hundreds of years here in Canada and the rest of the world joined. Now as they have more competitors, first in the 70s and the 80s with Japan and Germany and then with the rising China in the 90s, the Americans are saying, we want to redo

the terms of that bargain. And I think the world has been struggling ever since to figure out how to do that. Okay. All right, Julie, we're going to move away from the U.S. because I want to talk about some sort of exciting news. Canada is close to concluding a free trade agreement with the ASEAN trade bloc, which is made up of 10 countries in the Indo-Pacific region. Why would that be a significant deal for Canada?

Well, I think I will discuss the business case to do business with ASEAN. So ASEAN is one of the fastest growing economies in the world. Last year was about 4.5 percent and the next year could be over 5 percent. And countries like the Philippines and Vietnam could be between 6% to over 7%. And ASEAN as a block is the fourth largest trading partner for Canada, about $40 billion. And also ASEAN has about 700 million people. So after China and India and China, so ASEAN is about 700 million people. So after China and India and China, ASEAN is the third largest. Lots of potential there.

Yeah, lots of potential. And the workforce is young and educated. So when we look at the Canada-ASEAN future agreement, which we hope can conclude this year. We also have to look at the existing agreement with ASEAN. And that would be the CPTPP, the Comprehensive and Progressive Trans-Pacific Partnership. So from this partnership, we have access to four ASEAN countries.

So we can use what we have right now to access these ASEAN countries. So we can use what we have right now to access these ASEAN markets. In addition to that, for the CPTPP, we also have access to Japan, also to Mexico, and now to the UK, as the UK has just joined this agreement. All right. I want to move around the map a little bit.

Meredith, relations with India broke down over the government's allegations that Indian government agents are tied to the murder of Hardeep Singh Najir in Canada. I'm curious, what is the prospect of a renewed trade talks with India under a new Canadian government of any strength? I think that a changing government could open opportunities for trade negotiations, but negotiations with India have traditionally been difficult. Negotiating agreement is hard for a number of reasons. India is quite protectionist, particularly around agriculture. Another major area of interest for India is what we call temporary entry. And so that is, it's not technically temporary foreign workers, but it's, it is, it brings forward similar issues that temporary foreign workers bring. And so there are other reasons domestically

in Canada that I think we would find it difficult to advance negotiations in a significant way. But there is, whenever there is a change in government, if a previous government has had difficult relations with a country, then any change in government can be helpful to move negotiations forward or kind of start with a new lens. So I think there is some possibility that discussions could advance. But at the same time, I think Canada needs to think about what it would be seeking from India

in trade negotiations and whether we're likely to achieve those objectives. Mark, I'll get you to pick up on that. Yeah, I think I agree with Meredith. I think that the new government does provide an opportunity to restart, to reset. I think the issue that India has with almost all of its trading partners is it's really hard to advance, whether it's negotiating with China or the European Union or the United Kingdom or the United States even.

And they have a fairly discrete set of asks. I mean, they have largely involved the movement of people. And at the scale at which most of their trading partners say, ah, no. And that's usually where it hangs it all up. I mean, now, so I'm not sure how, given the current environment, a new Canadian government would stick handle that.

But, you know, there are, and obviously the other thing is, while India is a large country with lots of people, I mean, it's really looking to sell things to us. I mean, the hard part for Canada is trying to identify a new market that's out there wanting to buy what we make, advanced manufacturers. Now, we don't want to be,

some of us don't want to be the hewers of wood and the drawers of water that we were traditionally to the United States. But unfortunately, most of the other countries in the world we would trade with would like us to be that role to them. They're not really looking to buy high priced electronic goods from Canada

unless they can't get it anywhere else. Meredith, do you want to hop in next? I just wanted to pick up on the Hewers of Wood piece because I've actually written an article called Hewers of Wood Drawers of Water 2.0 that makes the case for what foreign countries want from Canada. So I think Mark is completely right that foreign markets largely want energy,

minerals, natural resources and agriculture. And it's not realistic that we're going to start exporting vehicles outside of North America, for instance. And so we need to be really serious about Canada's comparative advantages and what other countries want from us if we're serious about trade diversification. And so that means things like getting energy to tidewater, approving new mines and making them operational.

