The Munk Debates Podcast - Friday Focus: Trump Tariffs – Lebanon Ceasefire

Episode Date: November 29, 2024

Friday Focus provides listeners with a focused, half-hour masterclass on the big issues, events and trends driving the news and current events. The show features Janice Gross Stein, the founding director of the Munk School of Global Affairs and bestselling author, in conversation with Rudyard Griffiths, Chair and moderator of the Munk Debates. The following is a sample of the Munk Debates’ weekly current affairs podcast, Friday Focus. This week’s show take up the Trump tariffs on Canada. What are his motivations for threatening a 25% tariff on Canadian imports into the U.S.? How will American conservative politics and a G.O.P. that  has shifted even further towards a MAGA “America First” agenda likely to impact trade negotiations? What could be some of the economic motivations of a second Trump presidency bent on trillions of tax cuts while U.S. debts and deficits have exploded in recent years? Are Canadian policy makers attune to these new political and economic dynamics or are we at risk of running a stale dated play book on trade and tariffs ill suited to the reality of the moment? In the program’s closing moments Janice and Rudyard take up the ceasefire agreement between Hezbollah and Israel. How has the region been transformed by more than a year of war? Is a ceasefire in Gaza more or less likely in the weeks and months to come? To access full-length editions of the Friday Focus podcast consider becoming a donor to the Munk Debates for as little as $25 annually, or $.50 per episode. Canadian donors receive a charitable tax receipt. 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.

The following is a complimentary excerpt of this week's edition of the Friday Focus podcast by The Monk Debates. To access full-length editions of each and every episode, along with all kinds of great additional benefits and perks, become a donor to the Monk debates. You can do that for as little as $25 a year, and you'll receive each and every year 50 Friday Focus episodes at full length. It's all available right now on our website. in just a few simple clicks. Triple W. The Monk Debates.com. Look for the Friday Focus option in our navigation bar, the top right of the website.

Make your donation, and we will send you each and every Friday a link to listen to the full-length edition of this program. Thanks in advance for your generous contribution. Welcome to the Friday Focus podcast for the 29th of November. I'm Roger Griffiths, the chair of the Monk Debates. I'm joined by Janice Gros Stein, the founding director of the Monk School of Global Affairs. Janice, we, our audience, never get a break. The news flow over the last week, you know, explodes again, tariffs.

We've got to talk about that in the show, but also the ceasefire in Lebanon, quite significant, maybe a turn in that larger conflict. So let's get into that in the back half of the show. But I want to begin by congratulating you, Janice, once again, for your prescience and foresight a number of weeks ago, maybe more than a month ago, when we were talking about the potential for a Trump victory, let's take a little victory lap. We did on this podcast predict that for our listeners. Now, I guess any prediction is worth a coin toss, but I think we had some, a sense of where

things were going. You said at the time that the two countries that were at the biggest risk of a Trump victory were China, which we all expected, but you also said, Canada. What did you see then and why, unfortunately, do you think that that prediction has played out with the announcement this week of the potential for 25% tariffs on all imported goods from Canada into the United States? What did I see? I think both of us focused on the issue set, and that's what got us to a Trump victory, frankly. We looked at what the issues were that were really important to the public, and we saw

one candidate, you know, focusing on those head-on, even though it's a very particular focus that he had the other not so much. What's the issue set for Trump? Three things. Trade and balances, which is a very particular understanding and tariffs. He loves tariffs. Tells you that if you're listening. You don't have to listen very hard.

Border security, all connected to immigration, he talked about nothing else during the campaign, frankly, and drugs. So out of the gate on Monday night. On truth social, he says, 25% tariffs on Mexico and Canada until they do what? reduce illegal immigration across the border and stop fentanyl from getting into the United States. Just for the record, there's just a little bit, a few numbers here that are going to matter. Yes, it's true that people on a watch list have crossed into the United States from Canada 10 times more than two years ago.

That sounds terrible. But what are the order of magnitude numbers? That's the key. We are about 2,900 now rather than 290. Okay, what's coming across the Mexican border? 150,000. So there are just huge differences here. Ventinole, yes.

