The Trade Battle Unfolds – Insights from Former Deputy Prime Minister John Manley
On February 1st, President Donald Trump signed an executive order titled “Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border.” The order calls for a 25% tariff on virtually all Canadian goods imported into the United States and a 10% tariff on Canadian energy products, starting February 4th. In response, Prime Minister Justin Trudeau imposed 25% tariffs on C$155 billion worth of American goods coming into Canada, with C$30 billion starting February 4th and the remaining 21 days later.
On February 3rd, after this podcast was recorded, President Trump and Prime Minister Trudeau agreed to pause the tariffs for at least 30 days.
To help us understand the escalating trade war, we welcome the Honourable John Manley to the podcast. For over a decade, John served in the Federal Government as Canada’s Deputy Prime Minister, Minister of Finance, Minister of Foreign Affairs, and Minister of Industry. He is currently the Chairman of Jefferies Securities Inc., a member of the Board of Directors of TELUS, and a Senior Advisor at Bennett Jones.
Here are some of the questions Jackie and Peter asked the Honourable John Manley: What are your thoughts on the abrupt turn in US – Canada relations? What else should Canada be doing at this point? What are Canada’s energy vulnerabilities in this dispute? Does Canada have emergency measures it can use? Should Canada boost spending to support businesses and people, and does the prorogation of parliament limit these options?
Content referenced in this podcast:
- John Manley’s Op-ed in the Globe and Mail, “Dear Donald Trump: Your plan to create ‘the United States of Canada’ is brilliant” (January 15, 2025)
- The Main Project 25 Document Published in April 2023
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Episode 270 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. So Jackie, sort of an uneventful weekend, huh?
Jackie Forrest:
Well, I couldn’t stop watching the news. I went from confused to just angry. Then I started to look at my orange juice and be like, “This might be the last glass of orange juice I ever drink, so I’m going to have to enjoy it.”
But as all our listeners know, late Saturday afternoon, President Donald Trump signed this executive order and it’s got quite a title, Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border, calling for a 25% tariff on everything but energy, which is 10%. And then we heard from Justin Trudeau later in the evening, we hit back with 25% tariffs on $155 billion worth of exports starting Feb 4th with some coming 21 days later. We don’t exactly know all the items. I found the list of items for the 30, but not everything. Trudeau had admitted that he had not talked to Donald Trump since inauguration. And I think that that wasn’t a good sign. It was a surprise to me.
Peter Tertzakian:
No, it was definitely not a good sign. However, as we record, which is the morning of Monday, February 3rd, he is talking with President Trump again, actually, twice in one day. So we’ll wait to hear what happens. Mexico has just been given a reprieve for, I believe, a month. So we shall see what happens. But really there’s really near term, the midterm, and the long term because whatever happens with the tariffs, the game has changed. The whole relationship, the North American economic circumstance has changed and even cultural circumstance I would argue in terms of how we were all viewed as friends and now all of a sudden there’s a lot of animosity booing at the hockey game and all that kind of thing. So things have changed and we need some big-picture perspective.
So who better to give us big-picture perspective than someone who has been, I say minister of everything in the past, who has been a Deputy Prime Minister and has seen a lot of change. So we are going to have a discussion today with the sage advice and wisdom of the Honourable John Manley who served as Canada’s Deputy Prime Minister, Minister of Foreign Affairs, Minister of Industry Minister, and is currently the chairman of Jeffrey Securities and a member of the board of directors of TELUS. So both the corporate and the governmental experience. Welcome, John. We’re honored to have you.
John Manley:
My pleasure. Thank you for having me.
Jackie Forrest:
Well, John, I know you’re just getting back from some time away and I say you picked a good time to be at a distance, but now you’re coming back to this situation here. Just tell us what are your emotions hearing of the tariff news? And I did want to add one point, too. I’m sure we all saw this, but Sunday morning Donald Trump put out a tweet, which made me think that maybe this isn’t about border security, maybe it’s about becoming the 51st state, because he told the Canadian people they should become part of our cherished 51st state and we’ll get much lower taxes, far better military protection for the people of Canada and no tariffs. So anyway, with all this news, John, how are you feeling?
