The Decibel - A carve out in the trade war – is this the first of many?

Episode Date: March 6, 2025

On Wednesday, U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau spoke on the phone for nearly an hour about the trade war between the two countries. A slight reprieve was announced later that afternoon – but not necessarily because of that call. And at the center of all of these negotiations is one U.S. official: Howard Lutnick.Nathan VanderKlippe is an international correspondent for The Globe and has been covering the Trump administration. He explains what happened on that call between the two leaders, which officials are working behind the scenes, and whether there are any ways to de-escalate this trade war.Questions? Comments? Ideas? Email us at [e-mail]

The trade war between the US and Canada is being brokered through a war of words. US President Donald Trump spoke to Congress on Tuesday night. In the speech, he signaled that an end to the tariffs was still far off. But we need Mexico and Canada to do much more than they've done and they have to stop the fentanyl and drugs pouring into the USA. They're gonna stop it. Earlier that same day, Prime Minister Justin Trudeau spoke at a press conference and he had some harsh words for Trump. Now it's not in my habit to agree with the Wall Street Journal.

But Donald, they point out that even though you're a very smart guy, this is a very dumb thing to do. The two leaders talked over a call on Wednesday with Trudeau trying to find a resolution to tariffs that are already having an impact on Canada and threaten to harm both economies if they remain in place. So today we're talking to Nathan Van der Klip. He's an international correspondent for The Globe and has been covering the Trump administration. He'll tell us what happened on that call between the two leaders, which officials are working

behind the scenes, and whether there are any ways to de-escalate this trade war. I'm Monica Ramen-Welms and this is The Decibel from The Globe and Mail. Nathan thanks so much for being back on the show. Thanks for having me. So you and I are talking Wednesday around 430 p.m. Toronto time. It's been another busy day on the tariff file. And it all started today with news of a call between Trump and Trudeau. What happened on that call, Nathan?

Well, we know it was about a 50 minute call. We know they discussed these tariffs that are now been in place. Twenty five percent tariffs on just about everything except for energy resources from Canada, which are 10 percent. And we know that there's been some attempt to try to limit the impact of those tariffs. Actually, Trump in his speech to Congress on Tuesday night indicated that he had spoken with the big three automakers in the United States.

And he said that, you know, they had a beautiful conversation and that, you know, that auto manufacturers are so excited and preparing to build massive automobile plants in the United States, et cetera, et cetera. Spoke to the majors today, all three, the top people, and they're so excited. In fact, already numerous car companies have announced that they will be building massive automobile plants in America. But as it turns out, what they were also doing was that they were seeking an exemption from these 25 percent tariffs because we know that auto parts move back and forth between all three countries, between Mexico, the United States, and Canada,

they can traverse those borders many times. This is all old hat to us all now, but in a 25% tariff world, that starts to be meaningful. And so what we heard today was that the United States had prepared to make an exemption on that. That was clearly one of the elements that came out of this phone call. The other element that seems to come out of this phone call is marching orders a

delegation to Howard Lutnick, the US Commerce Secretary on the US side and to Dominic LeBlanc on the Canadian side to have further discussions on what can be done on tariffs. Yeah and Lutnick as you mentioned is of course the Commerce Secretary in the States. Dominic LeBlanc is our finance minister, amongst other things. So both government officials talking to each other. Let's let's linger on this point of the call and what actually happened on this call for a moment, Nathan.

How did each side, so the Canadians and then the Americans, how did they characterize that call between Trump and Trudeau? Well, we don't have a great sense of what the Canadian response is to this. Unsurprisingly, we've heard more on the US side. Donald Trump went on to true social, and he initially gave an indication that nothing has convinced me that fentanyl flows in the United States has stopped, which of course has been the pretext for these tariffs. He said the call ended in a quote, somewhat friendly manner.

And then Trump took a few shots directly at the Canadian prime minister saying, Mr Trudeau was unable to tell me when the Canadian election is taking place, which made me curious like what's going on here. I then realized he's trying to use this issue to stay in power. Good luck, Justin, which indicates a complete misreading of how things work. I mean, Justin Trudeau has pledged to step down. He can't know the date of the next election because that's not fixed and in a parliamentary system, it can be called at any point in time. So that seems to me to have been a truthful answer on his part. But then Trump actually came back again, and then once again used the language that he's taken to using with Justin Trudeau calling him a governor, obviously trying to diminish him, not using his title as a prime minister and faulting

Prime Minister Trudeau for causing the problems that the United States has on fentanyl and other narcotics, citing what he called weak border policies, which allowed tremendous amounts of fentanyl and illegal aliens to pour into the United States policies, Canadian policies in this case, that Trump is holding responsible for the death of many people. And I think you and I could probably talk for many, many hours about the sort of logical loops that are involved in making that kind of statement and in holding another country responsible for your own domestic narcotics issues. But that's where we are

rhetorically right now. What all of this means, whether all of this is genuine or a pretext for other things, I think is something we are still trying to work out day by day. Okay, yeah. So it sounds like Trump kind of took this opportunity responding on Truth Social to this call to take a few digs at Trudeau reiterating this fentanyl issue, which we've talked a lot about as well, and we will talk about a little bit later too, Nathan. But the big news out of today, as we already touched on, was this pause for car manufacturers. So let's get into this a little bit more

because this is an important sector for both of our economies. But why specifically the auto sector? Like, you know, why not other important sectors like the oil industry? Why did this one in particular get the carve out? Well, what we know is that there was a conversation between CEOs of car manufacturers and Donald Trump.

