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US-Canada trade war helps Mark Carney's election prospects
With recent tensions between Zelensky and Washington, how likely are the Saudi-hosted peace talks to yield real progress?
Well, we'll find out real soon. Zelensky has certainly made his efforts to make nice on the critical minerals deal, on apologizing to the Trump White House for a meeting that frankly he has very little to apologize for, and that certainly has helped with getting this engagement going. Also, he's not attending personally, rather, his key envoys and advisors meeting with Secretary of State Rubio and National Security Adviser Waltz. I suspect that the meetings will end up being just fine, but they are unlikely to lead to a ceasefire because what the Ukrainians are prepared to accept, the Russians are not close to accepting. So either Trump is going to have to be willing to take some time, bring it to the Russians and see that the Russians are not playing full ball, or he's going to have to throw the Ukrainians under the bus more and make greater demands that they're not prepared to accept. I don't think either of those things are likely to happen today, but that's I think, the direction of travel.
Are we on the cusp of a nuclear proliferation era as Poland and Germany talk of acquiring nuclear weapons?
Germany's talking more about sharing in the nuclear umbrella with France. Poland's talking about getting its own. These things are all harder. They will take longer than these countries have. It's not like France's nuclear umbrella is deep or easily extendable. In order to have anyone believe credibly that a French deterrent would apply to other countries, a lot of things have to happen in terms of coordination and infrastructure and building up those capabilities that will take frankly years. So, I think it's important that these conversations are happening. I think that many countries around the world are moving towards establishing their own nuclear capabilities in, around, the Middle East. I can certainly see over time as Iran gets closer, the Saudis thinking about it, the Turks thinking about it, in Asia, South Korea and Japan. In Europe, a number of countries needing to have collective security because they don't feel like the Americans can provide for them. But I don't think those things are happening overnight. The global order is changing. It is really past the tipping point, but these things are slow moving processes.
Does Justin Trudeau's replacement, Mark Carney, have a shot of winning Canada's general election?
Certainly does, and three months ago would've had no shot at all. There's been an extraordinary bounce back for the Liberal Party, in part because they're now represented by someone that is not an incumbent. Think about what would've happened in the US if it hadn't been Biden or Kamala Harris, but had been an outsider after general primary, better shot of winning. That's exactly what the Canadians have now done. Trudeau forced down, Chrystia Freeland, his deputy prime minister, getting 8% in the Liberal caucus vote, and Carney getting almost 86%. So he's a centrist. He's in much better position to give a serious run against Pierre Poilievre of the Conservatives. The big question is how is Trump going to respond? Because on the one hand, it's very easy for Trump to now say, "Trudeau's gone because of me, and I'm now willing to work with somebody who is more reasonable," and the markets would certainly appreciate that. On the other hand, short of him doing that, and I think it's unlikely that he's going to reach out and extend a hand to the Canadians, then Trump beating on Canada more gives Carney a better shot of winning because he's the guy that can manage an economic crisis and also because the Canadians are so united in their anger with the United States, kind of like Mexico is right now, kind of like a number of European countries are right now. So Trump is definitely a uniter, just not inside the US, more inside other countries.
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.