Trump tariffs could be ‘worse than expected,’ says former Bank of Canada governor | Power & Politics

0:00 Canada has avoided US president Donald Trump's terrce for now with a 30-day reprieve on the imposition of 25% duties the relief comes after Canada agreed to a number of commitments aimed at strengthening border security I think we won the narrative guys over the weekend it was all over the news including on Fox News yeah and we needed to stand strong we needed to come out with $15 billion we we needed to make sure that we were pushing back because president TR Trump also respects strength so Canada says it won the narrative but it's one thing to win the story it's another to win a trade war and our next guest says it won't be an easy path for Canada step poos is a

0:47 former governor of the Bank of Canada and now a special adviser to Osler Law Firm Steph poos good to see you thanks for coming in pleasure to be here thanks you were spelling out a scenario in a speech recently where you said the the the trade War if it happens to its full with the us we could see the Canadian dollar drop so much the Americans essentially don't suffer the consequences of tariffs how how does that scenario work in your view yeah that's the conceivable scenario it's not necessarily one we would predict uh usually things get muddy and it's somewhere in between of all those things but for sure the exchange rate that's why we have a flexible exchange rate to help us adapt to Major shocks this would be one and uh you would expect the dollar to go down probably quite significantly and to the extent that it does so what it does is it offsets that

1:34 tariff effect on the price that the American Consumer pays because their buying power stays strong rela it goes up right so the the actual mechanics you know thinking the limit if the Tariff adds 25% onto the price of a Canadian good that they're buying uh the exchange rate could go up 25% and then it makes it the same for them which by the way also means then the Canadian exporter you know continues business as before so that that's of course in the limit I wouldn't expect that big of a move but we need to be thinking about those kinds of scenarios the trick is like that sounds like a free lunch you know all the effects we're talking about disappear but they don't that exchange rate depreciation would reduce the

2:20 income of all Canadians yeah because our purchasing power would go down and boost the purchasing power of all Americans so the gap on you know household income and all of these things just widens even further well that's correct yeah and you know may be part of the thinking that the president has in mind when he say claims that it's the exporting company that pays for the tariffs where do you see the dollar going in this sort of scenario like it's it's below 70 cents now just below like 698 or something what what kind of range would we be talking about there so real realistically we need to be thinking of sort of a double digit uh percentage decline uh so the sort of of the 60-ish Cent range or low 60s would offset a lot of the Tariff uh effect both to

3:07 Americans and to Canadian exporters but as I said spread the pain then to all Canadians and uh in that scenario of course that would boost Canadian prices that's the main mechanism that would be in play and uh given that the economy would already be pretty soft probably wouldn't become an actual inflation problem uh be a little bit like back in 2016 like 2015 uh when the oil prices collapsed in early 2015 Canadian dollar declined by 20% went from like 94 cents down to low 70s that's right so 20% and the exch the interest uh rate had fallen to kind of Cushing the bat of the economy and as a result the Canadian dollar effect uh the uh the inflation rate went up by above 1

3:53 percentage point for about a year or a little longer than a year and then faded back uh back to basine of these variables and all of this volatility speaks to the challenge that that Tiff mum your successor at the bank has laid out that it is so difficult to model the full impact of these tariffs because we've never seen anything like it before uh but you know the the the estimates is that it's pretty much economic carage even if it is offset in some way like a 5% GDP drop you know two to 3% contraction 10% unemployment how do you see it well I say it exactly like that I'm sure you can't do any better than that kind of analysis from my old my old colleagues uh important thing that we got to keep mentioning is that that 5% or so decline in Canadian incomes that's

4:39 forever okay that doesn't just fade away on us a couple of years later even if the tariffs go away oh if the tariffs go away then we get to reverse it all sure Goa unless they're scarring there can be permanent damage you know investment decisions that were made under the first uh during the first Trump term you know never get reversed Canadian companies reduce their investment in Canada and increase their investments in the United States to build natural Hedges against today and uh that of course never gets reversed you know so uh those losses are forever so the I think the the most important thing as the governor has said you all what I've described as a couple of extreme scenarios the real world's going to be somewhere in between plus there will be fiscal actions by our

