Western Standard - There's no choice, so do a deal with Trump, says Jack Mintz

00:00:00.000 Good evening, Western Standard viewers, and welcome to The Hannaford Show, a weekly politics show.

00:00:07.440 Last week, Canadians were told by President-elect Donald Trump that along with Mexico,

00:00:12.860 they would be facing a 25% tariff wall on their exports to the U.S. unless they got control of

00:00:18.820 North-South trade in illegal drugs and illegal aliens trying to sneak into the U.S. from Canada.

00:00:25.520 With me tonight to talk about that is Dr. Jack Mintz, one of Canada's foremost economists and

00:00:31.340 original thinkers. Good evening, Jack. Good evening, Nigel. Pleasure to be with you.

00:00:36.760 Great to have you. Jack, two questions to start. First, President Trump has a reputation for making

00:00:42.640 outrageous demands as he launches into negotiations. It's no secret he's written a book about the art

00:00:49.660 of the deal. So, is he serious? And the second question is this. Although he's talking about

00:00:55.920 illegal drugs and aliens, is that really the issue or is the deal somewhere else? Well, what do you say,

00:01:04.260 Jack? Well, first of all, on, you know, is this kind of like typical Trump stuff like we saw during

00:01:11.440 2020 in the first mandate, where he, you know, certainly threatened tariffs of all sorts of

00:01:18.120 things. And of course, he opened up NAFTA, the negotiation over our free trade agreement with

00:01:23.480 the United States of Mexico. And, you know, some of it was bluster in the sense that he was trying

00:01:30.800 to get certain deals made. He's a transactional person. But as we saw with NAFTA, the deal was

00:01:38.260 opened up. And there were some changes that were made. And that did happen. I think we're in a very

00:01:44.220 different situation now for this mandate. I don't think, I don't think it's exactly the same as before.

00:01:51.940 First of all, I think there's very broad support in the United States for favoring domestic production.

00:01:58.940 And I think also the Republicans are looking at tariffs, not just only to protect industries

00:02:07.860 in the United States and draw investment back into the United States, but also as a source of

00:02:13.900 revenue. And so Trump has said before the, during the election that he wanted to put in a broad base

00:02:20.500 tariff on all countries. He talked about 10 or 20% at that time. And I think there's actually a very

00:02:28.600 serious possibility that he may want to do that as a way of trying to not just achieve his trade goals,

00:02:36.940 but also to get the kind of revenues he would need. And this isn't the only source, but one of the

00:02:43.820 sources to help pay for the tax cuts and the need to balance the budget, or at least try to move to

00:02:50.260 a smaller deficit in the United States. So if you're going to sort of make all the things come

00:02:56.260 back together, I think we're in a very different situation right now. And of course, his threatening

00:03:01.440 of 25% tariffs in the case of Canada, the United States, I think that is something where perhaps

00:03:08.000 relief would be given if the right actions are going to be taken. And I think that's what that is

00:03:12.820 his goal.

00:03:14.320 Well, sorry, go finish up.

00:03:16.780 Well, I was going to answer your second question, which was, you know, about about the

00:03:23.120 border and security of the border. You know, the initial Canadian response was, oh, this is a much

00:03:31.940 bigger issue for Mexico than it is for Canada. Like, why are we, you know, being brought into this?

00:03:39.060 And you might argue that it's a bit unfair to put 25% on Canada, just like Mexico, given that,

00:03:44.960 you know, the millions that have been involved in illegal immigration coming into the United States

00:03:50.800 compared to what I've just read. Recently, the Americans have caught close to 200,000 trying

00:03:59.680 to come into the United States. So from the northern border. But I think there are some issues

00:04:05.780 that need to be dealt with. And we can get into more detail later on. But as it was reported today,

00:04:12.920 out of the people that the Americans have caught at the southern and northern border as potential terror

00:04:20.500 terror suspects, that 86% of them are coming from the northern border. And that is an issue,

00:04:33.400 I think, that we're going to have to deal with.