And those are the things that other countries are seeking to buy from Canada. So I think we need to be really clear headed about that. I would just add one thing to that to pick up what Julie said earlier, but Azia, and it seems to be, I remember the first time that I was in Cambodia, and I was walking around in the capital city, and there I saw manual life signs of it.

Because the other thing we do provide is services. It may well be that the goods, we won't compete with advanced manufacturing, but some of our financial services sectors and other service sectors do have an opportunity in those newer markets as well. Okay. Before I come to Julia, I do want to talk about China very quickly with you, Mark. Last week, China's ambassador said the country is open to negotiating a free trade agreement

with Canada, but earlier in the month, we know that China tariffed Canadian canola by 100% and pork by 25%. What are the main obstacles preventing a free trade deal with China? I mean, I think the obstacles are Canada has had a strategy since 1970s, maybe a little bit later of sort of riding two horses, right? We were going to sort of open to China, have our services industry go largely to China, and as well as we would sort of build on our historic relationship with the United States.

As American-China trade tensions intensify, it's harder and harder to sort of ring fence what we do with China. And so there are going to be increasing demands on Canada to basically match whatever the Americans are doing, like we did that got China upset most recently was to put the 100 percent tariffs on electric vehicles. And not only did we do that, but we did it using a blunt instrument called section 53

of the customs tariff, which is a replica of section 301 that the Americans use under their laws. We didn't go through the WTO fiction like the Europeans did of bringing in anti-dumping suits or whatever other thing we could have had a fig leaf to. So that's an obstacle and it'll be an increasing obstacle for Canada going forward. We have to decide, we had this free trade agreement with the United States. The next step up, they teach you in school from a free trade agreement, is a customs union.

And I guess the question Canada is going to have to decide is are we at a point now where we have to harmonize most more explicitly with our trading relationships with third parties with the United States and if we do that it'll be very hard to have a separate agreement with China. Alright, Julie I want to come to you. Let's get your takes on sort of the main obstacles from preventing the trade deal with China. I do want to mention that we have learned that Mark Carney has rejected sort of boosting ties with China. He wants to go in favor with European Union at the moment. Let's get your thoughts on that,

but also sort of the obstacles that are preventing China and Canada from working together through trade. Right, so I could talk about this in the context of China-ASEAN relations and also Canada-ASEAN relations. Well, ASEAN countries try to avoid being too economically reliant on China. And that's why they try to diversify their trade, their relationships. And at the same time, Canada also wants to diversify. So I think this is a great opportunity for Canada

and ASEAN to work together. And speaking of ASEAN needs and priorities, I think we need to really understand ASEAN and the members that ASEAN tried to balance the geopolitical tensions between China and the U.S. So, we have to see that that's kind of the difficult situation for ASEAN countries. And when we understand the situation, the needs and priorities, we could have a better plan for doing business with ASEAN and also with China. All right.

I want to stick with you, Julie, because I'm curious, you know, when we talk about business, Meredith had mentioned, you know, we're talking about profits. We're talking about what deals work for either country. But I am curious, should Canada take the values of another nation into account when it comes to deciding whether or not to trade with a country? Why? Why not?

Right. So here, we could discuss values versus interests. We could talk about economic gravity. So definitely values are important, and Canadians are proud of our values. But at the same time, to build relationships, especially in this context that we seek new or improve existing alliances, then we have to see our partners' needs and priorities so that we can build that trust. So I think here trust is very important and I think that ASEAN has a lot of trust in Canada as a peaceful country that would like to work with ASEAN. So in the future, when we do that, when we balance between values and interests, we will

advance our interests at the same time, protect our values as well. All right. Meredith, same question. Values versus interests. Hi. Well, all right, Meredith, same question values versus interest. Obviously, I think values are important at the same time. Many of the countries I think that were that are represent high growth are not countries that we necessarily have a shared set of values with. So while it sounds nice to increase our trade with Europe, and I worked for Stephen Harper when he signed

the Canada-Europe trade agreement. So I obviously believe in increasing our trade relations with Europe. It's been a pretty slow and difficult game so far, frankly. And the Europeans seem to be doing a better job at exporting to Canada than Canadian firms are doing exporting to Europe, if I'm completely honest. So, you know, it's great to say that we want to trade more with Europe and we have shared values, so that's easy. But it's not going particularly well.