John Manley:
Well, I think that Peter’s introductory comments are right. This has changed the game totally, changed the assumptions that we’ve made over decades now in terms of how our relationship with the United States works, and I think it’s going to take all of us some time to recalibrate and it’s going to take government some time to figure out what an appropriate strategy is. I’ve always regarded as a bit of an uncomfortable truth that I ran as a candidate for the liberal party in the 1988 free trade election. Those that are old enough will recall that John Turner called it the fight of his life. He said that entering into the free trade agreement with the United States was going to make Canada vulnerable, not just economically, but also politically. And it was a very hard fought, very close election. And I’d have to say that for me was an uncomfortable truth because for 30 plus years, I’d say we’ve benefited enormously from the Canada US Free Trade Agreement. So he may have had his timing wrong, but maybe John Turner was right, and that eventually the US political system would throw up an administration that would do whatever the heck it wanted for whatever impenetrable reasons it might have.
Peter Tertzakian:
This is Jackie and I talked about on our last podcast because of the ongoing reiteration of Canada on the 51st state and then the next day Greenland and the next day Panama Canal, Marco Rubio now is still very much on that path if you follow that news flow. But the inconsistency of, “We don’t need you, we don’t need your oil, we don’t need your lumber, we don’t need any of your autos, but why don’t you become the 51st state?” Well, you don’t want and need anything of ours. Why do you want us to be part of your 51st state? There’s that massive inconsistency. There is a much bigger geopolitical picture here. So what do you think is going on?
John Manley:
Well, first of all, I think having watched Donald Trump through his first presidency, we can expect the bizarre. It’s not always consistent. It’s not the working out of a master plan. It’s sometimes whatever he thought about overnight, he blurts out. So it’s always important for us to try to think this through carefully, not overreact, not panic, but take things a little bit cautiously. There’s a part of me that says, man, this is Lebensraum. This is Hitlerian, this is about territory. I have trouble believing that, first of all, with the complication, you can’t just become the 51st state. We don’t have matching institutions that would just sort of plug in together. We don’t have consistent histories.
And as I wrote in a tongue-in-cheek piece in the Golden Mail a couple of weeks ago, besides we wouldn’t be one state, we’d be at least 10 because we have reasons why we have provinces. Some of their states are so small that almost a third of them would fit into the province of Ontario alone. So this isn’t about population or geography. States exist for, in the United States for historic reasons. Why is there Rhode Island and Connecticut and Delaware? And these are pretty small places when you size them up against New York and California. So we’re 10 states. We’re not one. And by the way, one of those speaks French. Did anyone mention that to the president? The whole thing is absurd.
Peter Tertzakian:
It does seem that way, but there’s a certain camp out there that would argue, no, it’s not all absurd, that this is the way he negotiates and that’s management by bluster and confusion and taking things to the ledge, seeking resolution and gaining ground, such as with Columbia recently.
John Manley:
Well, that’s fair enough, and that might be his motivation. But what I can’t visualize here, Peter, is what’s the end game?
Peter Tertzakian:
The end game I think is articulated somewhat in the Project 2025, which he distanced himself from during the election. But if you actually read that 900 some page document, it’s pretty clear in there the global geopolitical aims of not only China and the response to China and that there is a bigger fortress North America. I mean that terminology is used and there’s that whole playbook that this is a much larger thing and I tend to subscribe to that, that there is a bigger geopolitical play, whereas it may not be 51st state. It’s certainly about creating a fortress North America where there is a large amount of control exerted on Canada from the United States in the pursuit of larger geopolitical aims.
John Manley:
You could argue that that’s been the case all along. We have a highly integrated military. Northern air defense is entirely integrated under NORAD, and we haven’t joined in on every foreign excursion that the Americans have been on, but we certainly played an important role in the war in Afghanistan. We were there from the very beginning. I was part of that. I think that during our time in Kandahar, we were seen as being major contributors. So that wasn’t our battle. We weren’t attacked on 9/11, but we subscribed to it as part of NATO and as part of the United Nations. So I’d say there’s been a lot of that anyway.