00:04:36.560 Just as a comment on that, you've heard, no doubt, that Premier Smith here in Alberta has decided to

00:04:45.320 deploy Alberta sheriffs in an attempt to at least start to cope with that situation. And I hear

00:04:51.900 that some other provinces are doing the same thing. Is this something that a province can actually

00:04:58.620 make it a big dent in?

00:05:01.400 No, I think, well, I think they can maybe try and do some of it. I think, you know, you have,

00:05:06.380 for example, in Ontario, the Ontario Provincial Police, you have an Alberta, the RCMP,

00:05:11.880 and you may use the local police forces to try to maybe catch people who become illegal immigrants.

00:05:24.380 But I'm not sure we can do very much about it because there's a legal process. And of course,

00:05:28.460 that's part of the problem. Just like the United States, once they identify themselves to be a refugee 0.99

00:05:33.760 or something like that, then there's a process that's involved to look at the claim. And that could

00:05:39.280 take quite a few, quite a long time before it's dealt with, you know, since it's two years. And so

00:05:45.180 I think that, you know, there is an issue, I think.

00:05:48.480 Well, certainly most of our problem, but if we succeed in reducing the number of people trying to

00:05:55.540 crash the border to the U.S., then I have to assume that's going to work in our favor. 1.00

00:06:02.280 Well, I think, you know, there's two different, you know, there are two different types of issues

00:06:08.180 involved. There are people that come through our border, including airports, et cetera, that,

00:06:14.020 you know, they come on the West Coast and East Coast, et cetera, not from just the United States.

00:06:20.960 And this is what the concern is, is that they're, what the Americans are arguing, they're terrorists,

00:06:27.520 actually, or terrorist suspects, that it's easier to go through Canada than to go through Mexico

00:06:33.140 to come into the United States. Whether, how true that is, you know, I'm no expert. But going back to

00:06:40.440 your question, what I was going to say was that in the end, the federal government has to enforce the

00:06:46.920 border. They have the, you know, the Canada border and border operations that is their purview. It's

00:06:56.380 the, it's federal responsibility. And I don't think the provinces can, can do as much as what the

00:07:02.080 federal government has to do. Okay. So I think what you were saying just a moment ago is that it has

00:07:08.720 now become acceptable to discard free trade, or at least acceptable in the United States to discard free

00:07:15.980 trade in favor of trade barriers that support other political objectives. I mean, we have a free trade

00:07:23.920 deal with the US, the United States, Mexico, Canada agreement, and applying a 25% tariff with that

00:07:33.720 agreement in place would indeed seem to be discarding a free trade agreement. So, excuse me, people are

00:07:41.500 saying he'll never do it really, because it would hurt Americans to pay more for oil, gas, lumber,

00:07:47.860 and motor cars sourced in Canada. Is that a, are we just kidding ourselves? Is that actually going to

00:07:55.700 help us? Well, I think we, you know, there is a, an economic theory that I think is very important to

00:08:02.980 first lay out. And that is, uh, who pays for a tax or, or like an excise tax on beer, uh, or, or who pays,

00:08:11.340 uh, a tariff, uh, in the case of when we're talking about trade. Uh, and, and the theory will tell you

00:08:18.680 that, uh, some of the tariff, uh, will be shifted forward to consumers. Some of it will be shifted back to

00:08:25.920 producers, including, uh, the retailers, uh, who might have to absorb some of the costs with lower

00:08:31.740 profits. Uh, and that depends on, you know, on, uh, you know, what the sense of, you know, how,

00:08:38.460 you know, the size of the markets and the sensitivity, uh, of, uh, demand and supply to,

00:08:45.660 to changes in price. Uh, so to give you an example, uh, in the case of, uh, oil, let's say,

00:08:52.980 let's say United States puts a tariff on Canadian oil sold to United States. Uh, well,

00:08:59.400 first of all, uh, the American, American market, uh, gets heavy oil. There's different sources of

00:09:05.760 heavy oil, uh, including Mexico and Venezuela, which right now is not very important, but there's

00:09:11.540 also some other sources internationally. And so, uh, the Americans could decide, well,

00:09:17.180 we're going to put this tariff on Canadian oil, uh, but we'll buy, uh, more of our, more oil,

