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Trudeau’s former right-hand man thinks Trump 2.0 ‘will be harder’
When Donald Trump shocked the world by getting himself elected in 2016, Gerald Butts was the principal secretary to Canadian Prime Minister Justin Trudeau. He was also a key member of the Canadian team that managed the tumultuous but ultimately successful negotiation of the USMCA, sitting across the table from Trump, Peter Navarro, Steve Bannon, and Robert Lighthizer. He is now vice chairman and a senior advisor at Eurasia Group, which is the parent company of GZERO Media.
This interview has been edited for length and clarity.
You were in the Office of the Prime Minister the last time Trump was elected. How is this different?
Butts: On the positive side, it’s not as much of a shock. The most salient fact of the first Trump presidency was that it happened. So everybody had to have a plan for it happening again. That’s the upside. The downside is you’re going to be dealing with a much more emboldened Trump who’s got a broader electoral mandate and whose ambitions on the economy are much more comprehensive than they were the first go-round. He campaigned in 2016 basically saying to the Great Lakes blue-collar worker that he was going to bring their jobs back from Mexico, the jobs that the Clintons sold to Mexico. And this time he’s got a much more ambitious agenda. It’s rebalancing global trade and a mass deportation plan that will make labor more expensive in the United States.
If you add those two things together, along with probably increased defense spending on an already large deficit, it’s hard to see how those things don’t cause inflation.
It seems odd that inflation is what eroded Biden’s brand, but Trump’s two key promises are both inflationary.
They don’t see it that way, of course. I think that that’s the conventional economic view. And I do think that what will inevitably be an inflated defense budget beyond the PBO’s 3% estimate is also going to be part of this, part of the inflationary pressure that Trump brings to bear.
As policymakers have learned over the past couple of years, because most of them had never had to deal with it before, inflation is a government killer. It’s the grim reaper for incumbents, and it’s mowed down governments of all political stripes all over the world.
Speaking of which, the Trudeau government generally gets good marks for handling Trump the first time, which you had something to do with. A lot of people are worried that it’s going to be a little harder this time, in part because of the relationship between the president and the prime minister. Do you think that that’s important?
Its importance is overblown. I think you’re right that it will be harder. I think that has more to do with the relative political standing of the government and the time of the mandate. If you’re dealing with Trump at the end of your first year, when you’re in the 40s in the polls, with almost a 50% approval rating, that’s one thing, because those two things add up to political capital that you have to invest.
If you’re dealing with it in year 10, when you don’t enjoy those polling numbers, that means you have less political capital to invest. And by definition, Trump is a problem that requires political capital to solve.
They have a very difficult task ahead of them, don’t they?
They really do. I never like to tell my former colleagues how to do their job, because the truth is, when you don’t have all the information they have, it’s hard to make judicious calls. Only they know how prepared they are to deal with undocumented people showing up at a Canadian border point. I don’t know that. Unless you do, it’s hard to say how you would deal with that issue either in the public or in bilateral negotiations with the Trump administration.
I do think that’s potentially the biggest problem they’re going to have to deal with because I wouldn’t say the cross-partisan consensus on immigration in Canada is gone, but it has been weakened by recent events.
On trade, what’s the best guess on whether Trump is going to exempt Canada from a new tariff policy?
I think if the best predictor of future behavior is past behavior, then he will only grant exemptions in return for something. The question is, what can the government offer that he wants that will get that exemption? And I have no idea.
Cross-border trade is high frequency and very large. We’d feel the impact of tariffs sooner, and they’d cover more of our economy than any country except maybe Mexico.
Traditionally in Canada, all governments are afraid — because of the strength of our dairy lobby — to do much about the supply-managed dairy industry. (Canada’s politically powerful dairy farmers have long exerted political pressure to protect their industry from American imports.) In this situation, do you think that that’s the kind of thing the politicians may have to think about in a new way?
That’s definitely possible. I mean, my view is if you’re going to take that kind of risk, get some bigger economic reward for it. We’ve been simultaneously having this conversation yet again about Canadian productivity. And one of the big problems with Canadian productivity is that our firms and sectors like digital services face no competition. So the companies are big, bloated bureaucracies that deliver some of the most expensive services in the world. I’d be tempted to use the crisis presented by the Trump administration to fix some things about the structure of the Canadian economy that badly need fixing.