And presumably they made the case that these tariffs will cause all sorts of problems. And those problems could range from considerable increases in the price of vehicles. We've heard estimates from US analysts that the price of new vehicles sold in the United States could go up by $8,000 for a pickup truck. And more as you go into sort of full-size SUVs and electric vehicles. I mean, you could see something like 10 to $12,000 increases in the price of a single vehicle.

We've heard from the Canadian auto parts manufacturers that they fear that if these tariffs went in place, what you would end up with was a situation like we saw in some of the early days of COVID, where there were parts of auto manufacturing that just shut down. And so presumably they went and they made the case directly to Donald Trump about what the impacts

of this would be. And he agreed to pause the tariffs there again for 30 days. So, I mean, it's one indication of how President Trump works, which we know he likes to speak with people directly. He likes to hear from them directly and can occasionally be persuaded to change course as a result of some of those conversations. What this means for other conversations we don't know. We know that there are very senior members of

Congress, for example, who represent farming states. Will they get Trump's ear and will they then push on that? Who knows? In some ways what we might be seeing here sounds like it might be a reprise of some of what we saw with the initial round of steel and aluminum tariffs many years ago where individual American companies were able to apply and get carve-outs and and there was a long long process of people saying hey you know this doesn't work for us let's see if we can adjust this then you end up with a rule that's strewn with loopholes we'll see but that that appears to be where we are.

You're referring to basically what happened during Trump's first term there. Exactly. Why a 30-day reprieve? What will be different a month from now, Nathan? Won't the pressure of a tariff in April be more or less the same? My sense is that what we're seeing here is an attempt to produce the intended effects of tariffs without their punitive effects on the United States economy. And so if you're an automaker and you are looking at the next four years and you're

looking at the potential of having to fight every single month for another 30 day reprieve. You might not be paying those tariffs, but you might also be thinking very differently about where you place some of your manufacturing and other capacity in the future so that you don't have to worry about any of this. And so that might be the logic that this imminent threat of tariffs,

a threat that was for automakers and everyone else made real this week, could be enough to prompt action, but that in terms of having sort of regular delays, it could also allow them and American consumers to escape the immediate punitive effects. Whether this works, who knows how much, how effective as a motivating factor is a tariff that is repeatedly paused. I mean, if we see it pause three, four, five, six, seven times, is it then still a real threat, real enough to cause real changes in terms of capital allocations? I mean, building new factories isn't cheap, you know, acquiring land and do all

those things and redirecting capital to build stuff that already exists, all of these things are financially punitive. And so we'll have to see where this goes. But when you look at the fact that there is a pause here as opposed to some sort of cancellation, that that would seem to be one of the reasonable ways to understand this. I mean, it sounds like what you're saying here

is that this kind of pause is a way to actually create more uncertainty, really. This unpredictable situation becomes even more unpredictable. And I guess I wonder, how much of an impact does that kind of uncertainty have on people's jobs, also on the economy more broadly? Well, presumably fairly widespread. I mean, one of the things that we have heard from

effectively time immemorial from the business sector is that businesses like stability. They like stability and all sorts of things. I mean, even if you don't like a rule, if you know that's the rule, you can find a way to work around it, work within it, live within it, structure your business around it. You don't know what the rule is going to be. It makes everything very difficult. That said, I imagine the response from the White House would be, well, there's only uncertainty here if you're dealing with trade.

If you do your manufacturing in the United States, there's no uncertainty whatsoever for you. And that is effectively at this point, the trade-off that's being offered. You can continue to do business as usual in a trading environment in an atmosphere of uncertainty, or you can start to bring stuff into the United States, build factories and this sort of thing in the United States and receive more certainty

in terms of what your life is going to be like in those terms. But presumably all of this ends up in greater costs, whether that cost is in tariffs or that cost is in new capital investment costs. We'll be back after this message. So Nathan, a little bit earlier when we were talking, you mentioned how some of these conversations between the US and Canada are happening between Howard Lutnick on the American side, Commerce Secretary, and Dominic LeBlanc on the American side, Commerce Secretary, and Dominic LeBlanc on the Canadian side,

our finance minister there. I want to ask you a bit more about Lutnick, because we've been hearing a lot from him in recent days. Can you tell me a little bit more about the US Commerce Secretary? Yeah, he's from New York. He built his career and his fortune in bond trading. And I think most notably for most people thinking about him,

his company Cantor Fitzgerald was based on some of the upper floors of one of the World Trade Center towers, the North Tower. And when that tower fell on September 11th, he lost 650 employees, including his brother. He in fact was supposed to be there, famously was not there because he was dropping his child off for his kid's first day of kindergarten.