00:09:22.980 from other, other sources, uh, particularly heavy oil, which is needed for the refineries,

00:09:27.660 uh, in the, in the, uh, in the Gulf coast. Uh, in that case, a significant part of the

00:09:33.440 tariff is going to be borne by producers in, in, in, uh, in Alberta, uh, with respect to,

00:09:39.700 to, to, to the tax on the oil. Um, now if United States can't get the same amount of heavy

00:09:47.060 oil from other places, uh, then some of that tariff is going to get shifted forward to American

00:09:52.800 refineries, uh, that are going to have to pay more for their oil. And then of course

00:09:56.580 that will raise gasoline prices in the United States. Uh, so probably some of that tariff

00:10:02.840 is going to get shared, uh, between the two countries and, and it's not all going to just

00:10:07.920 fall on American producers. And that's why the discussion is somewhat, uh, been incorrect

00:10:13.940 in talking about the impact of American tariffs. It depends on the sector. It depends on the industry.

00:10:19.160 Uh, it depends on the options. Um, but, uh, oil is a really good example in case of Canada,

00:10:26.360 except for the transmountain pipeline. Now, uh, we can't sell our oil anywhere else in the

00:10:32.160 world. All of the, all of it is piped down to United States. 90% of our oil is sold to the

00:10:40.160 U S. And so if you put a tax, uh, if the Americans put on a tax, we have no options. We can't say,

00:10:48.160 oh, we're going to take our oil and ship it somewhere else. We can with the TMX, we got,

00:10:54.100 you know, we have maybe 900,000, um, barrels per day that we could kind of shift over to

00:10:59.520 some other countries. But even then you have to sign long-term contracts and all sorts of other

00:11:04.200 things to do that. The main point is that we're, we're really beholden to the U S when it comes to

00:11:09.040 oil, but we're also really beholden to the U S with respect to the auto industry, which is also

00:11:14.120 very integrated in North America. Again, 90% of our autos and auto parts are sold to the United States,

00:11:21.880 you know, of our exports. And you take these two industries, you know, um, both oil, gas,

00:11:28.360 refined petroleum, petroleum, and the other one being the auto sector, which is, uh, both cars and parts,

00:11:35.800 you add them together. That's one third of our, all of our exports that we sell to the rest of the world.

00:11:42.440 And those two industries are completely beholden to the United States in terms of our, our total

00:11:48.600 trade, 90% of it. So we don't really have, uh, very many options. And so that means that you put

00:11:54.680 a tariff on, uh, there's a good chance that we're going to absorb some of that tariff. It's going to

00:11:59.400 hurt us. It'll probably hurt the U S a bit too. Uh, but in the end, I think we're going to, we're going to

00:12:05.400 suffer more of it. Uh, given the size of the market in the U S and given the options that the

00:12:11.560 U S has that we don't have. Well, you think of softwood lumber, if they apply a tariff to that,

00:12:17.960 I think we're our main, we're their main source for, you know, what the basic construction material

00:12:24.600 of a house is. So that's going to have an upward pressure on home prices in the United States.

00:12:30.280 So I would have, I would have thought, do we have any leverage there perhaps?

00:12:34.120 Well, again, it depends on, on, uh, you know, how much is, um, you know, can we divert to other

00:12:40.360 countries? Um, that's what, that's the point of this theory. It tells you that, uh, if you're even,

00:12:46.760 even, even if, uh, us is reliant on our wood, which again, there's other wood coming from Norway and

00:12:52.120 other countries that could be bought, but even if they are, um, behold, you know, very much beholden

00:12:57.880 on us, uh, or Canadian, uh, lumber sales, uh, the question is, do we have options to sell our lumber

00:13:04.520 somewhere else? And in the case of lumber, we actually do sell to Asia. So we do have some

00:13:09.240 options, uh, uh, uh, you know, are available to us. And so probably I suspect in the case of lumber,

00:13:16.760 more of the, of the tariff would fall on consumers in the United States.

