The Current - Is Canada ready for Trump’s tariffs?

Episode Date: November 7, 2024

U.S. president-elect Donald Trump has promised an America-first approach to trade, with huge tariffs to back it up. What can Ottawa do to protect Canada’s economy?

In 2017, it felt like drugs were everywhere in the news, so I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with Season 3 of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Matt Galloway and this is The Current Podcast. I want to congratulate Donald on a decisive victory last night. I look forward to working with President Trump once again to strengthen North American economic opportunities for the middle class, to grow our economies in ways that make us competitive around the world, to protect North America from the many, many challenges that exist around the world. As Prime Minister Justin Trudeau was speaking yesterday in Ottawa, he said

that his government had been preparing for this moment, but given some of Donald Trump's promises on the campaign trail, there could be some very real challenges for Canada over the next four years. Bruce Heyman served as U.S. Ambassador to Canada under President Barack Obama. Bruce Heyman, good morning. Good morning. During the election campaign, you called the potential return of Donald Trump, these are your words, the greatest threat to the Canada-U.S. relationship. What worries you the most with him as president? So in some ways it's existential because everything he believes and the approach he's taking goes to the theme, make America great again. It's all about America, America first and last. And so all of the various policies that he talks about are in that vein. And so first and foremost is bring manufacturing and jobs back to the U.S. And part of the model that Donald Trump has for that is imposing tariffs on all imported

goods around the world. And he found a lane to do that during his last administration where he did that with steel and aluminum, but he could apply that more broadly. That in and of itself, and that's not the only thing, but that in and of itself could damage the bond that we have with well over 25 years of free trade existing between our two countries. When I say free, we don't trade free. You don't buy something for free, but it's free of tariffs. It's free of tax. And it smooths the ability for us to trade with each other and between each other. Would that necessarily be that much different than, I mean, the idea of America first is not

restricted to Republicans. And during the campaign, there've been several reports warning about protectionist policies coming from both Democrats and Republicans. So is Trump that much worse for the Canada-US relationship than Kamala Harris would have been? That much worse for the Canada-U.S. relationship than Kamala Harris would have been. Extreme. And so your answer to your question is you're right. It is a movement within the United States and they're in both parties of placing America, you know, first in manufacturing and bringing supply chains. And much of the legislation that the Biden team has passed was focused on bringing manufacturing back to the U.S., but it also recognized the importance of our North American supply chains. And so this is much more extreme than that.

And tariffs would be applied universally across the board. You're seeing articles popping up all over the news feeds the last 24 hours about even U.S. companies like Procter & Gamble facing risks of, you know, the things that they produce in Mexico. And it's going to affect a lot of things. I do believe, though, he's going to impose those. From everything I hear, that's going to happen. And that's just the first of many things. Well, I was going to say, what about trade agreements? The tariffs are one thing, but the KUSMA trade agreement is up for review in 2026. In the context of what you're talking about, what should Canadians brace for

when it comes to that agreement? Well, a trade agreement is in effect assuming that we have free trade. And if you put tariffs on everything, in my conversations with large corporations, they'll say, well, everybody's talking about this renegotiation in 2026 or even review. It's not even a renegotiation, but trust me, it will be if it's even in existence. Because if you impose tariffs, then de facto, the trade agreement is non-operable and it doesn't, it isn't working. And so what are you going to do? Take them to court over it and, you know, use the dispute mechanisms in NAFTA or the USMCA or COSMA to go against Donald Trump? or USMCA or CUSMA to go against Donald Trump, well, good luck.

I mean, he'll say bring it on. So the reality is this is so highly dangerous to the Canadian-U.S. relationship because let's just take it away from that completely, the tariff itself. And if you're a company that you're thinking of putting a plant in Mexico, Canada, or the United States, and this is all pending out there, you don't even know how it's going to work out. You don't know how this trade negotiation or review period is going to take place. What would you do if you were to choose? Do I choose Ontario or Michigan for that next plant? to choose. Do I choose Ontario or Michigan for that next plan? And the implications may be if you're at a board of director level or a CEO or chairman level, you say, I don't want to take that risk. Let's just put it in Michigan and we'll, you know, it's not that I don't like you, Canada.