Yes, it's coming up the Pacific coast from Mexico, coming into the port of Vancouver. there's no question. But, you know, this is detectable and stoppable way before it gets into Vancouver. And it's just a tough, tough problem to crack that the United States been working on for years. Let me try an argument out on you that we're developing over at the hub this week. It's a little contrarian. And look, it might not be right, but I think it needs to be factored into our decision-making.

When Trump was elected present last time in 2016, the U.S. debt stood at around $19 trillion. Today, less than a decade later, it's almost at $36 trillion. It has gone well north of 100% of GDP. That's the ratio of the debt to economic output. And what this suggests to me, Janice, is that we have to understand that how the the smarter people around Trump, and there are some smart people like his Treasury Secretary, Scott Besson, the people that he's put into the Office of Budget and Management and others who understand that the United States is in some fiscal difficulty. They are adding a trillion dollars of debt every hundred days. Yeah, it's astonishing.

In the last 12 months, interest charges on the debt paid by the government of the United States were in excess of a trillion dollars. It's now the second largest line item in the federal budget, short only of social security. That's like their old age programs, and ahead of military spending, their total military budget. And I think what has us concerned over at the hub is that the smarter minds around Trump, who are contemplating a pretty vociferous promise by this president to make his 2017 corporate tax cuts parliament, because they were set to expire next year. And the cost of that one tax pledge alone will be another $4 to $5 trillion over the $4.5,000. over the five to seven or so years to come,

let alone all the other tax pledges he made on not taxing Social Security income for seniors, no tax on tips, no tax on overtime, no tax on car loans. Who knows what's going to get through the Congress? But the point is that this administration has arrived on deck January 20th with something that is not unsurious, a brewing kind of fiscal crisis in the United States. And I'll wrap up here.

What worries me, Janice, is how that potentially connects back to tariffs. To me, it was no coincidence, if I actually thought about it, that Canada and Mexico would factor so high in terms of the percentage of tariffs because the fact is that we vie with Mexico to be America's number two and number three importers

behind only China. So the fact is, and this is my final point, if you need to raise hundreds of billions of dollars to pay for what are unsustainable tax cuts that you're going to enact as soon as you come into office against a fiscal backdrop of U.S. debt well north of 100% of GDP, running at a trillion dollars every 100 days,

having doubled since 2016, tariffs start to become a necessity, not a luxury. And I just wonder if Canadian decision makers, Janice, have factored this into their reasoning, because it seems like what I'm hearing out of Ottawa is a somewhat stale playbook kind of pulled from 2016, 2017. And I just wonder if people are anticipating that this might be a much harder fight this time

because the U.S. might actually be looking at tariffs as something that they have to do, not something that they can use or not use as a bargaining chip or a tool to other ends. In short, tariff are an end in themselves. They are no longer a means to do an end for this administration. Look, Richard, I think that's a very important argument to consider, frankly.

I don't think that's the way Ottawa is thinking about this. And, you know, I have no, you know, I haven't heard that argument made by anybody, frankly, other than you and your colleagues at the hub. But I think it's a very important argument to consider. Two things to take forward from your argument, let's just play this out. How does this evolve? You know, one thing that makes me sit up 25%, that is a high tariff. with downstream economic consequences for the U.S. economy. Leave Canada out of this, right?

If you look at the integrated energy economy, they're exporters of energy, but we have totally integrated energy markets, continental energy markets, the auto sector. We all know, hearts across the border nine times. They're going to be putting tariffs on their own cars, frankly. and not once but repeatedly. So let's just take that forward.

How does that play in the U.S. economy? Cars are going to cost more. Energy is going to cost more because we have a substitution relationship with the United States. This is a president who ran on, I feel your pain of inflation. So yes, this may solve a fiscal problem, but it could create,

massive problems inside the U.S. economy. And those people are going to have to figure it out, right? So in a friendly way, because I know some of our listeners don't like it when I argue with you. But I know you're always up. You're always up to it. So listeners, you've got to know, Janice is fierce here, okay? Again, I think there's a bit of Ottawa kind of inside the beltway about how exposed the United States is.

