There's no choice, so do a deal with Trump, says Jack Mintz
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Summary
Last week, Canada was told by President-elect Donald Trump that, along with Mexico, they would be facing a 25% tariff on their exports to the U.S. unless they got control of North-South trade in illegal drugs and illegal aliens trying to sneak into the United States from Canada. With me tonight to talk about that is Jack Mintz, one of Canada s foremost economists and original thinkers.
Transcript
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Good evening, Western Standard viewers, and welcome to The Hannaford Show, a weekly politics show.
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Last week, Canadians were told by President-elect Donald Trump that along with Mexico,
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they would be facing a 25% tariff wall on their exports to the U.S. unless they got control of
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North-South trade in illegal drugs and illegal aliens trying to sneak into the U.S. from Canada.
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With me tonight to talk about that is Dr. Jack Mintz, one of Canada's foremost economists and
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original thinkers. Good evening, Jack. Good evening, Nigel. Pleasure to be with you.
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Great to have you. Jack, two questions to start. First, President Trump has a reputation for making
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outrageous demands as he launches into negotiations. It's no secret he's written a book about the art
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of the deal. So, is he serious? And the second question is this. Although he's talking about
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illegal drugs and aliens, is that really the issue or is the deal somewhere else? Well, what do you say,
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Jack? Well, first of all, on, you know, is this kind of like typical Trump stuff like we saw during
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2020 in the first mandate, where he, you know, certainly threatened tariffs of all sorts of
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things. And of course, he opened up NAFTA, the negotiation over our free trade agreement with
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the United States of Mexico. And, you know, some of it was bluster in the sense that he was trying
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to get certain deals made. He's a transactional person. But as we saw with NAFTA, the deal was
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opened up. And there were some changes that were made. And that did happen. I think we're in a very
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different situation now for this mandate. I don't think, I don't think it's exactly the same as before.
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First of all, I think there's very broad support in the United States for favoring domestic production.
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And I think also the Republicans are looking at tariffs, not just only to protect industries
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in the United States and draw investment back into the United States, but also as a source of
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revenue. And so Trump has said before the, during the election that he wanted to put in a broad base
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tariff on all countries. He talked about 10 or 20% at that time. And I think there's actually a very
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serious possibility that he may want to do that as a way of trying to not just achieve his trade goals,
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but also to get the kind of revenues he would need. And this isn't the only source, but one of the
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sources to help pay for the tax cuts and the need to balance the budget, or at least try to move to
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a smaller deficit in the United States. So if you're going to sort of make all the things come
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back together, I think we're in a very different situation right now. And of course, his threatening
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of 25% tariffs in the case of Canada, the United States, I think that is something where perhaps
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relief would be given if the right actions are going to be taken. And I think that's what that is
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Well, I was going to answer your second question, which was, you know, about about the
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border and security of the border. You know, the initial Canadian response was, oh, this is a much
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bigger issue for Mexico than it is for Canada. Like, why are we, you know, being brought into this?
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And you might argue that it's a bit unfair to put 25% on Canada, just like Mexico, given that,
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you know, the millions that have been involved in illegal immigration coming into the United States
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compared to what I've just read. Recently, the Americans have caught close to 200,000 trying
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to come into the United States. So from the northern border. But I think there are some issues
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that need to be dealt with. And we can get into more detail later on. But as it was reported today,
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out of the people that the Americans have caught at the southern and northern border as potential terror
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terror suspects, that 86% of them are coming from the northern border. And that is an issue,
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I think, that we're going to have to deal with.
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Just as a comment on that, you've heard, no doubt, that Premier Smith here in Alberta has decided to
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deploy Alberta sheriffs in an attempt to at least start to cope with that situation. And I hear
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that some other provinces are doing the same thing. Is this something that a province can actually
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No, I think, well, I think they can maybe try and do some of it. I think, you know, you have,
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for example, in Ontario, the Ontario Provincial Police, you have an Alberta, the RCMP,
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and you may use the local police forces to try to maybe catch people who become illegal immigrants.
