The Munk Debates Podcast - Friday Focus Special Episode: Day One of The Canada-U.S. tariff war

Episode Date: February 2, 2025

The following is a special episode of Friday Focus featuring Janice and Rudyard in conversation with The Hub's editor-at-large Sean Speer. They discuss the impact of U.S. tariffs on Canada, the Canadian response to date and what could happen next. To access all of The Hub's latest analysis and insights on Trump's tariff on Canada and our response visit www.thehub.ca. This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue. More information at www.munkdebates.com.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

Rudyard Griffiths here. Welcome to this special podcast. We're doing something unique this morning. The day after a tariff war has kicked off between Canada and the United States. And that's where merging two of my great passions. First, the hub, which is an online digital news startup. And the second is the monk debates. And we're doing this by talking to two people I care a lot about and who I consistently go to for really thoughtful news and analysis. And that's Sean Speer, co-founder and editor Large of the Hub and Janice Gross Stein. My international relations professor at UFT, what is that, three or more decades ago. And my co-host of the Friday Focus podcast for the Monk debates, Janice Gross Stein.

Well, when you had three decades ago, if you had asked me, was there going to be a tariff war between the United States and Canada, I would have looked at you and asked when you were smoking. Marijuana was not legalized then. But it was occasionally being invited, I have to confess. But Janice, I want to start with you because at the Monk School, you spent a lot of time. You spent a lot of your academic career focusing on issues like. conflict resolution, conflict negotiation, and the wild world of international diplomacy. And I wonder if you can begin by level setting for us, how you're feeling this morning coming out of first the Trump announcements, 25% tariffs across the board on Canadian imports, 10% on energies, both oil and other

forms like hydroelectric. And then the Canadian in response, which I think surprised some of us, pretty maximal, 25% in return, a kind of pledge to go dollar for dollar in terms of sanctions within 21 days and tens of billions right up front this week. Janice, where do we stand this morning the 2nd of February at around 9 a.m. We are not in a good place. I think that that's a no-brainer for anyone to say. But look, there were two options that Canada had, frankly, and people disagree strongly on this criteria. I think I'm in the minority, but it's precisely because I look at how conflicts escalate all the time that I pushed all day for take a breath, go out and say how unacceptable

this is, how it violates, in fact, an agreement that this president signed and owned. But wait, you know, say your consulting, do not go one for one. Do not do dollar for dollar. And why is that, frankly? First of all, we really don't understand to this day what he wants here.

It is not clear what he wants. There is an internal debate amongst Canadians about what he wants. But even more important than that, they are 10 times our size. And so without just, this up a one for one strategy we lose over the longer term don't do it don't start that way Sean let me come to you because of the hub we like to kind of focus on political economy that kind

of intersection of politics public policy and economics how are you feeling as we enter kind of day one of this tariff war when it comes to parsing through the potential economic impacts and the economic risks that we are going to run in the days and weeks to come. Yeah, I didn't have Janice as a teacher three decades ago, but I've been reading her thinking and writing for a long time, Roger. I'm 42. So for most of my life, we have had essentially unimpeded trade across the Canada, U.S. border. And it's, of course, been good. In 1988, two-way trade was something like $150 billion a year. Today, it's almost a trillion dollars.

Millions of jobs on both sides of the border depend on it. The integration of our supply chains is so complex that I think even President Trump and his team don't understand how these tariffs will manifest themselves. There's, I think, a pretty high probability that it creates real friction and distortions for American manufacturers as they discover how integrated and reliant they are on these various inputs along the supply chain. But I guess just big picture, Roger, Donald Trump has been on virtually every issue over the course of his public life and now political life. But one that he has been pretty consistent on is his aversion to NAFTA, his aversion to continental free trade.

And as I was walking my four-year-old through the grocery store this morning, the thought that came to me was Ross Perot won last night. That in a way, we relitigated the 1992, 1993 U.S. presidential cycle and Ross Perot won. I interpret last night as the end of the NAFTA for all intents and purposes and the gradual disaggregation of North American supply chains. and that is bigger even than the short-term impacts of these tariffs. We are entering a world that for most of my life I've only been able to read about in history books and we're going to experience across our economy and indeed across the continent. Okay. I think we have the name for today's show, back to the future in trade tariffs and Canada, U.S. relations.