And just to give listeners a few points of data here, the United States, as a percentage of its GDP, imports only make up about 14% of its entire GDP. In Canada, our exports make up roughly 30% of our GDP. So it's huge asymmetry here. U.S. exports are only 10% of their GDP. This is one of the most, my point is, this is one of the most closed economies in the world in its own way. It produces an incredible amount of its own goods and services. It has a huge internal market. It's why all the world wants access to it.

It has large energy supplies. It has food supplies. It has a whole bunch of things that if you had to pick one country to implement tariffs, it would be the United States. And this is my final point, is Deutsche Bank came out with an interesting study this week that caught my eye. And, you know, this is a respected international global bank. They said that the impact of these tariffs, 25% on Mexico, 25% on Canada, 20-odd percent on China would increase inflation in America by only 1%.

It would move it from the Fed's target of 2.5 to 3.5% for one year in 2025, and then those inflationary effects would subside. So we have to understand in Canada that I'm not so sure there is this this huge kind of negative consequence for the American economy. There certainly will be one. I don't deny that. But I just, again, I wonder if we're just talking up our own book, so to speak, to short of, this is my final point, short of us actually taking punitive measures against the United States and imposing countervailing tariffs.

Yes, Janice, then I agree. We could extract pain by cutting off. all of our energy exports into the U.S. But short of those types of steps, these tariffs on their own are not catastrophic by any stretch of the imagination for this autarkic closed economy that is, you know, America today. Yeah, look, Richard, first of all, great argument. And just for the record here, arguments are the spice of life. So I'm glad you do it.

Let me just say this. What that general argument misses is the vulnerability in sectors, right? So you're right about the United States, but there are sectors of the U.S. economy where either we are so closely integrated and those aggregate figures miss it, or they simply want what we sell to them because they can't substitute. for it. So you know the project that we did. So that's true about uranium. That's true in the car market. It just is there are no cars any longer. Let's put it this way, Braddier. There are no cars made in the United States or Canada. They're just not, we can't think about an auto sector. And the auto sector

is a huge employer of Trump voters. It matters to them. Thirdly, just an interesting data point. the the U.S. auto industry has said that the entire Canadian and Mexican auto manufacturing branch plant system could relocate into the United States in three years. Yeah. That would be the end of the Trump presidency. It would take to the end of the Trump presidency. Think of all the jobs. Think of all the economic opportunity. I'm just saying it's not, you know, it's a big deal.

There are means to ends and ends to means. And I think, you know, this is not only different Trump, this is a different conservatism in America than 2016. This is much more protectionist. It's much more focused on working men. It's much more focused on this idea of restoring an American. Again, I don't endorse this, but restoring an American economy that is based on the production of things and not intangible goods, which favor the bicostal laptop class. You know, versus the, you know, the Rust Belt, hardcore, you know, mega voters at Michigan, Pennsylvania, all those states that were critical to his election victory.

So, again, I don't know how much of this. Let's just play this one up from the administration, but. One minute, Richard, when you and I talked about the U.S. election results, and I think just the best way to make this argument, you know, I spent a lot of time talking about the price of eggs, right? So before COVID, a carton of eggs last time I looked, if I remember correctly, was around $2.5 something like that. What's the cheapest carton of eggs you can find in the supermarket today? Anywhere, $4.5. So a 100% increase in price.

Now, that's what the Trump voters focused on over and over and over. And as you said many times, and with some passion in your voice, and rightly so, inflation gets baked in. Now, price does not come down once inflation rips its way through. And inflation is toughest on Trump voters. It's easy to say there would be a one to one and a half percentage, a rise in inflation, but it would only last for a year. That's not what voters focus on.

They focus on that high price that never goes down. And that's what he ran on. I can just see the picture where you start to get into a tussle with the governor of Fed. Interest rates start to rise. That is all calculated to make voters who voted for Trump absolutely furious, Roger. And I think that's where the other shoe has not really dropped yet among these people. I agree with you. There's a fiscal problem.

But I don't think all the downs, they haven't thought about all the downstream effects yet. Are we thinking about them? Are we thinking about the scenario? You just talked about it? No. No, it's inconceivable that there would not be an integrated auto sector if you talk to Canadian policymakers or integrated energy markets. Thanks for listening to this excerpt of the Friday Focus podcast

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