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But I'm not sure we can do very much about it because there's a legal process. And of course,
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that's part of the problem. Just like the United States, once they identify themselves to be a refugee
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or something like that, then there's a process that's involved to look at the claim. And that could
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take quite a few, quite a long time before it's dealt with, you know, since it's two years. And so
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I think that, you know, there is an issue, I think.
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Well, certainly most of our problem, but if we succeed in reducing the number of people trying to
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crash the border to the U.S., then I have to assume that's going to work in our favor.
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Well, I think, you know, there's two different, you know, there are two different types of issues
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involved. There are people that come through our border, including airports, et cetera, that,
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you know, they come on the West Coast and East Coast, et cetera, not from just the United States.
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And this is what the concern is, is that they're, what the Americans are arguing, they're terrorists,
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actually, or terrorist suspects, that it's easier to go through Canada than to go through Mexico
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to come into the United States. Whether, how true that is, you know, I'm no expert. But going back to
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your question, what I was going to say was that in the end, the federal government has to enforce the
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border. They have the, you know, the Canada border and border operations that is their purview. It's
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the, it's federal responsibility. And I don't think the provinces can, can do as much as what the
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federal government has to do. Okay. So I think what you were saying just a moment ago is that it has
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now become acceptable to discard free trade, or at least acceptable in the United States to discard free
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trade in favor of trade barriers that support other political objectives. I mean, we have a free trade
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deal with the US, the United States, Mexico, Canada agreement, and applying a 25% tariff with that
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agreement in place would indeed seem to be discarding a free trade agreement. So, excuse me, people are
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saying he'll never do it really, because it would hurt Americans to pay more for oil, gas, lumber,
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and motor cars sourced in Canada. Is that a, are we just kidding ourselves? Is that actually going to
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help us? Well, I think we, you know, there is a, an economic theory that I think is very important to
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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,
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uh, a tariff, uh, in the case of when we're talking about trade. Uh, and, and the theory will tell you
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that, uh, some of the tariff, uh, will be shifted forward to consumers. Some of it will be shifted back to
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producers, including, uh, the retailers, uh, who might have to absorb some of the costs with lower
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profits. Uh, and that depends on, you know, on, uh, you know, what the sense of, you know, how,
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you know, the size of the markets and the sensitivity, uh, of, uh, demand and supply to,
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to changes in price. Uh, so to give you an example, uh, in the case of, uh, oil, let's say,
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let's say United States puts a tariff on Canadian oil sold to United States. Uh, well,
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first of all, uh, the American, American market, uh, gets heavy oil. There's different sources of
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heavy oil, uh, including Mexico and Venezuela, which right now is not very important, but there's
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also some other sources internationally. And so, uh, the Americans could decide, well,
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we're going to put this tariff on Canadian oil, uh, but we'll buy, uh, more of our, more oil,
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from other, other sources, uh, particularly heavy oil, which is needed for the refineries,
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uh, in the, in the, uh, in the Gulf coast. Uh, in that case, a significant part of the
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tariff is going to be borne by producers in, in, in, uh, in Alberta, uh, with respect to,
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to, to, to the tax on the oil. Um, now if United States can't get the same amount of heavy
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oil from other places, uh, then some of that tariff is going to get shifted forward to American
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refineries, uh, that are going to have to pay more for their oil. And then of course
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that will raise gasoline prices in the United States. Uh, so probably some of that tariff
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is going to get shared, uh, between the two countries and, and it's not all going to just
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fall on American producers. And that's why the discussion is somewhat, uh, been incorrect
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in talking about the impact of American tariffs. It depends on the sector. It depends on the industry.