We proposed ways in the past the North American economy can be more highly integrated, but integration has not seemed to be the object of the exercise here. It’s been consolidation of economic power in the United States itself. And I think that’s why my belief is it’s time for us to re-look at our assumptions over the last thirty-some years and really develop a different strategy, one that recognizes that we can be collaborative. Another government will come. Four years is a long time, but it’s also a short time and we’ll need to work with whoever comes next. Within two years, I bet that the Democrats are back in control of Congress. So this is not all forever and we need to remember that. We need to remember that many of the historic and traditional relationships we have with Americans and with the people in the United States will continue. However, we’ve got to have a new strategy for ourselves and that includes things that will be very important to those that are producing energy in this country.
Jackie Forrest:
All right, so talking about the strategy, Prime Minister Trudeau right away had these counteractions to impose tariffs. I think about a third of all our exports are being targeted for having counter tariffs on them, but what he didn’t talk about is what else we should be doing at this point. That’s what was missing from his speech for me. I’m concerned that companies that manufacture products here for export may already be making plans to move their operations over the border, and we should be doing a lot of other things to think about what we can do to make ourselves less vulnerable, even though that may take some time. What are some of the things we should be thinking about?
John Manley:
Well, I think one thing that’s low-hanging fruit is that we need a proper methodology to enforce free trade among our Canadian provinces. Our efforts in the past have been very consensual, and I don’t think that’s always going to work. I think we need a federal provincial, inter-provincial trade commission that would be able to enforce freedom of movement, all goods and services across Canadian provincial boundaries and have the power to overrule provincial laws that prevent that. And then moving up the scale, I think that it should be clear, I know it’s clear in Western Canada, it’s often not clear in Eastern Canada just how important the production of oil and gas in particular are to the national economy, to generating the revenues that we need for all the things we do. I like to call it our family business. Sometimes we don’t like to admit what our family business is, but that’s what it boils down to.
And therefore we need to have a real strategy for diversification of markets so that it’s not just the US that we’re relying upon. It’s a pretty empty threat to say that we’d stop shipping to the United States when we’re having to import oil from the United States when a lot of our, I have to fly to Pearson Airport this afternoon. I don’t think the planes would get diesel if it didn’t get to Pearson through the state of Michigan. And there’s litigation of course going on about that. So we’re already highly integrated, but I think we need to stop tying ourselves up in process and recognize that we have to get our resources to overseas markets. There’s a big market for our gas in Europe as the German chancellor made clear to the Prime Minister, I’m not sure I would go to Justin Trudeau to get advice on what’s a good business plan or business case for doing things. And I think there is a business case for getting that gas to the European market, and I think we need a lot of it in the Canadian markets as well.
Peter Tertzakian:
Well, I mean there’s a strong business case, but put business cases aside, I mean within Canada the business case is becoming energy secure cross country, and I just want to expand again, because we talked to Jackie I think for five years on our podcast that we’re the fourth largest producer of oil and gas in the world, but we’re not secure. In other words, as you pointed out, John, the bulk of the oil and gas in Ontario, Quebec, and even New Brunswick comes from the United States. And so it just seems ridiculous that we have not built the cross country pipelines. I mean, we did build with foresight the main line for natural gas, but that’s sitting almost dry and decrepit and rusting away because the decision was made to import from Pennsylvania.
Jackie Forrest:
Well, that gas could be delivered cheaper because our main line was too expensive and we just didn’t deal with that issue and we let the Americans take our market share and today about half of Ontario and Quebec’s gas is getting transited through the US.
Peter Tertzakian:
And paying four bucks.
John Manley:
I go back to John Turner, if you accept the notion that the US will be constant as our closest friend and ally and acting in our mutual best interest, then that makes absolute sense that you bring your guests into Ontario from Pennsylvania. But if you have this niggling doubt that one day somebody will come along and threaten or in fact turn that tap off, well then you’ve got to have a different strategy in mind. And it’s not a cheap one, it’s going to cost us more. But if we really think that we want to be a sovereign country, then we’re going to have to recognize that there are some costs come with that.