It's just that the president has now said that this is all in jeopardy and I can't afford to do that to the company. Daniel Smith, the premier of Alberta, said during the campaign that there was perhaps some hope that a Republican president might be an opportunity to reopen a conversation around, for example, the Keystone XL pipeline. During the campaign, Donald Trump said that on day one, he would, in his words, drill baby drill. If you are in the resource sector in this country, do you think there are not threats, but opportunities under a Trump administration? So I think throughout all of this, there are going to be amazing opportunities for Canada. And you're going to have to look for your

lane where those opportunities exist and negotiate those out. Where do you think they might be? Well, you know, there are places where the U.S. needs, not wants, Canadian resources and goods. And the places where you need them is your leverage point. If you're trading with somebody or if you're in a negotiation with somebody and somebody wants something you have, it's very different than when they need something you have. And if they need it, you have a much stronger hand in negotiation. And so I think it's up to Canadians and the Canadian government and businesses to sit down and figure out what is the difference between need and want and where do you have your leverage point as a country to negotiate with the Trump administration. Let me just step beyond the economy for a moment.

He has said that he will also deport upwards of 11 million undocumented people. The premier of Quebec, Francois Legault, was asked yesterday if he planned to add more resources to protect the border in that province. Take a listen to this. What I want to do is make sure that Mr. Trudeau, the federal government, take this seriously. And I want to follow up every week about the number of new immigrants we get in Quebec. I want to make sure that he protects the borders, the physical borders, that he protect airports.

And if need is, I will make sure to have some of our people making sure of that. Bruce Amon, is your expectation that in light of that threat to deport 11 million plus undocumented people in the United States, there could be a flood of asylum seekers coming toward the Canada-U.S. border. I wouldn't say expectation is my fear, and I think it's a legitimate fear. And so, you know, we saw what happened when we were talking about sending Haitians back.

And, you know, the premier is absolutely right to be concerned because they came up Roxham Road in much larger numbers than I think most people fully appreciate or realize during the dead of winter. And so I would start actually watching this today, not waiting until when he becomes president, because I think people who are operating out of fear are going to start moving and maybe moving before January 20th. Moving toward the border. Yeah. Or, you know, just moving, moving. And so there's, you know, when you're talking about rounding up 11 to 14 million people and you keep saying that over and over, just imagine any, all of your listeners, if you were one of them, what would you do with your family if you actually had run from a repressive regime in Latin America? And you made your way through jungles and deserts and contras and loss of life and hunger. And you made your way to wherever it is, Milwaukee,

Chicago, Detroit. And you're there now. And the president president elect is saying he's going to round you up. Um, and, uh, I, I would saying that he's looking forward to working with the new administration. The finance minister, deputy prime minister says that we'll be fine when she's talking about Canada. What do you say to them? First of all, that's the right language I would use. I think everything they said was completely appropriate day one into after post-election period. And it's the right thing to say to your people. But behind the scenes, you have to start gaming out everything, gaming out the tariffs, gaming out an untold number of people who may, may be approaching your border, gaming out changes in environmental policy, gaming out a squeeze on you for when you're going to hit your 2% target on defense spending. And they're not going to, as Kelly Craft, former U.S. ambassador to Canada during Trump said just a week or so ago,

said that's not working, the numbers you have put forward. So, you know, I think you've got to game everything out. The real issue for Canada this time is that he's been preparing for this for four years. And my guess is it's all going to happen in the first hundred days. And so it's not just one thing. It's like a swarm of bills and policies that are going to get enacted. And Canada, as well as those of us in the United States, are going to be facing fairly dramatic changes very quickly. Bruce Heyman, good to speak with you as always. Thank you very much. It's a pleasure, Matt.

Bruce Heyman served as U.S. Ambassador to Canada under President Barack Obama. Flavio Volpe is president of the Automotive Parts Manufacturers Association. He is with me in studio and has been listening in. Good morning to you. Thanks for having me. Donald Trump said, and the language is a bit salty here,

we've been screwed by Mexico and China and by Canada and by the European Union. When a president-elect uses language like that, what goes through your mind? Well, we've heard this before. It's 2024, not 2016. In 2016, we said, oh boy. 2024, we said, okay, look, what do we do in those four years when he was president?

It's his negotiating technique, and we just have to be prepared for it. And so he's promised to bring in tariffs starting at about 10%. You've called those tariffs, if they were to be imposed, catastrophic. Yeah. Why did you use that word? Well, what he's really talking about is, first of all, I'm not sure he understands that the consumer pays the tariff.

So catastrophic for inflation and prices in the United States. If we send something for sale there, tariff gets added on to that price. But ultimately, if that consumer decides that they don't want to buy, in our case, the companies that I represent, vehicles, it's really going to affect the volumes here. 80% of the cars we make in Canada,

which is up to 2 million cars a year, get sold to an American consumer. So we can't have that. You can't have that, but he says he's going to impose it. Do you have any sway in this, do you? We've been here before. So he said the exact same thing in 2016, 17, 18, when we were renegotiating the NAFTA.