Janice, come in on what Sean just said. Yeah, I just want to. agree with what Sean said, Richard. It is the end of NAFTA because regardless of how long or how quickly this ends, a shock to the suppliers who are deeply embedded in these supply chains. We just elevated the risk enormously. But here's the bigger problem for Canada. We were less integrated at a time when economies generally were less integrated. We've been through the big wave of globalization. And what's shaping the global economy today, regional economies, that's where the powers are, right?

There's a European economy that trades with itself. There's an Asian economy that trades with itself more and more. This is our region. So, Sean, dis-separating out these two economies now and disaggregating the supply chains, that's tough enough. But we're small. and we do not do well in the kind of world you've just described. Sean, talk to us a little bit about what I think is worrying everybody today, which is the economic effects of this.

Literally like Monday when stock markets and currency markets open. We're going to have Trevor Toome, our terrific economist of the Hub, provide some analysis later today's Sunday. We'll get that up on the Hub website, hopefully, triple W, the Hub. CA, but Sean, I mean, how bad can this get? Is this something where we're going to deal with a crisis of confidence beginning now? And I don't know, what do you think of what the prime minister said last night, which was Parliament is not coming back. It was clear when asked if he would end the prerogation that the answer was no, the liberal leadership race will continue. But

he he asserted that he has all the tools the federal government has all the tools to address the effects he did say though quite ominously i thought that these are quote dark times end quote for canada i don't know i think there's a lot of fear and trepidation out there this morning can you kind of i don't i'm not asking you to reassure here but can you provide some some context for how we should be thinking about this. The thing that makes it scary is we can't calibrate what the risk is. Yeah, well said, I should preface by saying I'd welcome your insights here, Rudyard, because on the Friday roundtable, which a lot of listeners here listen to each week,

I rely on your understanding of capital markets and international finance and so on. But what I've done over the past 10 days or so, Rudyard, is consult our network. of business leaders and economists and others to understand how tariffs would come to, what would be the transmission loop through our economy. And I'm afraid I've come away without a solid answer, which is to say for some American companies who are relying on Canadian products, the effect of the tariffs may not be immediate. They may have a surplus supply or whatever, it may only start to manifest over the course of the coming months. But the one thing that is certain, it is going to create paralysis on both sides of the border.

If there was an investment chill hanging over Canada for the past several weeks, that chill is going to get even colder moving forward. And I would just say one other thing. I mentioned this to my wife yesterday as we were talking about this. In Trump's political environment, Roger and Janice, the incentives for American firms with Canadian productions to reshorts the United States was already pretty strong. Just given the kind of small P politics of the moment, you added 25% barrier entry into the U.S. market. I think that's going to tilt a lot of companies to revisit production in Canada, rather, shift it to the U.S., and then I'll just make one final point. given who's president, you're not going to do that quietly.

You're going to do that as loudly as you possibly can in order to gain the political upside of being pro-American and pro-American production and all the rest. And my fear is those incentives create a kind of vicious cycle where companies with Canadian operations look to their competitors and say, well, they're moving, they're moving. We need to be part of this as well. And that's when the bottom can kind of start to fall out

if that makes sense. Yeah. And I think it's, it's even if the terrorists are resolved, and let's hope they are, the doubt has been cast that this has now something that you cannot unlearn and unforget. And companies will be living with this uncertainty now that Trump later in the four-year term or another president in the future could similarly respond. I mean, this changes everything. Yeah.

You know, I was struck by one small thing. And sometimes a small thing captures the moment. He revoked the exemption of $800 for packages that cross the border. There's no value in that, frankly. So why do that to throw sand in the gears of the border and how things move? move across the border. There's a pettiness, right, Sean. There was a pettiness to that, which really stuck with me.

I've seen surveys of Canadian business, I'm sure you have to. 50% of businesses, the leaders, were already thinking, as you said, Sean, about the possibility of either relocating to the United States or opening offices at production plans. That's the big risk here. And Roger, whether these tariffs are quickly resolved or not, this is a different playing field than we had on Friday. It just is. Well, Sean, let's talk about, again, what could happen in the coming days here. Because to try to be optimistic, there seems to be a couple of off-ramps that both sides have at least painted some markers on the road.