Jackie Forrest:
Well, and even Line Nine is a pipeline that runs between Sarnia and Montreal, and it was actually built for energy security reasons to bring overseas crude directly into Ontario, but it wasn’t economic because the crude from the overseas became more expensive than the inland crude. And so we reversed it. And so now we’re completely dependent on the US. So yeah, we’ve had this belief that there was no risk. And I think what you’re saying, John, is we need to think a lot differently about that.
Peter Tertzakian:
Well, and it’s not just energy security. I mean, I’m looking at the price of Henry Hubb Natural Gas, $3.38 cents US. Meanwhile, on many occasions, I mean we were selling our gas for a dollar, $1.50 Canadian into the United States, and then it goes into the United States and somewhere it comes back up into Central Canada and you’re paying far greater price. It is just absurd that we are allowing these distortions to affect everything from royalties and taxes because at a $1.50 or even $2 Canadian, we’re not making very much margin. And if you’re not making margin, you’re not paying as much corporate income tax where we could be, instead of seeing it being taken out of the US side. It’s crazy.
Jackie Forrest:
Well, and even electricity, we’ve always thought of ourselves as big net exporters of electricity to the United States, but that’s changed, too. Actually over the last several years. We’ve been quite balanced. We need them as much as they need us. So electricity is another one where I think we have vulnerabilities, too.
Peter Tertzakian:
Anybody from the outside looking in, whether say the Japanese, the Koreans, the Europeans looking at us and saw this situation, they would reiterate what John said. This is absurd.
John Manley:
Well, and you know what? Donald Trump has done us perhaps an enormous service in making this a stark reality. And quite frankly, if in fact there is a delay and maybe a permanent delay in this terror threat that we’re talking about and have been talking about the last couple of weeks, I think there’s still an imperative for us to move forward with a more defensive strategy that creates the capability of looking after not only our own energy needs, but our own needs in other ways as well.
Peter Tertzakian:
Can we call an emergency? You know the federal parliamentary system.
John Manley:
I mean, it is an emergency if the tariffs go ahead. In my view, I don’t think it’s overstating it to say that this is the greatest crisis that Canada has faced since the end of World War II. Our entire investment thesis, I’ve been, especially in my years as industry minister, also as foreign minister, I went around the world and part of our thesis for attracting to Canada was the Canada-US FDA, and then NAFTA, that we had access, unrestricted access, tariff-free access to the US market. That’s why you would locate in Canada because we had skilled people, we had natural resources, we had capabilities, and we had access to the US market, which is the cornerstone market of the global economy, has been and still is. Well, if that’s changed, what’s our thesis? Come to Canada. We’ve got 40 million people that would love to buy your goods. We’ve got a Buy Canadian plan? That’s going to be tough sell.
Jackie Forrest:
Well, let’s talk about this energy infrastructure question. I mean, there are some low-hanging fruit. We have an LNG export terminal that’s going to start this summer, but there’s a potential to double it, but there’s concerns around its greenhouse gas emissions, and that hasn’t been going forward. We had the potential to expand the Trans Mountain, I think exports. We could revisit energy east projects so that Eastern Canada could have increased oil from Western Canada. And Pierre Paglia on Sunday morning addressed green lighting. He said he would green light LNG exports, oil pipelines, mines. He would kill Bill C69, which has created that very onerous and long review process. And he said it has been insane to block our industries over the past decade. Could we do something to really green light and fast track some of these energy projects in the current circumstances?
John Manley:
I think there are things, those become somewhat legal questions. Some of them are within the power of government, some of them because of the Supreme Court of Canada’s decisions are bound up in the Charter. So that’s not possible to override directly, at least not easily and not without paying a political price. But I do think we have to recognize that we can’t tie ourselves up in process any longer. The world has changed and the luxury that we used to enjoy and think was permanent has gone. So we need a better strategy around that. So to that degree, I agree with him.