What happened on some of the stuff that we make and that we used to make in cars, steel and aluminum, he put a tariff. He decided to take a national security legislation, regulation, and put on those two items. On cars and parts, what people don't remember is that in the new Kuzma, there's a side letter that says, okay, look, notwithstanding that I want to put tariffs on there, I'm going to agree that

they won't apply until, unless we sell 2.6 million cars in Canada, in the US. What it is, is Donald Trump uses a lot of strong early language in negotiation. And then when ultimately, when you sit down with the people who are actually negotiating people that work for him, um, they understand that, uh, that, uh,

there's so much American investment on this side of the board. Half of the cars we make are with American cars. Half of the parts are American. Half of the raw materials are American. Ultimately the argument of you're going to hurt yourself while we both take on China is

not a good move. That strong language has also been applied to the electric vehicle industry. He has promised to scrap mandated sales targets for electric vehicles, said that he would look to dismantle parts of the Inflation Reduction Act, which have poured money into electrification. Canada has been shoveling money out the door toward the EV sector. Is that still a wise investment? The Canadian contracts were meant to mirror

the American commitment. And in those Canadian contracts, the clause is that if the Americans won't pay you the production subsidy, if the IRA goes away, so do the Canadian obligations. The company signed on to that knowingly and willingly. And I think we're past a tipping point on electric vehicles. We are around 10% in this market.

We're going to get to, regardless, around 35% by 2035. He wants to scrap the mandates, which are the obligations for the automakers to make that 100% by 2035 or they can't sell cars. He's also talking about drill, baby, drill and unleashing, in his words, the power of oil and gas. Well, imagine what that sounds like in Western Canada, that for the last eight, nine years has felt outside of the equation within this North American project. So it's not all bad news for all Canadians.

You were leading the Automotive Parts Manufacturers Association the last time he was president. How well do you think that we were, this country, enabled to defend our interests back then? Did we actually, I mean, it's a lot of talk, but were we actually able to stand up to what he was proposing? It was a little easier than it sounded like

when you read about it. We sat across from his team and we had in automotive more or less the same principles and objectives. So it was easier to turn around and say, hey, by the way, don't give us what we want. Take what you want, but it works for us. What he wanted was higher local content in the

cars that are made here. More products from the US, more products from Canada. Worked for us. You know, sometimes you have to ignore the rhetoric and then turn around and really understand what he wants as his principle. I just wonder, I mean, Bruce Heyman was just on

saying, don't ignore the rhetoric. That a lot is going to come in the first 100 days. You need to buckle up. Is your seatbelt done up? Yeah, I think Bruce has got a wider societal look at this and certainly not a lot of what he said was uplifting, but to the point.

You know, you're talking to me because we're going to be negotiating terms for Canadian Automotive. I'm not as concerned on that pillar. We are very well aligned. We help the Americans compete with the Chinese, and they know that. Do they know that?

Just last point, do they know that? They do. When you say America first, do they know that? Robert Lighthizer was the chief trade negotiator for Trump, and he's been his chief advisor through all of this. He's likely to be back, either in that position or Secretary of the economy. He knows that, and he's a major trade hawk and

he doesn't particularly like us, but he knows that. And sometimes it's not about making friends. It's a understanding that I can help you with your enemy and we're in a good spot. Flavia, thank you. Thank you. Flavia Volpe is president of the Automotive

Parts Manufacturers Association. In 2017, it felt like drugs were everywhere in the news. So I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with season three of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. Carlo Dade is director of the Trade and Trade Infrastructure Center at the Canada West Foundation in Calgary. Carlo, good morning to you. Early good morning to you too, Matt. How do you, if you can, distinguish between rhetoric and bluster when it comes to what Donald Trump says? Well, this time around, as opposed to the first time, we have an administration coming in that's been preparing. Last time, folks were surprised to find themselves in cabinet. This time, those folks have been in the tweet, the initiatives in the tweet back to

these MAGA affiliated think tanks and former administration officials. You mentioned Project 2025. That's one document. There are others. American Compass has put out the global tariff proposal. So you can trace things back. Things that you can't trace back, well, you can probably dismiss those and spend more of your time looking at things that actually have people