But clearly somebody who is kind of woven in with the fabric of New York City, which of course is also the city that produced Donald Trump. And I think importantly shares a lot of Donald Trump's views in terms of the need for a new kind of more protectionist approach to the economy, to trade and other things. So Letnick has been very close with Donald Trump through this election cycle and into the campaign and into the early days of his return to the presidency.

Letnick was co-chair of Donald Trump's transition team. He's also been placed, in addition to his duties as commerce secretary, has been placed in charge of the US Trade Representative's Office. And that USTR office is a really critical one because they are the ones who do all of the technical work towards laying the foundation for other tariffs. And we have to remember, we're talking right now about this 25%

tariff, which appears to be negotiable. But we are also looking at the potential for a great deal of other forms of tariffs that come April 2, that Donald Trump has talked about reciprocal tariffs, which are meant to be aimed more broadly, I think at more countries. And so there's a lot going on and Howard Lutnick is formally at the heart of that. I think probably embedded in your question is another question, which is who actually speaks for the White House on tariffs. And that's an interesting one. Yeah, this is an interesting point because we've seen Lutnick kind of contradict some things that Trump says, right? So like,

you know, for example, Wednesday, he was talking to Bloomberg television, he's saying that, you know, quote, Mexico and Canada are trying their best when it's coming to this situation. So not 100% of all products and not none. Somewhere in the middle, because I think Mexico and Canada are trying their best. And let's see where we end up. Very different than things that Trump has said, even when we look at his speech on Tuesday night, right?

So how are these messages so different? And who do we believe? I think that's the biggest question and the most important question, because we've seen Donald Trump with a much more bombastic approach, which is to be expected a much more often pejorative and insulting approach, which is kind of the way he does politics and the rhetoric he prefers. Howard Lutnick has sort of presented himself more as a voice of reason. We can get stuff done. which is kind of the way he does politics and the rhetoric he prefers. Howard Lutnick has sort of presented himself more as a voice of reason, we can get stuff done.

But if you listen to him, every time he says something, he couches it in, but it's the president's decision. Because I think he knows that whatever he says, it could potentially be overruled by Donald Trump. But I think what we're seeing is even inside of the people that Donald Trump has chosen for their loyalty to him to be in his cabinet, there are divergent views on what's the best approach here. There are divergent views in Congress as well. I mean, in his first term,

when he at one point thought about scrapping NAFTA and then went to renegotiate it, some of the strongest backing for North American free trade came from within Congress. We had hundreds and hundreds of representatives signing their names to letters and we had dozens of senators signing their names to letters in support of free trade. Some of that has changed, but nonetheless, I mean, there are differences of opinion and there are differences of opinion inside Trump's own inner circle. One of those major differences, I think, is on what the best approach is, whether there needs to be a rules-based response here.

And that's kind of what we might be seeing come April 2 with some of the stuff that's coming out of the US Trade Representative's office, you know, looking at the boundaries of current agreements, looking at international laws and norms and how the US can position itself to create tariffs in those areas, and the lawless, freewheeling imposition of executive power, which is how Donald Trump prefers to govern. And so there are differences in objectives and there are differences in style and approach as well.

That's an interesting distinction to make there Nathan. I want to just mention one other thing that we've heard from Lutnick as well when we're talking about the rhetoric that you know he's using compared to what what Trump is using but Lutnick has been very consistent in saying that the situation we're in is a drug war and not a trade war. Of course in Canada we were seeing this as a trade war. We know the amount of fentanyl that crosses our border into the US is minuscule, right? Even Trudeau has said himself that doesn't seem to be the issue.

So why is Lutnick consistently pushing that distinction that this is a drug war? Well, one reason could be it hews more closely to the formal legal grounds for doing these things than the notion that there is a form of national emergency that prompts the use of these tariffs to protect the national security of the United States. And that is, that's loosely the logic under which these tariffs are being imposed. And so if you, if you stick with that language, it's fentanyl, then you end up with sort of a formal grounds under which to put these tariffs in place. But we'll see. I mean, you know, there's also been a tremendous amount of rhetoric suggesting that these could be temporary. We've heard that even from senior people in Congress,

like Ted Cruz, suggesting he was hopeful that these tariffs would go away soon. But this is, this has been another of the most perplexing questions all the way through, which is to what degree are these tariffs related to a specific policy objective, that being drugs, fentanyl and other things in the United States and immigration, illegal immigration, migration, and to what degree is that a pretext for something else? And to this date, I'm not sure we entirely

have a clear answer. You'll remember when we came right down to the wire 30 some days ago with the first time we thought these tariffs were going to come in place when there was that first reprieve on the day that that was supposed to happen. Before that was supposed to happen, you had a number of very kind of senior White House advisors quickly coming out to speak to cable news outlets saying, hey, listen, let's not be dumb. This isn't a trade war.