I mean, my view on how we manage our commitment to reducing emissions is that we need to manage Canadian usage, Canadian demand, not by capping Canadian supply, especially that’s being exported. So things that we do to improve conservation within Canada that improve the energy efficiency of our transportation, housing building sectors, those are all things that we ought to be doing. Suppressing our supply doesn’t make sense in that context. And it’s something the Norwegians seem to figure out. They’re as green as anybody, and yet they’re building an economy based on exports from North Sea. So it just mystifies me that we don’t realize how important the production of energy resources is to maintaining our quality of life in Canada and think for a moment that suppressing that production is going to somehow improve the global environment.
Peter Tertzakian:
I mean it’s people are not tuned into the magnitude of the royalties and taxes that are being paid by our industry here in Alberta. The oil and gas industry. It’s going to approach $40 billion this year. And so if you think that the deficit just ballooned to 60, we can, ill afford to lose the 40.
John Manley:
We can’t afford it, nor should we be affording it. Let’s admit the reality that we can turn off all carbon emissions in Canada, all of them, and forest fires would still be occurring and temperatures would still be rising because we’re less than 2% of global emissions.
Jackie Forrest:
All right, well it’s good to hear you say that because I do think we have to change our priorities in this country to think about attracting capital. I think we’ve been sort of chasing it away over the last several years. But one more question before we want to get into the Canadian political situation, but do you think Canada should be increasing military spending, not just to appease the American’s concerns about this border issue, but in this new reality that we find ourselves, we really don’t have much to protect ourselves?
John Manley:
Listen, we faced a fiscal crisis in the nineties, and another uncomfortable truth is that one of the ways that we eliminated deficits and brought Canada into a position to run more than 10 years of consecutive balanced budgets was that we took the peace dividend. The fall of the Berlin Wall, the ability to shelter behind the loss of the risk of a global conflict. We cut defense spending. Most countries did, including the United States for that matter, although they still spend massively. So yeah, I mean we haven’t been living up to our NATO commitments. We have a claim to sovereignty in the north. My belief is that even if we just met our own needs for Arctic sovereignty, we would probably meet the 2% target. So it seems to me that it’s important that we understand that this is part of the cost of being a sovereign country.
You control your borders and you defend yourself. That’s always been the case. Now on the border, I mean there’s another element to this, Jackie. Would the United States invade us? Look, if they did, I’m sorry. We’re not going to be able to defend ourselves against them. I mean, I’m ready to join the militia, because they probably won’t let me into the regular forces to do my part as part of the insurgency, but we’re never going to have a military that can stop an American invasion if that’s what they choose to do. It’ll be quite a dramatic geopolitical event. But we’ve seen it play out over the last three years at the border of Russia and Ukraine. So yeah, it’s possible and I don’t think we can defend ourselves against that, but the fact that the US immigration system has been weaponized against immigrants in the United States who may not be fully documented could lead to a big surge of illegal crossings into Canada.
So I think our job at the border is not so much keeping people out of the United States. That’s their problem. Our job at the border and we’ll require military, police and other facilities in order to make sure this happens is to keep people coming in to Canada from the United States because there are millions of people in that country that feel threatened with deportation and they may not like the cold. It’s snowing here today in Ottawa, but they like it better than the squalid conditions that they escaped from in Honduras or Guatemala or Mexico or Venezuela. And they might just think Canada’s a good choice for them. And we know from our experience over the last couple of years that while Canada can and should do its share in accommodating the needs of the global refugee class, we can’t take everybody. We don’t have housing and medical care for them. We need to do our part, but there is a limit to a country, what a country our size can do.
Peter Tertzakian:
Yeah, well actually I tend to think our military spending and importance declined following the cancellation of the Avro Arrow, which goes back to 1959-ish. Certainly I think we need to address it much as you say, John, it’s important and to be proud of the military as well. But let’s switch to Canadian politics because all of this is happening at a time when we’ve got potential elections. We’ve got election of a new liberal leader coming up. We’ve got a federal election presumably sometime this year. We can debate when it’s going to be. We’ve got election in Ontario now. I mean, it just seems like it’s a very difficult time. Can you comment on the challenges of, I’m not going to say leaderless, but it just seems uncertain in terms of our leadership in this country because of the situation we find ourselves in?