They're not taking their cars onto them just yet, but the signposts are there. For the Americans, that signpost is, again, the kabuki theater around fentanyl and around the insecurity of the border. And I just want to try to push through to policymakers if they are listening to this podcast and we know that some do, that the reason he has always been talking about fentanyl and border security is not because these are real problems. They know that. They know what the numbers are. it's because he can only invoke his tariff, his tariff powers as president under a kind of national emergency, Aegeas. So he has to create the causes beli. He has to create the conditions for him alone outside of Congress. So let's just put that aside. But he did seemingly indicate

in around some of the communications on Saturday that if these issues were resolved, X could happen, that the tariffs could come off. And on the Canadian side, our prime minister has decided that we're going to go one for one, but that can be 21 days from now, and that we're going to chunk this with a smaller amount of first. So to try to be optimistic here, Sean, is there the potential for this possibly to resolve sooner or not later on the basis of what I think will be a very dramatic open not just to Canadian markets and currency, but in the United States and a bond market where the U.S. 10-year, which is the all-important global raider of the cost of debt, was already trending up since Trump's election. It, you know, is within striking distance of 5% yield.

And we know, guys, the last few years, when that U.S. tenure hits 5%, something usually breaks in the U.S. economy, whether that's Silicon Valley Bank. whether, you know, it's Carvanna. You name you name. There's a lot of speculative, high finance kind of products out there that are very vulnerable to higher boring costs. So I don't know. I'm trying to be positive here, Sean. I'm just wondering if we might hope for this to resolve sooner rather than later.

Yeah. At a time when Canada feels increasingly isolated, the best ally we may have is our markets. We know that President Trump is personally sensitive to. the ebbs and flows of the American stock market. And I think your instinct is right. It's things are going to be pretty volatile for the next several days. And one hopes that has some effect on him. But as I said at the outset, those market effects are going to buck up against what I think should be understood, as you so aptly put it, as a kind of paradigmatic position. This isn't about short-term negotiations. This is about extracting concessions out of Canada. This is a,

we're up against an ideology, a worldview, a kind of political under economy understanding. As I think David Frum put it this week in an Atlantic article, you only have to go back to Robert Lodheiser's latest book to understand the ideas that animate the administration when it comes to issues of trade and production. And so if I had to bet, who's going to win out? Markets or ideas. I'm afraid to say, I'm inclined to go long on ideas, and that means a lot of pain and disruption in the short and medium term. So, Janice, to come to you with the same question, are we in this for a long haul? Could this spectacularly blow up on Trump? I noticed that the international reaction today, Sunday, is very critical to the Americans. And I just think

about China, two big wins in the space of two weeks. Deepseek, which blew a hole through American AI supremacy. And now China, looking like a comparatively to the United States, a model citizen of international trade, despite its serial abuses of the WTO at the World Trade Organization. I mean, this is just an incredible own goal for the United States in terms of foreign policy, soft power. I don't know, Janice. I'm trying to be hopeful. here that those costs mount. They matter. They have to mean something. What do you think?

You know, they do. And let's just stop over this for one second. Just imagine a world where there are 25% tariffs against Canada and 10% against China by the United States. I mean, that shows you how frankly off this is. And unrelated to any meaningful reality, any of this is. Look, I'm going to agree again with you, Sean, here. This is driven by ideology and ideas. You know, the ideas could be, and it came from the funniest place, actually.

There was a piece by Paul Krogman, and you wouldn't exactly expect this from him. But he said, maybe free trade is not about growth. Maybe, in fact, it's about jobs. And if you measure the effectiveness of free trade by the jobs, it creates and keeps free trade doesn't do all that well. I don't even think it's about jobs for Trump. I think it's about asserting America's regional dominance. It is not by accident.

And I hate to say this, that this started with a conversation around the Panama Canal, skipped over us, 25% tariffs, and then went right on to Greenland. I don't think even if the bond market, if those yields go up, and I would hope they do, frankly, I would hope they do, that that's enough. We did get one win here, which is where so the one win, and this is going to sound off the wall until I finish the sentence, is that there were 10% tariffs on energy. we could have been in the world where there were none, 25% on everything. And then I was really worried that this country would come flying apart. Right? He did us a favor without knowing it.