and paper attached to Donald Trump. You have argued that the old Canadian message about our trade relationship isn't working anymore. This idea that we will boast about being the largest trading partner with the United States. You say that we will boast about being the largest trading partner with the United States. You say that we need a new language to speak to America. What does that language look like? And what's wrong with the language that we've been using up until this point? So the economic populist framework that persists throughout the range of views within the MAGA policy community has one thing in common, and that's a belief that trade deficits are the cause of the hollowing out of the American middle class,

the cause of the Rust Belt, the cause of American decline. Trade was, and I'm channeling the MAGA folks, this is not our position, but trade is responsible for job loss and decline in the U.S. If you walk in to a room where that's the dominant conversation and say, hi, we're your largest trade partner, you're walking into trouble. Instead, take the case of oil and gas. When we export oil and gas to the U.S., we don't export goods. We export jobs to the U.S. Canadian gas has 7,000 people employed in the U.S. Canadian gas allows U.S. workers in the U.S. to process to send abroad. So because we refuse to process oil and gas in Canada, we've been shipping jobs to the States. So if the US goes drill, baby, drill,

we really need to make a stronger case for Canadian oil and gas. We need to tie it to US jobs, which is the one persistent theme throughout the range of views on trade in the MAGA universe. Couldn't that have blowback here in Canada? I mean, this idea of shipping jobs from this country down south of the border? We've been doing it for ages. Same thing with forestry. Forestry policies in British Columbia, coupled with the American tariffs, have resulted in massive investments by Canadian companies south of the border. So it'll be the admission of something that in effect has been policy or the result of policy in Canada. We also make ourselves uncompetitive with regulation, lack of productivity, and that ships jobs abroad. So I know it's a good question, but it's kind of

what we've been doing, isn't it? I want to go back to that idea of the relationship, a special relationship, a trading relationship between these two countries. 70% of our experts head south of the border. And so if that's the number that exists right now, are we over-dependent on the United States? Do we need to rethink not just the language, but that concept of the United States being our largest trading partner?

That was the awakening that we had in August of 1971 when President Nixon imposed a 10% surcharge on all imports into the U.S. And again, that's different than what's being proposed now. What's being proposed now is not a 10% tariff. It's something completely different. But anyway, 1971, it happened and we've been struggling to diversify ever since. And the percentage has gone down a little bit since then, but not significantly. What's different about, I mean, it is a 10% tariff, is it not? I mean, isn't that what Donald Trump is proposing? No, absolutely not. It is a charge that starts at 10% that rises 5% every year the U.S. runs a trade deficit, but could fall 5% if the U.S. runs a global trade surplus.

So not just the Canada-U.S., but the global relationship. It's the weaponization of uncertainty. You can figure out whether or not you can survive a 10% tariff, but you can't figure out if you can survive a tariff that could rise or could drop. The goal is to force jobs and production back to the US., not to grant protection for a particular product or to force a change in behavior. This is something we haven't seen before. And this is why I think Ambassador Heyman was saying this is so potentially dangerous. We've seen terrorists. We've survived terrorists. This weaponization of uncertainty is sort of a nuclear option in trade. And so what do we do finally in the face of the nuclear option?

I mean, is there an argument for taking this challenge from the Make America Great Again, America First folks as a, you know, kick in the pants to reshore our own industries, Canada First, if I can put it that way? Or if that's not the answer, then what do we do? So this is what we have to figure out. And this is the mad scramble in the policy community. Our past formulations and frameworks have been dealt with dealing with things like tariffs or non-tariff barriers. But arguments like we export jobs is one potential area.

Trying to forge stronger alliances with trade partners. So not just diversify, but things like the Trans-Pacific Partnership Agreement, where we come together with like-minded countries to establish rules that allow us to trade more with each other and offer a common buffer and negotiating position with the U.S. These are all rough ideas. We've got to do some real hard thinking because the game hasn't just changed. I mean, we're playing something completely different here than we've seen in the past. And I mean, just to switch metaphors very briefly, I mean, the ambassador suggests the road ahead is

going to be very rough. Is that your sense? There is a potential, a clear potential. But again, there's a range of policy proposals within the MAGA community. You have semi-free traders like Vivek Bwamaswamy, but then you have the hardcore economic nationalists like J.D. Vance. Depending on who wins that fight within the MAGA community, we'll know exactly what we're up against. Carlo, good to talk to you. I think we'll talk again. Thank you very much. My pleasure, Matt. Carlo Dade is Director of the Trade and Trade Infrastructure Centre at the Canada West Foundation in Calgary.