John Manley:
I think that’s right, and I think those of us that followed the events over the last week were thinking Mr. Trudeau may be doing the right thing, but he’s clearly a lame duck and great he’s going to talk to the president, but President Trump knows that he’s talking to somebody who didn’t even have the support of his own elected members of caucus. So he’s in a very weakened position and this would be a much better time to have a Prime Minister that has some electoral mandate behind him and is going to be around to deal with the issues for a longer period of time. I was calling for an election last December. I thought that once we knew that Donald Trump was coming into office and that as of January 20th we’d be facing Hurricane Donald, I thought we should get our decks cleared.
And if Mr. Trudeau thought he could still win, then he should call an election and put it to the test. And if he thought he couldn’t, then he should get out of the way. So he kind of ran the clock as long as he could. I’m pretty sure that if Christie Freeland had not pulled the plug on him, that he would be thinking that he would go into this election as leader with pretty catastrophic results for the liberal party. So now we are where we are. The liberal party has done a good job of accelerating process, still going to take until March 9th, unless all of the candidates save one with not an impossible scenario depending on how the momentum is going. I’m not close enough to know what the numbers look like inside, but it has happened in the transition from Stefan Dion to Michael Ignatieff that it was done very quickly.
Not that that was a good outcome for the liberal party, but it did happen very quickly. Can happen quicker than is currently on offer. In any event, it’ll be done by March 9th. And then I would predict that we’ll be into an election very quickly. I’m not sure that the new leader is going to want to try to face Parliament and have a government defeated. So roughly by the 1st of May we’ll have a new government.
Jackie Forrest:
That still feels like a long time considering the situation here. But I’m glad that there may be a way to fast track this because I think I’ll speak for myself. I can’t speak for all Canadians, but I think a lot of people feel like we just need to accelerate this considering the situation. Now, when Justin Trudeau talked to the press on Saturday night, he was asked about this proroguing of Parliament and if that’s hurting us right now, and he said, no, he can do everything he needs to do under this proroguing. We need some types of spending potentially to help the economy if we do get tariffs, like I was saying, those manufacturing businesses, we want to support them right now so that they don’t just all take up and leave. And there’ll probably be some spending for workers who lose their jobs. Can you do that without having the Parliament back in place? What are the limitations of what he can do under the current circumstances?
John Manley:
I think the supply bills were all passed in December before Parliament prorogued, so that I think he’s got the spending for a period of time and when Parliament is dissolved, spending can be accommodated by warrants that are issued by the governor general. So you can’t do this for very long, but you can get through a period like this. So I don’t think that’s a problem. I think in fact, he’s right in saying that he has all the powers that he really needs. What he doesn’t have is a political mandate, and therefore, as I said earlier, that puts him in a very weakened position dealing with the President of the United States, who rightly, I mean he only got close to 52% of the vote, a lot of Americans did not choose to have Donald Trump as president, but he won the Senate, he won the House of Representatives. He feels empowered and he feels that Justin Trudeau is a very weak representative of a weak country that’s frankly a little bit of an annoyance to him.
Peter Tertzakian:
Yeah. So when do you think we’re having an election?
John Manley:
I’d say unless the liberal race is accelerated by candidates withdrawing, save one, I’d say it’s probably May.
Jackie Forrest:
All right, I want to come back to this idea of spending as the former finance minister. I think you missed that in the intro.
Peter Tertzakian:
I did. Said Minister of Everything.
Jackie Forrest:
The fiscal situation is not looking good, and I know we’re going to get some income potentially from these tariffs. I calculated $155 billion, 25% of that, that’s maybe about $38 billion of new income. Some people are saying we need COVID-like spending and well, we all learned that that was maybe not the best thing. We maybe overspent and caused inflation. And at the same time we have things like the Canadian dollar falling and I think getting into even greater debt may even hurt the Canadian dollar more. So this question of spending to offset the impact of the tariffs, how do you look at that?