And if you listen to the prime ministerial, he was very careful. He said, we are not going to do anything unless all the premiers agree, which was a way of bringing Daniels, It's right back into the tent. I've never heard anything so careful, Rudyard, as that. So at the very least, here's the grounds for optimism, Rudyard. We're not facing this next phase divided in the way we might have been.

Sean, I thought the prime minister, the portion of his remarks addressing Americans was very effective. Nobody watched. I know. I know. I know you and I were texting. But it will be clipped. That will be shared. It will go out.

I guess what I'm worried about, Sean, is how Trump reacts to this, that there clearly is personal animus that the president holds for our prime minister. It's not right. It's unfair. It's, let's call it unprofessional in the world of international statements, spacemanship. But the reality is relationships and personal relationships matter. What worries me tomorrow, Sean, is the possibility of Trump being emboldened by what happened with Colombia, just to remind listeners, viewers. Columbia turned away some U.S. planes because they were returning Colombian, what do we call them, illegal immigrants from the United States in shackles in American military aircraft. And that was a little too much for the dignity of the Colombian people and the Colombian president. So he denied these American military planes access to Colombian airspace. Trump exploded, imposed 50% tariffs on Colombia, Colombia then sent its own planes and took these refugees.

I'll use another terminology back to, back to Columbia. So I don't know, Sean, I'm concerned that the politics of this, Trump's maybe being emboldened around his use of tariffs to date could make for a very explosive situation in the coming days. I agree, Rosary. And I would just say that he faces virtually no political constraints. You know, it wasn't that long ago. when Republicans in the Congress would have been reliable allies of Canada and reliable proponents of free trade.

But you think about it now. These are the same people who are confirming Pete Hegseth, who are poised to confirm Robert Kennedy and Cash Patel and others in the service of loyalty to Donald Trump. And so I was thinking about it last night. Who in the Republican Congress could you turn to as an ally to an effect, not just challenge the proposition of tariffs, but to challenge the direct attack on Canada. And I can't think of any. In fact, the only ones I can think of would probably, like Mitch McConnell say,

would probably have the opposite effect on the president. And so in that sense, even the strategy that we pursued in 2016, where we worked with different legislators and different state governments and different business, business leaders to try to advance our case in the U.S. I'm not sure in a Trump second term where he's come off a pretty definitive election win, where he has increasing kind of consolidation of economic and political power around him, that I'm not sure there's a way to get to him, guys.

I really think if we're right, and this is about an ideological project of his and some of the people around him, I think there's essentially no entry point for Canada into that world. Janice, you and I had a little bit of gallows humor last night, joking that, you know, Ottawa was now Kiev to Washington as our Moscow. And it's grim. It's very grim to think about it that way. But does the Ukrainian experience, does your study of international relations, international affairs, does it hold any examples about how to deal with these asymmetrical conflicts? And what's required? Because I think we all honor and celebrate the Ukrainian people's remarkable sense of like national fortitude, self-determination in the face of something that is many magnitudes greater

than what we're contemplating here Sunday morning on the 2nd of February. So, you know, as bad as this is, Like I just hope all of us kind of can have a little bit of a reality check that we've had far worse things in our history from wars to depressions to American invasion in 1812. We've come through that. I don't know, Janice, as we wrap this program up, think bigger thoughts for us about how we situate this and maybe understand this outside of the immediate kind of panic of Sunday and Monday morning. Look, I think there are really important lessons. for how small powers live next to big ones. And it's that that prompted this text exchange that you and I were having last night.

I think there's two. And both are going to matter in the next couple of days because I'm going to go out on a limb and I think Trump may escalate the tariffs. I think that's a real possibility. I don't think we're through yet with this round. And that's largely because we did one for one we needed to do half for one.

And we really wanted to push ourselves, you know, 60% for one. This is a person who- Which, Janice, is what Mexico seems to be doing. They're taking a different course here. They didn't announce anything last night. She's instructed her officials to study this. It sounds like 5-10% sector-specific, a very different approach for Mexico. That's what we should have done.

And look, the Chinese who were hit with 10% have not reacted. So of the three, we're the only one who came out of the gates swinging like this and one for one. So I think he may not be finished as a result when he understands what happened. He's an easily provoked person, that's for sure, and erratic. And I think the big lesson going forward, don't play on a field where you're know you're going to lose. All right. In any one-to-one matchup, they are nine times bigger than we are. Let's just understand that. So do what the Mexicans are doing. Do sectoral stuff. Be targeted. Be resolute, but be targeted. And don't get into the kind of competition that we started last night.