5:26 governments just to kind of complicate that picture uh and so you have to take all that into account to decide what's appropriate well there's also the possibility that he goes after Europe and he goes after other and then it becomes a global phenomenon not just a continental one and that creates even more uncertainty and cost but you talked about fiscal actions from the government yes going into covid uh the balance sheet was a lot better at the national level because they took on all of this debt to protect the provinces essentially and the economy had a a better spine of strength it seems than sort of the productivity weaknesses that are there now now that's right we were much better equipped as a country to handle CO as tough as that was than it seems we are to handle tariffs right now I would say we were at a better starting point uh just before covid inflation was

6:12 on Target and unemployment was at a 40-year low it's kind of like a healthy person gets Co to shake it off right and the economy shook it off quite well you know by before Christmas that year everything was back on track and so I think uh this time we start from a weaker position and so some of the estimates we're dealing with may actually be underestimates because of that could be worse it could be a little worse uh but uh I think that's you know those are decimal points and the the point is though uh this is this is going to really be a negative and if we if we have other options for finding a way to not uh have that then then of course that's the better way to go so so the push now I mean lower internal trade barriers you know get projects going

6:59 faster right there is an urgency on lingering issues that have never had sort of the urgency to get dealt with before uh but there's still all of this uncertainty because at some point the threat of a tariff functions like a tariff corre and people don't make the investment in Canada or they don't make it at all because of the uncertainty so what can you reasonably do in the time you have as a series of national and subnational governments to to to tariff proof as much as you can and mitigate against what could potentially come well I think the biggest thing you can do I mean the internal trade barriers isn't obvious we've been saying it for years it's been there forever and they don't do it well but if but if but if that's the benefit of a crisis well let's see what we can do with that we could offset the entire effect potentially uh we

7:45 could maybe ask the get the president to back away if we just came into the table with the big bump in military spending that he's always been looking for there are things that we could we could consider doing uh that you know but that would be great if that happened uh but the fact is we can't uh we can't pretend this is isn't happening and as you say just the threat uh will cause investment to be lower and maybe have those decisions like last time head to the United States canans have over a trillion dollars worth of assets on the ground in the United States today that's that's a big investment that's more than the Americans have invested in Canada by far and so that kind of is an hedge and of course companies have learned here it

8:31 is again so maybe we should do even more of that so that means the economy will slow regardless of whether the tariffs go on or not and I think the best solution then is to focus on investment uh if those are headwinds to investment in Canada we need to overcome those headwinds and bring policies that truly incentivize modernization you know digitalization of our companies the brace bracing AI Etc so that we are more resilient the next time around is this tax credits overall tax breaks I mean what are you talking about their incentivizing because the uncertainty they're going to need a sweetener it seems yeah no I think it's incentivizing one of the reasons the US economy is so strong right now it's an investment boom Y and it's from the the IRA tax credits from Biden uh we need something that's

9:17 bigger in effect in order to offset that uncertainty premium that's there and I think of it as you know that kind of like giving people a fishing rod U because it because it performs forever as opposed to giving them a fish today and then another one tomorrow I think if we focus on that with our resources limited as they are that'll pay off better in the longer term and make us more resilient just as a final point on that though um the US has you know done the IRA to great effect right the infl in terms of getting investment but they are running a deficit yes like six seven eight% of GDP is where it gets to like that's that's that's Canada running covid deficits all the time essentially so like how do you compete against that the reserve currency of the biggest

10:03 economy willing to run add a trillion dollars to their debt every hundred days like it's impossible to keep up yes so that's that's clearly unsustainable yeah the only thing that we could say that's positive about that is that that deficit is driving investment in the US economy therefore in effect it's productive long into the future whereas if you have a deficit that's driving consumption does not have that secondary effect so let's at least look at that I think they're going to have to deal with that in some way and they think tariff revenues will help there will have to be tax changes I guess all that uh we're in better shape so we do have the ability I think to step up and focus on that if companies