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Uh, it depends on the options. Um, but, uh, oil is a really good example in case of Canada,
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except for the transmountain pipeline. Now, uh, we can't sell our oil anywhere else in the
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world. All of the, all of it is piped down to United States. 90% of our oil is sold to the
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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,
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oh, we're going to take our oil and ship it somewhere else. We can with the TMX, we got,
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you know, we have maybe 900,000, um, barrels per day that we could kind of shift over to
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some other countries. But even then you have to sign long-term contracts and all sorts of other
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things to do that. The main point is that we're, we're really beholden to the U S when it comes to
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oil, but we're also really beholden to the U S with respect to the auto industry, which is also
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very integrated in North America. Again, 90% of our autos and auto parts are sold to the United States,
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you know, of our exports. And you take these two industries, you know, um, both oil, gas,
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refined petroleum, petroleum, and the other one being the auto sector, which is, uh, both cars and parts,
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you add them together. That's one third of our, all of our exports that we sell to the rest of the world.
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And those two industries are completely beholden to the United States in terms of our, our total
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trade, 90% of it. So we don't really have, uh, very many options. And so that means that you put
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a tariff on, uh, there's a good chance that we're going to absorb some of that tariff. It's going to
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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
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suffer more of it. Uh, given the size of the market in the U S and given the options that the
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U S has that we don't have. Well, you think of softwood lumber, if they apply a tariff to that,
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I think we're our main, we're their main source for, you know, what the basic construction material
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of a house is. So that's going to have an upward pressure on home prices in the United States.
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So I would have, I would have thought, do we have any leverage there perhaps?
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Well, again, it depends on, on, uh, you know, how much is, um, you know, can we divert to other
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countries? Um, that's what, that's the point of this theory. It tells you that, uh, if you're even,
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even, even if, uh, us is reliant on our wood, which again, there's other wood coming from Norway and
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other countries that could be bought, but even if they are, um, behold, you know, very much beholden
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on us, uh, or Canadian, uh, lumber sales, uh, the question is, do we have options to sell our lumber
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somewhere else? And in the case of lumber, we actually do sell to Asia. So we do have some
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options, uh, uh, uh, you know, are available to us. And so probably I suspect in the case of lumber,
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more of the, of the tariff would fall on consumers in the United States.
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Uh, but you know, there was a study done on the Chinese tariffs that, that the Americans, uh, put on,
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you know, Trump originally put on and Biden continued them. Actually people forget,
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this is not just Trump. This is now something that's done on both sides of the, of the aisle
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in the United States, both Republicans and Democrats support these things. Um, and the Chinese tariffs
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were found to, um, be significantly shifted forward to the U S but surprisingly not so much through higher
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consumer prices, but impacting retailer market margins in the United States was kind of an interesting
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story in itself. From what you're saying, Jack, it, it seems to me that diversification of Canadian trade
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should be the longterm goal of any government. And certainly I, I do well recall writing several
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speeches for Mr. Harper back in the day in which we were applauding new deals in Europe and in the,
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in Asia and so forth. But this seems to have fallen by the wayside. Um, you know, the,
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with agreements, we had agreements all over the globe, we wouldn't be in such a tight spot now.
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And if we had ramped up the infrastructure to export oil and LNG off the west coast,
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do you think that Mr. Trudeau now regrets canceling and discouraging those projects?