00:13:21.080 Uh, but you know, there was a study done on the Chinese tariffs that, that the Americans, uh, put on,

00:13:26.200 you know, Trump originally put on and Biden continued them. Actually people forget,

00:13:30.440 this is not just Trump. This is now something that's done on both sides of the, of the aisle

00:13:35.880 in the United States, both Republicans and Democrats support these things. Um, and the Chinese tariffs

00:13:41.960 were found to, um, be significantly shifted forward to the U S but surprisingly not so much through higher

00:13:49.480 consumer prices, but impacting retailer market margins in the United States was kind of an interesting

00:13:55.000 story in itself. From what you're saying, Jack, it, it seems to me that diversification of Canadian trade

00:14:04.120 should be the longterm goal of any government. And certainly I, I do well recall writing several

00:14:10.440 speeches for Mr. Harper back in the day in which we were applauding new deals in Europe and in the,

00:14:17.240 in Asia and so forth. But this seems to have fallen by the wayside. Um, you know, the,

00:14:25.960 with agreements, we had agreements all over the globe, we wouldn't be in such a tight spot now.

00:14:32.200 And if we had ramped up the infrastructure to export oil and LNG off the west coast,

00:14:38.440 do you think that Mr. Trudeau now regrets canceling and discouraging those projects?

00:14:44.440 Oh, I don't know if he regrets it. He's so, uh, concerned about climate change,

00:14:49.000 uh, even though natural gas sales, for example, internationally, if it leads to the reduction

00:14:55.800 of coal consumption internationally, that actually could be a win in terms of climate change, not a

00:15:00.600 loss. Uh, I don't think he, he regrets it at all. I think that that's because his main and only priority

00:15:09.720 has always been climate change. Even, even now he talks about, you know, how climate change is more

00:15:15.480 important than putting food on your table. So, you know, I think, I think, I don't think he, he

00:15:20.680 regrets it at all. Uh, but I, but it is a good example. Uh, you know, we, we talked about, you know,

00:15:27.240 trying to beef up our transportation networks. Uh, there's been the Northern Corridor proposal, uh,

00:15:34.440 trying to have more opportunities to sell our goods and services internationally. Uh, and, and oil and

00:15:40.200 natural gas is a good example. LNG, we had tremendous number of proposals made around 2010 to build LNG

00:15:47.400 plants in BC and only one went ahead and it's now just coming onto production soon. And so, uh, we,

00:15:54.120 we have not, we have, we, you know, we've talked the game when it came to, uh, to oil and gas, but

00:16:00.840 instead we didn't do anything, uh, after all that time, except for the team X pipeline, that's been the

00:16:06.120 only one that had any success. And at the same time, uh, when you look at some of our other sectors,

00:16:12.920 you know, we, we still tend to be very focused on the U S and 75% of our total exports go to United

00:16:19.800 States. I just mentioned the auto and the oil and gas sector because they are our two biggest export

00:16:25.880 earners and, uh, one of, you know, one third of our total export earnings. And yet they, uh, you know,

00:16:33.640 90% of that is sold to the United States, which means that we do have a little more just

00:16:38.200 diversification than some of the other areas, which is good. Uh, but we haven't really done very much

00:16:44.040 outside of some trade agreements, but again, uh, we're, we're still very much dependent on our,

00:16:51.800 our, our trade with the United States, which perhaps is not surprising because that's the shortest

00:16:57.400 distance for much of our production in Canada. You just have to hop over the border and send

00:17:03.240 some things down into that very big U S market, which is now 25% of world GDP.

00:17:11.640 Changing the subject very slightly, Jack, uh, we like to think we're a free trade country,

00:17:16.920 but you know, as I was buttering my toast this morning, I reach into the fridge and I pull out

00:17:23.160 a fresh pound of butter. And it occurs to me that we get all head up when Trump makes these kinds of

00:17:31.000 demands, but we still have supply management. So when it comes to free trade, how clean

00:17:38.440 are our hands? Are we just talking the talk? Well, I think, uh, you know, I think the article

00:17:45.880 that I had this morning, I think was trying to make the point that, uh, for years, especially,

00:17:51.960 uh, after the second world war, uh, we adopted a principle of free trade. In fact, the British