So as I think about other countries where we do that are high growth and that represent good opportunities, you know, high consumption countries that represent good opportunities for growth and exports for Canada, sometimes those countries are not always completely aligned with our values. And I think it's an important question for Canadians to think about because as the easy places to trade are sort of checked off our list, we're left with a different list. And countries like Australia have found ways to trade with their neighbors who do not always share their values

in a way that so far Canadians, I think we just haven't been faced with those difficult choices. All right, Mark, I wanna introduce another list of countries. It was a small sliver represented on our doughnut graph there. There are 1.5 billion people in Africa.

And the GDP growth in many countries there are outpacing the growth in the West. Why doesn't Canada trade more with African nations? Well, we have a bigger investment relationship with China through the extractive sector, through our mining companies, and these companies are headquartered in Canada. So there's that part of it. I think part of it too is the diaspora basis.

I mean, the way Canada has pursued sort of advancing trade around the world has been sort of built through the diaspora, it seems to me. And various governments, I think, have found easier to do with in Asia and in Southeast Asia and in South Asia than in Africa. That probably in part has to do with historic relations and the more recent nature of the immigrant population. But I think it's a good question. I mean you know also I think that's a place where Canada does tend to lead with or at least recently in the last 10 years or so, with the values conversation.

And that's going to be a way of turning off a lot of people very quickly. There's got to be a way to integrate values without wagging your finger. And I think we used to be better at that, it seems to me. But if we go in there, if your approach to trade is to sort of start with the values, then there are a lot of other countries that will get in before you.

But there's a way probably in which I think there used to be this idea that when Canadians would show up, Canadian businesses or Canadian aid workers or whatever, that they sort of walk with their values and they teach by walking with their values. And somehow we've gotten to the notion that the way that you express your values is to give people lectures. And I don't think that always works. But I think Africa is a growth market that's tough. You don't have the infrastructure,

transportation, telecommunications, but there again lies the opportunities. But you're also playing against much bigger players in China and increasingly the United States and in Europe that are prepared to spend a lot more money. So it's not going to be as easy as just walking through the door and sort of selling something. It's going to take a lot of work. All right. Julie, I want to pick up on some of the comments about the diaspora here.

But before I do that, I want to clarify, you know, we've talked about some of the big names, China, India, the European Union, but for people who aren't familiar, you've named a few of the nations in the ASEAN, sort of the ten nations here, but give us the full ten. Who are the countries? Right, so ASEAN has ten member states and that would include Prunei, Cambodia, Malaysia, Myanmar, Laos, Indonesia, and the Philippines, Singapore, Thailand, and Vietnam. All right.

She deserves an award for that. That was good. That was good for children's father. Now, we know Canada's population is quite diverse. How could the diaspora help communities and governments initiate the trade with the respective home countries? Right, I think this is a very important point. There are about one and a half million Southeast Asian Canadians. And we can tap into their expertise, their language and skills, and their knowledge of these ASEAN markets, including students.

And here I could also add international students who have a lot of knowledge about these markets. And this is very important because in order to, before we can start doing business, we have to build relationships. And those relationships can be facilitated by having access to knowledge of the region and through language and culture. All right. Meredith, I'm curious, who is more responsible for sort of driving Canada's global trade policy?

Is it the companies, the small, medium, large companies that we're talking about, or is it government? Well, in my experience, it can be both. Companies will definitely come to government and seek help accessing markets. And so typically those tend to be large markets. So companies interested in the United States or it's interested in Europe and comes to government and has an interest there.

But in parallel, you're also going to have governments seeking to open access through either investment agreements or free trade agreements or other commercial types of contracts in order to advance foreign policy objectives. So it can be both, and they're not... Sometimes they go together because it's not uncommon that as we build relations in terms of foreign policy

with another country, we also then seek to tie that with trade, and there's commercial interests there as well. So I can think of examples with both, and a lot of the Trans-Soviet Partnership, really, I think was a shared interest of both business and government to advance that agreement. But then another example that I can think of that was very much foreign policy oriented

was Canada's original agreement with Ukraine under Stephen Harper. And that was largely done for reasons of foreign policy. That was at the time that Russia had invaded the first time and Prime Minister Harper had a very strong desire to demonstrate support for Ukraine and so worked to advance that trade agreement. And a major rationale for that was Iran form policy. So it can be both. Okay. Mark, I'm curious, is there a possibility that we can squeeze more out of the Canadian, European free trade agreement? I think we can, but I think keeping in mind, as I said, the advantage of the United States

is that it was a big market right next door to us. Europe is, they call it a single market, but it's really not a single market. So you're trying to access a lot of little markets that speak different languages. And Europe has been swallowing its Eastern European flank and integrating that into what's the single market. Pretty soon, it will be perhaps integrating Ukraine, a massive country in terms of population with other demands. You start thinking, where would we actually sell to apart from niche areas and services? It's kind of hard to see. There's got to be more that we can do.