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Oh, I don't know if he regrets it. He's so, uh, concerned about climate change,
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uh, even though natural gas sales, for example, internationally, if it leads to the reduction
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of coal consumption internationally, that actually could be a win in terms of climate change, not a
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loss. Uh, I don't think he, he regrets it at all. I think that that's because his main and only priority
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has always been climate change. Even, even now he talks about, you know, how climate change is more
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important than putting food on your table. So, you know, I think, I think, I don't think he, he
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regrets it at all. Uh, but I, but it is a good example. Uh, you know, we, we talked about, you know,
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trying to beef up our transportation networks. Uh, there's been the Northern Corridor proposal, uh,
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trying to have more opportunities to sell our goods and services internationally. Uh, and, and oil and
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natural gas is a good example. LNG, we had tremendous number of proposals made around 2010 to build LNG
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plants in BC and only one went ahead and it's now just coming onto production soon. And so, uh, we,
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we have not, we have, we, you know, we've talked the game when it came to, uh, to oil and gas, but
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instead we didn't do anything, uh, after all that time, except for the team X pipeline, that's been the
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only one that had any success. And at the same time, uh, when you look at some of our other sectors,
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you know, we, we still tend to be very focused on the U S and 75% of our total exports go to United
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States. I just mentioned the auto and the oil and gas sector because they are our two biggest export
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earners and, uh, one of, you know, one third of our total export earnings. And yet they, uh, you know,
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90% of that is sold to the United States, which means that we do have a little more just
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diversification than some of the other areas, which is good. Uh, but we haven't really done very much
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outside of some trade agreements, but again, uh, we're, we're still very much dependent on our,
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our, our trade with the United States, which perhaps is not surprising because that's the shortest
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distance for much of our production in Canada. You just have to hop over the border and send
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some things down into that very big U S market, which is now 25% of world GDP.
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Changing the subject very slightly, Jack, uh, we like to think we're a free trade country,
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but you know, as I was buttering my toast this morning, I reach into the fridge and I pull out
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a fresh pound of butter. And it occurs to me that we get all head up when Trump makes these kinds of
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demands, but we still have supply management. So when it comes to free trade, how clean
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are our hands? Are we just talking the talk? Well, I think, uh, you know, I think the article
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that I had this morning, I think was trying to make the point that, uh, for years, especially,
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uh, after the second world war, uh, we adopted a principle of free trade. In fact, the British
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did through the British empire back, you know, even earlier after the evolution of the corn laws in,
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in, in great, in great Britain, uh, in 1846. But you know, the idea of free trade became very, uh,
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uh, very much an objective for, for governments, uh, in order to keep prices lower for consumers and also
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specialize in the industries that you're most able at and have the highest productivity, uh,
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and lowest unit costs to sell abroad. And so, uh, those, those were some of the things that we did
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in that many countries pursued. And when you go to before, uh, 2008, uh, if you look at the kind of
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advice that the world bank gave the international monetary fund, um, uh, as well as other, uh, other,
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in, within many countries, um, the idea of opening up borders, allowing for import competition,
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all those things were good. They were viewed as very good things to do. Free trade was an objective.
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Didn't mean that we have perfect free trade where, you know, and there were certainly areas that,
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you know, we, we did that, uh, you know, where we tried to, you know, uh, protect industries.
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Uh, but still the principle was accepted. And I think today that, that that's all gone now that has
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changed in 20 years, no longer, uh, our country's free traders. So we can, we can easily, and Canada
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is included there. Uh, you know, we can blame Trump for doing what he's doing and, you know,
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criticize him. But on the other hand, we're not pure either. And supply management is a perfect,
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perfectly good example. Uh, everybody will write or any economists where it's the soul will tell
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all the terrible things about supply management. First of all, it leads to higher butter prices,
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higher milk prices, uh, because of the, uh, restrictions on imports coming into the country.
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Uh, it also, um, it also leads to inefficient farms. You know, the typical, uh, dairy farm in
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Canada has got a hundred cows. Uh, I remember talking to somebody in Oklahoma once, uh, when I was there,
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and, uh, he was, uh, he was involved with dairy farming and he told me they had 2000 cows, you know,
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the operations are so much larger and economies of scale and they're exporting a lot. And we know
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that Australia and New Zealand got rid of their supply management. Uh, I had, uh, a great student
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this year at the school of public policy at University of Calgary, Ben Harford, who wrote an excellent
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capstone paper explaining the difference between Australia and the Canadian experience. Australia got
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rid of their supply management and they did it over time by putting a tax on milk that paid for the
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quotas, uh, to reimburse, you know, farmers for, for that. But what happened is that you not only
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are able to have more sales going abroad, uh, and, uh, but you also get a consolidation
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that lowers prices, uh, you know, for milk to the benefit of consumers, but also to the benefit
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of, um, uh, milk product industries like cheese and yogurt and others that could sell more abroad as
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well. And, and, and, but we don't sell anything abroad. No one buys Canadian cheese, you know,
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because raw milk is too expensive. And so it's too expensive to export. And certainly when I,
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you know, go to the store and buy cheese today, it's just ridiculously priced now. I mean,
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a small block of cheese costing $14 when, you know, three, four years ago it was like six or $7.