00:17:59.480 did through the British empire back, you know, even earlier after the evolution of the corn laws in,

00:18:04.680 in, in great, in great Britain, uh, in 1846. But you know, the idea of free trade became very, uh,

00:18:12.920 uh, very much an objective for, for governments, uh, in order to keep prices lower for consumers and also

00:18:19.960 specialize in the industries that you're most able at and have the highest productivity, uh,

00:18:26.680 and lowest unit costs to sell abroad. And so, uh, those, those were some of the things that we did

00:18:32.760 in that many countries pursued. And when you go to before, uh, 2008, uh, if you look at the kind of

00:18:42.040 advice that the world bank gave the international monetary fund, um, uh, as well as other, uh, other,

00:18:49.800 in, within many countries, um, the idea of opening up borders, allowing for import competition,

00:18:55.720 all those things were good. They were viewed as very good things to do. Free trade was an objective.

00:19:01.320 Didn't mean that we have perfect free trade where, you know, and there were certainly areas that,

00:19:05.640 you know, we, we did that, uh, you know, where we tried to, you know, uh, protect industries.

00:19:11.640 Uh, but still the principle was accepted. And I think today that, that that's all gone now that has

00:19:17.160 changed in 20 years, no longer, uh, our country's free traders. So we can, we can easily, and Canada

00:19:23.640 is included there. Uh, you know, we can blame Trump for doing what he's doing and, you know,

00:19:28.680 criticize him. But on the other hand, we're not pure either. And supply management is a perfect,

00:19:35.000 perfectly good example. Uh, everybody will write or any economists where it's the soul will tell

00:19:40.840 all the terrible things about supply management. First of all, it leads to higher butter prices,

00:19:46.520 higher milk prices, uh, because of the, uh, restrictions on imports coming into the country.

00:19:52.440 Uh, it also, um, it also leads to inefficient farms. You know, the typical, uh, dairy farm in

00:19:59.720 Canada has got a hundred cows. Uh, I remember talking to somebody in Oklahoma once, uh, when I was there,

00:20:06.440 and, uh, he was, uh, he was involved with dairy farming and he told me they had 2000 cows, you know,

00:20:12.680 the operations are so much larger and economies of scale and they're exporting a lot. And we know

00:20:17.560 that Australia and New Zealand got rid of their supply management. Uh, I had, uh, a great student

00:20:22.920 this year at the school of public policy at University of Calgary, Ben Harford, who wrote an excellent

00:20:28.840 capstone paper explaining the difference between Australia and the Canadian experience. Australia got

00:20:34.040 rid of their supply management and they did it over time by putting a tax on milk that paid for the

00:20:39.000 quotas, uh, to reimburse, you know, farmers for, for that. But what happened is that you not only

00:20:45.560 are able to have more sales going abroad, uh, and, uh, but you also get a consolidation

00:20:52.120 that lowers prices, uh, you know, for milk to the benefit of consumers, but also to the benefit

00:20:57.720 of, um, uh, milk product industries like cheese and yogurt and others that could sell more abroad as

00:21:05.800 well. And, and, and, but we don't sell anything abroad. No one buys Canadian cheese, you know,

00:21:13.000 because raw milk is too expensive. And so it's too expensive to export. And certainly when I,

00:21:19.080 you know, go to the store and buy cheese today, it's just ridiculously priced now. I mean,

00:21:23.400 a small block of cheese costing $14 when, you know, three, four years ago it was like six or $7.

00:21:29.720 And so I, I think we have, uh, you know, real, it's a really perfect example that we do protection

00:21:35.960 too. And there's more industries and other examples of protection that, that we give to

00:21:41.400 various industries from import competition. And so we can go on about, you know, we might beat our

00:21:47.640 chest that we're wonderful free traders, but we're not, we are not free traders. We like to

00:21:53.240 protect our industries and it's become a philosophy now that we have to protect industries because,

00:21:59.800 because of what happened, you know, during the, after China came in, you know, came, you know,

00:22:04.760 came on after WTO accession, uh, and you know, it did hurt the heartland of many industrial countries.