John Manley:
Well, first of all, I’d say don’t count all that money coming in. One of the impacts of tariffs is people choose not to import or the exporter eats the tariff, which is what’s going to be demanded of Canadian exporters, which is a big worry that I have. Well, we’re still going to buy your goods, but no, you’ll have to reduce your price accordingly. I think Linda Hasenfratz from Linamar was quoted on the weekend talking about that saying that they can’t absorb the tariff and their customers can’t absorb the tariff. So she was predicting that the auto manufacturing supply chains would be shut down within days of these tariffs being implemented because there’s such a high degree of integration. So I’m not sure anybody’s going to get all this tariff money. The impact is going to be a slowdown in trade itself, and that’ll be a slowdown in especially the Canadian economy because it is such an unequal relationship.
So first of all, there’s not going to be a lot of money coming into governments on either side of the border on tariffs. Secondly, I’d say the big worry is not a decline in the dollar. That’ll be a problem for anyone that has their debt in US dollars. For the government of Canada, they don’t borrow in US dollars, and for many companies it means that they will absorb some of this additional cost just in the currency exchange rate because their domestic Canadian costs will be somewhat suppressed, especially to the extent that it’s labor, the extent that it’s imported supply chain goods or services, then it will be made worse. But generally speaking, you’d say as rule of thumb, lower Canadian dollar helps our exports and we’re going to need to export to other countries. So that should not be the worry. The more troubling one that you’ve raised, Jackie, is this government didn’t show any restraint at all during the COVID crisis and more income than was lost.
That’s what became inflationary and people didn’t have anything to spend some of that money on. So they built up savings, and you could see it in the reports from the Canadian banks. Savings rates were way up, deposits were way up, and then when we came out of COVID and people started spending, they had pent up demand, they drove prices through the roof. So overdoing it is as much of a problem as not doing enough. So I think that is a risk that will drive up the deficit further. I’m not worried about short-term inflation because I think that the economy is going to be so weak that domestic demand is going to fall. I think there are predictions that full implementation of the Trump tariffs could result in as much as a, well, I don’t know what the number is, a major decline in the Canadian economy. We’d be into recession fairly quickly. Usually you don’t worry about inflation when you go into a recession. You’re more worried about building up demand rather than suppressing it.
However you look at it, we’re in for a very rough time because we are become pretty complacent about our borrowing habits. And we borrowed not for investment, not for improvement of infrastructure, we borrowed for consumption. And that’s risky because you got to find a way to make that in earnings if you’re going to spend it.
Peter Tertzakian:
I want to pick up on this low Canadian dollar bit again, and I want you to put your industry minister hat on from the past and let’s leave autos out of it because it’s so highly integrated into the North American economy. But for other manufacturers that have been dependent upon exporting to the US, what would you be doing now in terms of trying to create trade relationships with other economic blocs or countries. Because surely Europe, Japan, South Korea, et cetera, now look at Canadian goods that are devalued because of our dollar. All of a sudden they look like, “Hey, there could be some cheap goods here.” What would you do as industry minister to try to accelerate the shifting of our supply lines to export to other countries and trade with them that are also potentially going to suffer from tariffs from the United States?
John Manley:
It’s a complicated question, Peter, because it becomes very microeconomic in the planning. In other words, this isn’t something that you can deal with with macro policies like fiscal policy or monetary policy. You almost have to go industry by industry and you have to see what things we are capable of doing, not just making, but services are increasingly an important part of our economy and services integrated with products is also a very important part of it. So you’ve almost got to go industry by industry, company by company to parse what the problems are in order to address what potential solutions there may be.