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And so I, I think we have, uh, you know, real, it's a really perfect example that we do protection
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too. And there's more industries and other examples of protection that, that we give to
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various industries from import competition. And so we can go on about, you know, we might beat our
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chest that we're wonderful free traders, but we're not, we are not free traders. We like to
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protect our industries and it's become a philosophy now that we have to protect industries because,
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because of what happened, you know, during the, after China came in, you know, came, you know,
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came on after WTO accession, uh, and you know, it did hurt the heartland of many industrial countries.
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Although it did all that trade that happened with Asia did lower consumer prices for people in North
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America, uh, and in Europe. But at the same time, it, uh, also, uh, reduced income inequality because
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Asian incomes went up quite a bit and international income inequality dropped all after 2000. And of
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course we benefited from that Chinese expansion and world expansion, uh, after 2000, uh, with higher
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resource prices and Canada was doing very well, uh, especially before the financial crisis in 2008,
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uh, where, you know, the Canadian economy was really booming, uh, as a result of that growth in world
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trade and the demand for resources. So we're, we've, we've now going the other way. Yeah. And that's,
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of course, a concern that I have in terms of where we're, where we're moving.
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So Jack, we're almost out of time here. Um, should I ask you this though? Here we are. I mean,
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Mr. Trump has presented his threats, demands, um, but you know, it seems to me that we should have
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better control over our borders anyway. So why not make a virtue out of necessity and just do a deal
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with Trump? Is that what we're looking at? I, I think in the end, that's the best course of action.
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I mean, think about it, you know, one option is we do nothing. We retaliate. Well, retaliation is
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not going to do anything for us. In fact, it's just going to hurt us too. I mean, may hurt the
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Americans a bit, but it's not going to help us. Uh, and in fact, I read, uh, one editorial today in
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one of the Canadian newspapers this morning, and they're saying we should retaliate, you know, but
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that's, that's not going to do anything. We'll, we'll end up hurting ourselves with retaliation, but
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as, as we're going to be probably, uh, hurting ourselves, uh, exporting into the U S market.
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Um, so if you take that off the deal that doing nothing except retaliating, then the other option
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is trying to make a deal. And, you know, and, and the main point is that we shouldn't, I mean,
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the biggest mistake that the federal government started with is trying to say, oh, this is a Mexican
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problem. This has nothing to do with Canada, but that's wrong. There are things that we should be
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doing. We should be, uh, we should be ensuring that our border is tighter and more secure.
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Uh, we should be worried about, um, potential, uh, terror threats coming through Canada into United
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States. It's not, uh, especially when you have, we're, we're the most, you know, we're responsible
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for most of them being, uh, being apprehended in the United States. So I think we need to worry
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about that. And then in the case of fentanyl, uh, we have increased the amount of production
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within Canada of fentanyl. So again, we, we have a responsibility ourselves, not only to United States,
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but also to ourselves, uh, in trying to reduce, uh, drug abuse and, and the horrible deaths that
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have occurred with fentanyl. It just seems a shocking thing that, uh, a U S president has to
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dictate terms to a Canadian prime minister. And actually he's right. It'd be better for all of us if we
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if we just did what he's suggesting. Yeah, exactly.
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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,
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if you're available. Uh, but meanwhile, thanks and have a great day in Toronto.