On the energy transition, all of these big bets on battery plants in the United States are legislated tax credits that Trump cannot get rid of, but the whole managed auto manufacturing sector is losing an enthusiastic ally for EVs in Biden. What does that do to the enormous subsidies Trudeau and Champagne have put on the table for EV manufacturers?
I think that may be literally a trillion-dollar question. That’s going to be a super-challenging file to manage with Trump. It’s coming at a time where the global industry is electrifying, and that process is being led by the Chinese. The Americans think the proper response to that is to create large tariffs that will keep the Chinese out of the American market because they’re kind of running the 1970s playbook. I think the response from the Chinese is going to be: “We don’t need to be in the American market. China is twice the size of the United States auto market, and we’ll take the rest of the world while you guys double down on inferior technology that the rest of the world is turning away from.”
It’s a very complicated situation. They’re already losing out to Chinese and Korean producers, and this could just accelerate that process.
So I’d be very worried if I were working on this part of industrial policy in North America because the companies have a weaker hand to deal with than the government seems to think they do.
And for Canada, there’s an extra challenge in that the Canadian economy is so integrated with the American economy that it may not be possible to set a different course.
That’s right. It may be that the American automotive market, like the American economy itself, is so large that subnational economies like California and New York — which together are larger than Canada — can keep going the way they’ve been going, and the Canadian industry basically follows them. But I think that’s challenging. It’s super challenging for a small but important producer like Canada, especially on the parts side.
Let’s close with a little optimism. What do you see as an upside of this election for Canada?
I think it’s the persistent structural problems in the Canadian economy that are not going to be solved in the absence of a crisis. Maybe Trump is the crisis that the Canadian economy needs to solve those problems.
The world’s largest plastic waste pyramid is revealed in Egypt ahead of COP27 in Sharm el-Sheikh.
What to expect from COP27: “It’s pretty grim”
Last year’s COP26 summit in Glasgow, Scotland, where central governments and the private sector worked together in unforeseen ways, gave us reason to hope for climate progress. Nearly 200 countries gathered to agree on details of the Paris Agreement with an eye toward limiting global warming to 1.5 degrees C. This year was meant to be all about implementation.
But in the last 12 months, the world’s been rocked by war in Europe, soaring inflation, and deepening political and economic divides between rich and poor countries. As world leaders descend this weekend on the Egyptian resort city of Sharm El-Sheikh for the COP27 climate summit, climate warriors are wondering what can be done at this pivotal moment to save the planet.
We spoke with our very own climate expert, Eurasia Group’s Vice Chairman Gerald Butts, for a reality check on the goals and possibilities for this year’s COP27. The interview has been edited for length and clarity.
Last year's COP26 produced some highly ambitious goals. What kind of progress has been made thus far on those goals?
Not a lot, unfortunately. I think that most governments have been distracted by the economic fallout from the war, and those directly involved in the war have been distracted by that. So I think it's been a suboptimal year, to say the least, in climate progress, with the one notable bright spot of the Inflation Reduction Act in the United States, which is the first serious stab at tackling the US domestic emissions problem that we've seen. So one big bright spot, and a lot of backsliding
What are the broad goals for this year's conference? What would success look like?
The advanced billing was that it was going to be an attempt to knit together north and south. And, unfortunately, I think the fault line between northern wealthier countries that emit a lot and the developing world, which historically has not emitted a lot, is going to be bigger than ever in Egypt and that will probably feature prominently in the daily coverage. There will be a big focus on climate finance and greenwashing — expect a bunfight on this front.
To what extent has the war in Ukraine impacted global climate goals?
I think the war in Ukraine will ultimately expedite the energy transition from fossil-based energy to renewables. But in the short term, there's no doubt that it's leading to an increase in the use of fossil fuels to create energy, particularly in Europe. And the most pernicious aspect of climate change emissions is that they persist for a long time in the atmosphere. So you're seeing a lot of coverage where people are saying, “these are temporary increases in emissions in Europe,” but they're not temporary to the atmosphere. That's the key point. They may ramp back down in a couple of years, but the consequences will be there for a very long time.
Do you expect that to shift at all in the coming year? What is the outlook for Europe’s transition away from fossil-based energy?