But the problem, one of the things with the European Union is they do have a lot of regulations, and they're not going to alter the regulations just for Canada, as we've seen in some of their agricultural products. So notionally, we have achieved some sort of market access. But then I think what some of our producers find out is when they want to sell it back into there,

we're using processes that we use to sell in the North American landscape and we'd have to change our whole production methods to get into Europe. So we haven't figured that part out yet. So there's probably opportunities. It'll never replace the United States. That's sometimes the problem I have with the way we talk about these third options and other options is that we are sitting on

top the best next option to us, which is to figure out how do we look south and figure out the changes that are happening in the United States to make ourselves relevant to the United States again. And the Canadian-American relationship has changed many, many times over a hundred years. But the key thing is we've always at the right moments found our way to make ourselves useful. I guess the question I have is, have we matured enough as a country that we now think we don't have to make ourselves useful?

And if that's the case, we're going to have a problem, I think. But if we can figure out with new leadership, and whatever political party, to sort of say, yes, we understand that the bargain is changing in the United States, I think we're going to, there's, yes, we understand that the bargain is changing in the United States. I think we're gonna just be more bang for the buck pursuing that than there will be pretty much anywhere else in the world. All right, I'm gonna pick up on that

just after I asked Julie this question. But Julie, if the US tariffs imposed on Canada are minimal and don't last very long, what should Canada's next steps regarding the Indo-Pacific trade be in that case, assuming that the ASEAN pact is concluded? Right. I think that regardless of our relations with the U.S., I think there is always a business case for Canadian companies to do business with the Indo-Pacific, which is a vast market there.

And if I could just speak in terms of ASEAN, currently our trade with ASEAN is about $40 billion, but there's a lot more potential for that. And then we, the government of Canada has done the groundwork for that. So we have embassies in all 10 ASEAN countries. We have an agricultural office in the Philippines. We have Export Development Canada offices in Indonesia and Vietnam. And we have an Indo-Pacific trade representative based in Indonesia and Vietnam, and we have an Indo-Pacific trade representative base in Indonesia. So I really think that now is the good time and the best time to invest in these relationships in the Indo-Pacific markets.

All right. We have about less than two minutes. I have one question for all of you. I'm going to start with Julie. I'm going to work my way down. If you were a trade advisor to the new government, whichever party wins, what would be your word of wisdom about Canada's trading future? I would say building trust with reliable trade partners and use our free trade agreements to take advantage and to educate Canadian companies how to take advantage of these trade agreements.

All right, Mark. I think I would counsel pragmatism and as opposed to nationalism I'm gonna say, I think don't back ourselves into a corner, look for every opportunities that are there and just try to be pragmatic about it. Realize the world is changing and see where we can find opportunities.

Some of them might be in our own backyard. All right, Meredith, you get the last word. The United States market is unlikely to ever be replaced. And so we have to find ways to continue to trade The United States market is unlikely to ever be replaced. And so we have to find ways to continue to trade with the Americans. At the same time, I believe strongly that we should always be seeking to diversify trade, even when times are good with the Americans. When times are bad, it's not the time to light off all the alarms and say, you know,

it's time to diversify trade. to light off all the alarms and say, it's time to diversify trade. We need to be doing this even when times are good, if for no other reason that being less dependent on the Americans actually increases our leverage with the Americans. So, and that last point, being less dependent on the Americans means

that we need to find more ways to get our goods to market, not going through the United States. And that will actually increase our leverage with the Americans and that can only be good for us in the long term. All right. We are going to leave it there. Meredith, Mark, Julie, thank you so much for joining us on the program tonight. Really insightful stuff.

Thank you. Thanks. Thank you. It's the opportunity.