Canadian Economist: Trump’s Tariffs Are A Gift To Mark Carney

Prof G Markets

This episode of Prof G Markets explores escalating trade tensions between Canada and the U.S., with Canadian economist Mike Moffatt analyzing Prime Minister Mark Carney's

Key takeaways

• Canada's retaliatory tariffs are strategically targeted to minimize domestic economic pain while pressuring U.S. swing states.
• Mark Carney's popularity has surged due to Trump's aggressive tactics, strengthening his political position.

Main topics

• Canada-U.S. trade war escalation
• Mark Carney's political strategy amid tariffs

Notable quotes

"If you had to do it at some point, now's really not a bad time." – Mike Moffatt on Canada's economic hit from tariffs.

Conclusion

The episode underscores that escalating trade tensions and deepening fiscal crises are not isolated issues but

Transcript preview

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And finally, SpaceX rose 4 % amid reports that its weighting in the NASDAQ 100 may increase this month when the index rebalances. Okay, what Speaker 8 (2:26) else is happening? Speaker 6 (2:27) Canada is striking back against the U.S. with tariffs of its own. The new levies range from 15 to 50 percent, covering around $20 billion worth of American goods. Tariffs on U.S. steel, aluminum, and iron products doubled to 50 percent, and other targeted products include furniture, clothing, appliances, and dairy. The move is payback for the 50 % tariffs that Trump levied against Canada last month. Trade talks between the two nations fell apart at the end of August. And now Mark Carney is pledging to, quote, hit back against Trump's bullying, quote, dollar for dollar, rate for rate. Joining us to discuss what this escalation means for the U.S. and for Canada, we're speaking with Mike Moffitt. Canadian economist and founding director of the Missing Middle Initiative. Mike, it's great to see you again. Thanks for joining us. I'd love to just start at the very beginning. We haven't talked about the Canada-U.S. trade war for a while, but it's an ongoing situation. How did this all begin? How did it flare up again over the summer? And how did we arrive at this moment? Speaker 7 (3:42) It's a great question. I think Canadians are asking themselves that question. Like, what do we do to deserve this? But this has been happening before Trump was elected the first time, or at least before he was inaugurated the first time in 2017. There have been these flare-ups from time to time. We've seen... The U.S. put additional tariffs, particularly under the second Trump administration, on a variety of goods. There was negotiations over the summer, and Canada walked away from those. It's not entirely clear, you know, what the sort of tipping point was. You know, part of it is Canada not wanting to negotiate through the media, but it sounded like there were some last-minute changes that the Trump administration put on a deal between Canada and the U.S. that the Carney administration administration just couldn't abide to. So we find ourselves here today. So Speaker 6 (4:36) those negotiations break down. Mark Carney walks away from them because something that we're not totally clear on wasn't going correctly, at least in his view. And then Trump's decision is tariffs. Speaker 7 (4:50) The negotiations were basically to take those tariffs off. So the Trump administration had threatened these $20 billion in tariffs. We had gone, Canada had gone to the administration to try and work out a deal. Then we walked back. Again, it's kind of unclear why. There's stories around what was in the deal in terms of automotive or Canada's ability to sign other trade deals. And like any other, other country, Canada wasn't just going to sit there when it had tariffs put on it. So the Carney administration kind of matched dollar for dollar. Some of those tariffs are, you know, basically reciprocal. So you put 50 % on us, we'll put 50 % on you. But others are a little bit more targeted towards swing states, towards areas where Canada often buys. not 100 % of its imports from the U.S., where we have a little bit of choice to buy from, say, the U.S. or Japan or the EU. So the idea is that we don't want to raise Canadian prices as much, but instead, if Canadians can buy from Japan or EU instead, that should dampen the effect of these tariffs. What Speaker 6 (6:02) is the economic impact of these tariffs at this point? How significant is it for the U.S. economy and then also for the Canadian economy? Well, Speaker 7 (6:13) it's certainly a bigger hit for Canada. We're proportionately smaller. I've seen Trevor Toome at the University of Calgary's estimated that if these continue for a year, we shave about three to four tenths of a percent off of GDP growth, which isn't fantastic. Now, Carney's the beneficiary of a little bit of luck here, though, in terms of good timing. He's quite popular right now. He's ahead 16 points in the polls. And one of Canada's biggest exports is oil. And the price of Western Canadian Select has gone from about $50 a barrel prior to the actions in Iran to $80 a barrel. So you never want to take a three-tenths Speaker 6 (6:53) of Speaker 7 (6:53) a percentage point hit to GDP. But if you had to do it at some point, Now's really not a bad time. Speaker 6 (6:59) It seems as though there's almost a stalemate here between who's going to back down and who's going to, I guess, put their pride aside. I'm not sure if that's the right way to look at it. But would you expect that this is something that will continue for the foreseeable future? Speaker 7 (7:17) Well, I certainly hope not. I hope that Canada and the U.S. can come to a deal. I think there is some hope in Canada that the upcoming midterms might get the U.S. to come forward with an agreement that we can live with. But in the meantime, we've got Prime Minister Carney going to the EU next week. We've heard rumblings of a deal between Canada and the EU, which is not quite at the level of EU membership. but a close integration with the two countries. So I think that's how Canada's playing it now, that we still want a deal with the United States, but we're also exploring plan B and trying to diversify our trade in the meantime. Speaker 6 (7:56) One of the most viral videos of the week this week has been a video that Trump posted on social media, on Truth Social, and it's like an AI-generated cartoonish video of him. beating Mark Carney with a hockey stick on the ice. What is your reaction to that video? It's gone pretty viral. A lot of people are very upset about it. How significant is it? And what is Canada's reaction to that video? Speaker 7 (8:26) We're certainly not happy about it, but I think Canadians are trying to take the position that we just shouldn't take the bait, right? That this is an attempt to goad us. So it's one of those things where we start to get angry and then we go, okay, deep breaths. Let's just calm down. We don't, you know, this is the, what Trump is trying to get from Canadians. So let's, let's calm a little bit, but we're certainly not happy about it. And there is, you know, ironically, when those things happen, there is kind of a rally around the flag and car. Carney himself gets more popular. So if the administration is trying to force Canada to sign the deal, it's probably the worst possible thing to do because it just makes Carney more popular in the eyes of Canadians and gives Carney more ability to back away from a bad deal. Speaker 6 (9:12) Yeah, that has certainly been my takeaway. It seems as though every time Trump tries to punch basically what looks like down on Mark Carney because Canada is a smaller nation. It seems like he's trying to do this, make this bullying tactic or something. People just like Mark Carney more. They like Canada more. It seems like that is consistently what has been happening. We saw the same thing with changing the name of Lake Ontario to Lake America. It seems as though people are generally more supportive. of the quote-unquote enemy that Trump wants to make out of Canada. How popular at this point is Mark Carney, and how much of that popularity is a function of