I think that the geopolitics of Russia's energy leverage over Europe has brought into sharp relief for European governments how ill-advised that was in the first place. And given that Europe does not have a large domestic store of fossil-based energy, it's underscored how important the energy transition away from fossil is in Europe. And European policymakers have really latched onto it. They're going to spend a lot of money to execute it, and it's going to be an expensive fast transition as governments try to manage large increases in energy prices in the short term. There's no doubt that the energy transition is happening and that people underestimate how disruptive it's going to be. The countries that are trying to push fast forward on an energy transition will endure the price spikes. So in a nutshell, it's going to be a lot bumpier than people expect it to be, and it will eventually happen, but there will be a lot of political fallout and turmoil.
Last year, the US and China signed a joint declaration on Climate Action. Is that cooperation in jeopardy today? And what does that mean?
Oh yeah, big time. I think it's part and parcel to the larger structural change in the US-China relationship, where they both see each other primarily as competitors rather than as strategic partners. In the past, the climate as an issue had been set aside from that change, but it's inevitably been sucked into that maelstrom.
This means you don't have the top two emitters and two largest economies cooperating any longer on climate change. I think it's become, for both countries, a field of competition rather than cooperation, which is again something we've been saying was inevitable at Eurasia Group Asia for a long time, but you're seeing it in full force now.
One of the biggest-picture issues that'll be in the background of every conversation at COP27 is the global competition for the rare earth minerals that go into making up the battery supply chain for everything from electric vehicles to storage for electricity grids. The Chinese are way ahead, and the North Americans — including Canada and Mexico — have lately stepped up their efforts to catch up. But we see this as a resource race where large dominant economies are competing with one another to secure a long-term supply of critical minerals that they think will be of strategic economic and security value over the mid to long term.
What other contentious issues will COP27 participants face?
I think the big issue is — and this was brought into sharp relief with the floods in Nigeria and Pakistan — that the developing world is saying, "We didn't cause this problem, but we're dealing with its most severe consequences, and under the loss and damage provisions that the north has signed onto repeatedly, but failed to deliver on, it's time for you guys to pay up.” And the north is going to show up without a lot of money.
As a veteran of several COPs, that's a dynamic that you see all the time, and I think the patience is wearing thin in the south, especially as they see all of this investment get sucked into the United States because of the IRA.
What do you think of Egypt playing host? How will that go down?
There's going to be a lot of bad publicity for Egypt during the course of the COP, in particular on political freedom issues. There are organizations trying to highlight the prevalence of political prisoners in Egypt. And of course, Sharm El Sheikh itself is known as a playground for wealthy Europeans and Middle Easterners. In some ways, having it in an African country so close to Europe is inviting comments on the global divide between north and south.
And finally, where does the world stand on climate targets, and what is your biggest fear?
Everybody’s way off their targets and a lot of very hard heavy lifting is required to get us anywhere near keeping 1.5 degrees alive. And right now we're somewhere in the mid-2’s depending on which projection you look at. And you only need to look around the world to see the manifestations of 1.2 degrees of warming, which is where we are, to know that the next 20, 30, 40, 50 years are going to be really difficult ones, in particular for people who live near the equator, which is most of humanity.
What worries me most is that we're entering a world where even the wealthy countries that can, to a certain extent, use their wealth to insulate themselves from the most severe impacts of climate change, aren't really doing it. It requires us in democratic societies to do things that we're historically not very good at, which is to think long-term on things like infrastructure and to make investments accordingly.
What keeps me awake at night is the migration crisis. I think that a combination of adverse heat events, flooding, and sea level rise will create numerous migration problems over the next 20 years that we have shown ourselves as a global community singularly inept at dealing with.
Sorry to be a downer, but it's pretty grim out there.
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Eurasia Group’s Gerald Butts: US climate change debate has moved from finger-pointing to solutions
Five years ago, for the US president to say it's time to move away from fossil fuels sounded like an episode of The West Wing. Not anymore, says Eurasia Group Vice Chairman Gerald Butts. In his view, the climate debate in the West has (finally) moved from who's responsible, to what we're going to do about it — "much more productive ground." Butts admits the enormous inertia in the US political system that'll fight change on climate, but ultimately believes that "when you take the very long view, the direction of travel of has set in."