10:49 are investing well and modernizing that'll be job creation and that that's better than giving away money you know in the sort of consumption stream step poos former Bank of Canada Governor always appreciate the time of the Insight thanks you sir it's my pleasure thanks the Prime Minister thinks president Trump is serious when he says he wants Canada to join the United States Justin Trudeau said that privately to a group of Business Leaders policy experts and politicians in Toronto today it was part of an economic Summit a brainstorm and how to make the economy less reliant on the United States as it as its president threatens a trade War well Goldie Haider was in attendance there he's the president and CEO of the Business Council of Canada and he joins us now uh Goldie uh good to speak with you um a lot going on as you

11:34 just heard um I I wonder if if what Insight or reaction you can share with us on what the Prime Minister said in that meeting and what we have reported about what happened in in the phone conversations with President Trump that they were given the heads up that the president may start threatening treaties and president Trump started dangling a conversation about the 1908 treaty on on the Canada US border and this seems to inform some of their thinking that he's pretty serious about his intentions how do you view that well look David thanks for having me and obviously I was in a meeting that was in a closed door meeting so I won't speak about what specifically took place there suffice to say that I'm a little surprised at all the attention the comments are receiving simply because it's not a secret the president not not talked about this once or twice when you say something 10 15 times just maybe you are serious and so

12:20 we we believe that the country is taking it seriously already and that's part of what I saw in this room today is people who normally might be you know battling on a number of things business labor you know and different different groups have come together the president's comments have effectively galvanized our country and have unified us because what it served to do is to say what's going on here and how can we let that happen as Minister McKinnon said earlier in this we're proud Canadians we're going to defend ourselves we're going to unite and we're going to we're going to move forward how do you do that and what happened in this room today uh is an opportunity governments are going to come and go with all due respect but the people in that room who really represent uh Canadians uh found a way to get past their diff their differences to say we've got to work together as and see this as an opportunity see this as a

13:05 wakeup call uh to strengthen our own country you know the president is not responsible for the interprovincial trade barriers he's not responsible that we've landlocked ourselves to a single customer on so many of our products he's not responsible for how long it takes to get permitting done to get these critical minerals that we all talk about like they're available in the at the corner store these are things that Canada has done to itself and I think we're in a place now where if we're serious about bringing down those interprovincial trade barriers yes I know the field is littered with people who have said they're going to do that we met with minan yesterday and she is working very hard with the premier uh whom I'm told are unified and all it takes David is simply to say we mutually recognize each other's regulations and laws if we can't do that inside Canada then we have no right to be lecturing other countries about protectionism no look I I take your points there but but

13:51 I do want to Circle back like uh you're surprised that these comments are getting so much attention I appreciate president Trump has said these things before or versions of these things before but the fact that a senior Us official felt the need to give the Canadian government a heads up and then president Trump is getting into the granular uh you know uh details of a 1908 treaty between the United Kingdom and the United States U does that alarm you in any way that that he's he's going through the fine print of of how the continent is structured David if we spent our time thinking about what's going on in Washington or how to appeal to an audience of one we're losing this moment is far more important for us to be talking to Canadians to talk about the fact that when you are wanted this badly it must be because you have something that that the United States

14:37 wants in which case I would tell you so does a lot of other countries in the world look what we did when we sent the Germans back the Japanese the Koreans the Greeks on our LNG just today it's being reported that America and Japan are working on a way to get LNG to Japan through via Alaska where Japan would pay for the pipeline we have what the world wants enough of where we've been we need to focus on where we are it was music to my ears to hear a government that was anti-nuclear that was anti-pipeline that was anti- LNG now suddenly talk about all of these things as being critical to our future I couldn't agree with them more so let's seize this moment let's not be distracted let's take it as an opportunity to build Canada to strengthen Canada to come together to work in the best interest of Canadians and to build our prosperity because David if we don't do it now we're going