So I think that on a more macro level, the big thing you’ve got to do is really ramp up incentives to invest in Canada. We’ve got to be looking at how we attract and retain investment. And that means looking at tax rates. It means looking not just at corporate tax rates, but also individual tax rates because we can’t be driving people out of the country when we need them to stay here and invest here. And that will also impact our fiscal situation. We’ve got to now start looking at growth, improvement in productivity, growth of the economy, improvement in the investment climate, improvement in the regulatory environment, improvement in the interprovincial trade barriers, all to build a stronger and more resilient economy given the threats that we’re facing.
Peter Tertzakian:
So John, a lot of what you’re saying is resonating. I believe it’s resonates with our audience. You were Deputy Prime Minister. Pretend that you’re now Prime Minister. What would you do? What immediate things would you do?
John Manley:
First of all, it’s hard to separate that question from the political environment. I think we do need to have an election as soon as possible. We don’t have a government that will be in office very long until an election must be called. So we need to clear the decks, but let’s just suspend reality as your question does and say, let’s say, okay, we’ve got a mandate, we’ve got a government. Number one, you’ve got build in a true partnership with the provinces. No moment should be spared to make sure that with particularly, I have to say with Quebec, Ontario, Alberta and British Columbia, the biggest economies, Saskatchewan’s not to be overlooked either. It’s increasingly important. You need to get everybody, if not onto the same page, at least in the same hymn book so that we can try to have a coherent, cohesive approach.
Peter Tertzakian:
So you mean by the inter-provincial trade is what you’re talking about without any barriers?
John Manley:
And that then leads to what I would call is not a federal trade commission as the Americans have had, but a federal provincial trade commission with the power to enforce the freedom of movement of goods and services across provincial boundaries. And I would name and shame any premier that refused to agree to that because Canadians are tired of this.
Second thing that I would do is I would really address the inhibitions against investing in Canada. We may need to risk revenue to attract investment. So I’d be looking at a range of our taxation approaches to ensure that we are getting the investment that we need. Third thing that I think we ought to do then is develop the strategy around how we diversify our markets. And I would make it as trade-weighted as possible. As we were saying earlier, given the importance of the trade that we have in energy resources, I would say how do we expedite the building of pipelines to get our oil and gas supplies to markets other than the United States so that we can enjoy the benefit of world prices denominated, by the way, in US dollars as part of that.
And then I think that we need to really get serious about why it is that it takes us so long, so long to do anything in this country. Why do we tie ourselves up in processes? There are legitimate objectives that need to be considered in any government approval, but we should be able to build a pipeline in less than 14 years. We should be able to build a nuclear power plant in less than 20 years. We should be able to build a flaming warehouse in less than two years. But those are the kinds of numbers that we’re currently dealing with.
So I didn’t list those in any priority basis. I would say that those are all things that need to be taken on with a sense of real urgency. And by the way, this is where the person who sits in the Prime Minister’s office and needs to be able to give Canadians a sense that there’s somebody in charge here that understands what’s happening, that is motivated to get things done, that won’t let things just drag, and that they can have confidence. And the premiers want that as well. And I think that those are all things we can accomplish. But truthfully, we’ve spent so much time over the last number of years beating ourselves up over things that in the global context don’t matter a whole lot, that we’ve lost sight of what it takes to build a country that Canadians are genuinely proud of and are anxious to see succeed. So I think there’s potential there, Peter, but I’m not putting my name in the hat.
Peter Tertzakian:
Yeah. Well, John, we can see you on the screen here, our audience can’t. But since you’re getting really fired up and passionate as a Canadian, and I think a lot of Canadians are starting to get passionate, and I think that’s the most encouraging thing is that this is a wake-up call. You’ve given us a lot of sage things to think about. It’s really an honor to have you, John Manley, former Deputy Prime Minister of Canada on our program. Jackie, any final words?
Jackie Forrest:
No, I really appreciate it. That was a great platform, by the way, John, if you want to get back into politics, but we certainly need the kick in the butt and we’re getting it. So I hope it really changes the priorities in terms of our leaders and what we talk about in terms of the future of the country. So thank you, John, so much.
Peter Tertzakian:
Thank you.
John Manley:
My pleasure. Thank you.
Jackie Forrest:
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