This is a drug war. This is about fentanyl. So inside the White House, that appears to be the view that there is an issue here centered on fentanyl and migration, and if those things can be resolved to the satisfaction, perhaps there's some latitude to rethink what tariffs are. Now, the most important question,

the only question really is to what degree is that argument persuasive to Donald Trump? And that's a question that we, I think, may well be still in the process of answering several years from now. Yeah, there doesn't seem to be a clear path forward to this kind of resolution here, right? And it's hard to see this always as a negotiation because it's not like Canada is coming to Lutnik or to the US to ask for policy concessions from them, right? It's it's very one-sided the US asking for Canada to change its border security to do these things But as a negotiation, you'd usually have concessions from both sides. That's not what this is or Even if it's a very one-sided negotiation, you would expect one side to be

Clear ish in terms of what it actually wants to get out of things. I spoke with the head of the Canadian Border Services Agency on Sunday, and she told me, I asked her, well, is it clear, like, what could be offered to the United States in order to get some relief from these tariffs? And she just said, no. And I think that's been the issue is that Canada doesn't really have a sense. I mean, if you actually look at this numerically, I mean, there's vanishing little evidence to suggest that there is a lot of fentanyl flowing from Canada into the United States. I mean, the Customs and Border Patrol in the United States measures seizures based on the border region. And so any seizures that are made within several hundred

kilometers of the Canadian border get registered as Northern border seizures, even if those are seizures of drugs that came into the United States from Mexico. And we have very hard evidence to suggest that a not insignificant portion of what is already a very small number of seizures in that northern border region, a decent number of those we know for certain come from seizures that were made of drugs that had a Mexican origin. And so there's very little evidence that there's fentanyl flowing into the United States from Canada in any significant measure.

And so at that point, how does Canada respond? Nathan, I'm wondering about possible solutions here. On Wednesday, we saw that exemption for the auto sector. Are there other potential off ramps, I guess, when it comes to this trade war? It was interesting to me to see Donald Trump on True Social talking about weak border policies in Canada, blaming those specifically on Justin Trudeau. Does that give Donald Trump the ability to say when Justin Trudeau is no longer Canada's prime minister, that there's an ability to rethink things? Does that mean that there is scope for

Canada to say, Hey, you know what, perhaps we have not been strong enough on certain areas when it comes to our own ports, to our own, maybe even immigration policy? I'm speaking here informed by some of the conversations that I've had with people in the United States who are now in very senior roles in the government who have said that their complaints about Canada when it comes to things like fentanyl extend beyond the physical trade in fentanyl but there are bigger questions about the role that people on Canadian soil have played in terms of money laundering and in terms of being associated with the cash flows and in some cases even sort of the criminal hierarchies in the movement of drugs through North America. And so is he hitting at something like that in his statement when he's talking about weak border policies?

Does that then provide some avenue for further conversations where Canada could do something that satisfies some demands from the United States while also perhaps actually having a win for Canada in terms of improved border policies potentially. But Canada responded the first time we had the creation of a fentanyl czar, additional spending, they're trying to build a new drug identification lab and other things in Canada. And so all of these things have been offered and these are not enormous offers, but they are material offers. So what if anything is enough?

Who knows? I mean, if you're dealing with someone who is constantly moving the yardsticks on you, at some point you have to wonder if they're really dealing in good faith and if they're not then what do you do? I guess that's what I wonder, Nathan, right? Because this could be kind of almost like a never ending list of grievances, right? Where does this actually end? Well, maybe this ends in Donald Trump's mind with Canada becoming the 51st state. He has made suggestions that there would be no issues with tariffs if trade between

Calgary and Kansas City was internal trade as opposed to international trade. And so clearly, this is something that he is thinking about. but that would be one potential outcome. And then presumably in between, there's all sorts of other options, one of which is this long steady process of achieving carve outs. And those carve outs, in the end, getting you closer to where you were with free trade, then perhaps a general 25% tariff. And perhaps that is a more realistic expectation of the way forward. Nathan, always good to talk to you.

Thank you for being here. Thank you for having me. That's it for today. I'm Maynika Ramon-Wilms. Our producers are Madeleine White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Matt Frainer is our managing editor. You can subscribe to The Globe and Mail at globeandmail.com slash subscribe.

Thanks so much for listening.