15:24 to go back to regularly scheduled programming and that's not in our national interest if we don't realize that today I don't know what it would take uh look as someone who's been on the air too much lately I wouldn't mind a bit of regularly scheduled programming but I I take your point on the economy but look I I get the importance of having the conversations you're having in that room today and all the different interests and maybe there is the urgency to knock down some of these trade barriers and and clean up regulatory things to speed things along but you know someone who wasn't in that room today was Doug Ford who called an election to totally totally on on the the intention of dealing with the United States and he said he didn't need to be in a room with a bunch of people he's talked to a thousand times uh when he knows what needs to be done I mean what do you say when the the the leader of Canada's biggest province even though he's in the middle of an election campaign say something about that like that about your efforts today well look

16:11 he's in the middle of a leadership in an election campaign so I won't be commenting on that what I will say is I'm looking forward to go to Washington with 13 Premier uh next week a group of CEOs uh that have businesses in in America that have interests in terms of uh of deepening our relationships because David you know what we can't get away from are the facts and just like Canada has to deal with the facts that it that it has when it comes to getting our natural resources to Market we also have to share with Americans that their Economic Security is deeply intertwined with Canada's why do you think he has the interest in Canada it's our critical minerals it's our oil it's our gas it's our poach it's our nuclear it's our AI capabilities it's our Aerospace there's all kinds of industries that are in Canada where we are Global Champions and one of the things I want to see coming out of this one of the reasons I said

16:57 yes on a late Friday evening to be with you David is to talk to Canadians directly about how we need to look at ourselves and realize that that this is a moment for us to get away from some of the historical uh things about being Canadian ripping down the successful and you know kind of uh spending money we don't have and all those things that have made us the way we are that is not going to get us to where we need to go we need to be ambitious we need to have a growth strategy because clearly we have what everybody wants David so let's not be weak let's come at it from a position of strength but be mature in our response be be strategic and deliberate in our response how we're going to get Canada right how we're going to get North America right and how we're going to leverage our relationships and our trade agreements that we have around the world we have these things before us we just need to

17:43 use them a lot of the reorientation of markets for some of the big things that's going to take time right like you know well beyond the 30-day pause for example on the terrorist so it's an effort that's going to need to be medium to long term for a lot of it but goalie as as as a final point Anita on it going back to the internal trade thing the interprovincial barriers she says a lot of this can be knocked down and flattened within 30 days I I I mean do you buy that because I've been at a lot of Premier conferences where they've talked about this and it doesn't really happen except on the mergin do you think there's enough urgency that you could see real meaningful progress here by March one well it's said that the crisis focuses the mind and it's clearly focused the mind I mean we have Premier eie and Lego and others talking about the importance of you know oil and gas flowing east to west and west to east

18:28 it's it's it's amazing to hear that uh we have a prime minister who's declared how huge fan he is of nuclear you know I mean these are all facts that have simply just caught up to to our time so can we bring those barriers down yes we can in fact we met with Minister Anan yesterday and a group of Chief Executives to talk about you know labor Mobility to talk about you know how it is that these barriers are a tariff on Canadians imposed by Canadians on Canadians it's a tax and if we don't bring them down now when your economy is yes it's it's okay we had 76,000 jobs created this month largely because how well the Americans are doing we want to make sure that we control our own destiny there's so it's supposedly I believe it's been said that there's about 4% of GDP growth trapped in those interprovincial barriers that is a phenomenal if we get half of that people

19:15 will see that to their benefit costs will come down more jobs will be created and we'll have economic growth in our country and that's how you maintain your sovereignty you don't become dependent on others you become independent by growing your economy and playing to your strengths and our part of our strengths is our human resources we have really smart people here David and I think we're going to figure our way through this Goldie Hider always appreciate the time sir thank you for being here late on a Friday good to be with you