I can't tell. Let me tell you who disagrees with me, Sean and Rudyard, just so you know, Steve Rahul, our and really our most accomplished trade negotiator. He didn't have to do. And he believes that you actually go toe to toe to with Trump because Trump is a bully and he smells weakness. I disagree. I don't think this is about negotiation right now. I don't think it's about the border and I don't think it's about fentanyl.

I think it's about all the things we talked about and the strategy we're using. All right, we did it once. we should not do it again. That was Janice Gross Stein, the founding director of the Monk School of Global Affairs, my co-host on Friday Focus. I'm going to give my wingman at the hub, co-founder and editor at Large Sean Speer, the last word in this fun mashup of the hub and the monk debates. To do this more often, guys.

It's very efficient for me. I don't have to record two podcasts. These are the types of productivity gains that Canada is going to need to get through this crisis. We're pioneering them this morning. But Sean, to end with you, you know, we're going to start talking at the hub as of tomorrow, Monday, about plan B, that as bad as this is right now, it is causing, as we saw last night in a variety of premier's remarks, it is causing our political class to have a wake-up call about what's holding our own economy back.

Because one of our responses to this surely is to figure out how do we stimulate, investment, growth, job creation inside Canada, because as we discussed, and I think it's a key inside of our discussion today, even if these tariffs go away, the uncertainty about investing in Canada, about locating production in Canada is not going away. And this will be a legacy, unfortunately, of this for years to come. So talk to us a bit about Plan B and why you're excited that this could be, this could be a pivot moment for the country. Yeah, I think Janice is precisely right that there's a lot of emotion in the country right now. It's pretty raw.

And that's understandable. But our policymakers have to distance themselves from that emotion and rawness. We need clearheaded thinking now more than ever. And part of that clearheaded thinking, Roger, has to recognize something that Jenna said earlier, which is given the economic asymmetry between our two countries and given the fact that even if these tariffs, come off for some reason. We are not going to be living in a world next to a reliable NAFTA partner. We're going to have to protect ourselves. And I think the big way to do that is to make sure that those business leaders who are making judgments about where to put their production

are looking at Canada as a place that is cost competitive and where they can make a profit. And we need to do that in a context in which the reliable access to the U.S. is no longer guaranteed. And in that sense, we need to kind of overindex on competitiveness. It's not just normal competitors. It is indexing on competitors when the draw to the U.S. is even more powerful than it's normally been. And so in that sense, I think ideas that normally would be perceived as radical need to be on the table and look forward to having that conversation with the hub audience over the coming days and weeks. Yeah, and I'll take a last prerogative as moderate to give the last word,

which is, you know, having studied with Janice Stein International Relations at UFT, one of my big learnings is that, you know, countries that are under stress by large, kind of hegemonic powers are often incredibly dynamic and often experience incredible periods of, like renewal and growth. And I think of, I think of Finland. I think of Singapore. I think of Israel. I think of the extent to which we have lived in this fireproof attic of North America for so many decades now, a proverbial playpen of, you know, global security, commerce. And it's, it's blunted us. It's made us, I can't say this. It's just made us soft, soft in a lot of different ways. this is going to be tough, but it's like going to the gym after you've, you know,

haven't lifted a weight in years. You've got to start somewhere and then you build up. And if you look at these countries that have these strategic cultures because they have to respond to this hegemonic threat, boy, they are exciting, dynamic, unified places. And I don't know. This kind of makes me wowed at this moment as bleeper. leak as it is, there could be something, if we can pull together and do this, there could be something where we look back in 5, 10 or 15 years and we say this was a turning point for Canada in the

21st century. This is the time that we made Canada serious again. And guys, I'm looking forward to doing that with both of you, two of my best friends and two people that just, as with all of our listeners, the hub and the monk debates, you know, fill our lives with, you know, such valuable insight analysis in such a considerate civil and substantive way so thanks guys uh let's get on with our sundays and uh we'll get this podcast out into the world uh to the monk debates and the hub uh hopefully before noon today you're here be resolute as we say ready i ready bye bye that's right bye bye