00:22:13.160 Although it did all that trade that happened with Asia did lower consumer prices for people in North

00:22:20.280 America, uh, and in Europe. But at the same time, it, uh, also, uh, reduced income inequality because

00:22:28.920 Asian incomes went up quite a bit and international income inequality dropped all after 2000. And of

00:22:35.800 course we benefited from that Chinese expansion and world expansion, uh, after 2000, uh, with higher

00:22:43.640 resource prices and Canada was doing very well, uh, especially before the financial crisis in 2008,

00:22:50.600 uh, where, you know, the Canadian economy was really booming, uh, as a result of that growth in world

00:22:56.760 trade and the demand for resources. So we're, we've, we've now going the other way. Yeah. And that's,

00:23:01.880 of course, a concern that I have in terms of where we're, where we're moving.

00:23:05.400 So Jack, we're almost out of time here. Um, should I ask you this though? Here we are. I mean,

00:23:11.720 Mr. Trump has presented his threats, demands, um, but you know, it seems to me that we should have

00:23:19.640 better control over our borders anyway. So why not make a virtue out of necessity and just do a deal

00:23:28.440 with Trump? Is that what we're looking at? I, I think in the end, that's the best course of action.

00:23:33.480 I mean, think about it, you know, one option is we do nothing. We retaliate. Well, retaliation is

00:23:39.240 not going to do anything for us. In fact, it's just going to hurt us too. I mean, may hurt the

00:23:43.080 Americans a bit, but it's not going to help us. Uh, and in fact, I read, uh, one editorial today in

00:23:49.240 one of the Canadian newspapers this morning, and they're saying we should retaliate, you know, but

00:23:54.200 that's, that's not going to do anything. We'll, we'll end up hurting ourselves with retaliation, but

00:23:59.080 as, as we're going to be probably, uh, hurting ourselves, uh, exporting into the U S market.

00:24:04.600 Um, so if you take that off the deal that doing nothing except retaliating, then the other option

00:24:11.880 is trying to make a deal. And, you know, and, and the main point is that we shouldn't, I mean,

00:24:17.400 the biggest mistake that the federal government started with is trying to say, oh, this is a Mexican

00:24:21.640 problem. This has nothing to do with Canada, but that's wrong. There are things that we should be

00:24:26.120 doing. We should be, uh, we should be ensuring that our border is tighter and more secure.

00:24:32.120 Uh, we should be worried about, um, potential, uh, terror threats coming through Canada into United

00:24:38.920 States. It's not, uh, especially when you have, we're, we're the most, you know, we're responsible

00:24:44.280 for most of them being, uh, being apprehended in the United States. So I think we need to worry

00:24:49.000 about that. And then in the case of fentanyl, uh, we have increased the amount of production

00:24:53.960 within Canada of fentanyl. So again, we, we have a responsibility ourselves, not only to United States,

00:25:00.600 but also to ourselves, uh, in trying to reduce, uh, drug abuse and, and the horrible deaths that

00:25:07.160 have occurred with fentanyl. It just seems a shocking thing that, uh, a U S president has to

00:25:13.880 dictate terms to a Canadian prime minister. And actually he's right. It'd be better for all of us if we

00:25:19.240 if we just did what he's suggesting. Yeah, exactly.

00:25:25.160 It's been great to talk to you again. And, uh, thank you so much for coming on the show. We

00:25:29.720 appreciate that. I have a feeling we might be talking to you again quite soon if you're,

00:25:33.640 if you're available. Uh, but meanwhile, thanks and have a great day in Toronto.

00:25:39.240 My pleasure, Nigel.

00:25:40.680 For the Western standard, I'm Nigel Hannibal.

00:25:50.840 Good night.

00:25:52.920 Me so much.

00:26:03.080 My pleasure.

00:26:05.480 Bye.

00:26:05.500 Bye.

00:26:06.080 Bye.

00:26:08.200 Bye.

00:26:09.800 Bye-bye.

00:26:10.680 Bye.

Western Standard - December 03, 2024

There's no choice, so do a deal with Trump, says Jack Mintz

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