00:00The saying goes, you don't poke a bear in the eye, unless you're Canadian Prime Minister
00:05Mark Carney and your country and half of the rest of the world is cheering you on, so
00:09you just keep on poking.
00:11The bear is Donald Trump and today PM Carney was at it again in front of the European Parliament.
00:16Not quite a home crowd, or not yet, but the day after Ursula von der Leyen proposed that
00:21Canada could become an associate member of the European Union, Mark Carney sketched out
00:26the reason why Canada might hope to join, and what they would bring to the table.
00:31And yes, he did some more poking.
00:35I'm not proposing a third block in order to become a great power rival, only with better
00:42manners.
00:50We do not seek power to dominate others.
00:54On the contrary, we are pursuing resilience so no one, no one can control our open markets,
01:04impair our sovereignty, threaten our territorial integrity, or undermine our freedoms, our
01:09democracies, our rule of law.
01:13OK, so Trump has not taken that latest bait laid out by Carney there in Strasbourg, how
01:19he might feel about the EU Parliament having a laugh at his expense.
01:22But he has made it clear his feelings about how he sees the idea of Canada formally going
01:29into business with Europe.
01:32Now, I think it's laughable.
01:33Look, the whole thing with Canada.
01:36Canada has been a terrible trade partner.
01:39And no, I don't see that.
01:41And if they do that, if I think it's at all a hostile act, I will put very serious tariffs
01:47or stop trading with Europe on many things.
01:50So if they do that, if Europe does that with a bad intention, if it's a good intention, that's
01:56fine.
01:56If it's a bad intention, we'll put very heavy tariffs on Europe.
02:00Right, so tariffs are back on the table.
02:02And with that, we're speaking with Abigail Hall, Professor of Economics at the University
02:06of Tampa and Senior Fellow at the Independent Institute.
02:11Abigail, I think it was 18 months since we spoke around the time of Liberation Day when
02:15the US President unveiled his tariff board.
02:18A lot has happened since then.
02:19A lot has happened in the last 24 hours, too.
02:22From the US perspective, I wonder why or how could the US President see Canada joining or
02:27more closely aligning with the EU as a threat to US interests?
02:32So in terms of how this might potentially threaten US interests, at least from an economic
02:38perspective, the idea that Canada is going to broaden their trade relationship with the
02:44European Union is not some kind of direct economic threat to the United States.
02:48There's a lot of reasons why we would anticipate US-Canadian trade relationships to continue.
02:55But the bigger threat here is maybe counterintuitively the potential for more intensive tariffs on Canadian
03:03trading partners.
03:04That would much more be the more substantive economic threat than Canadian ties to the European
03:10Union.
03:11Yeah.
03:12In this part of the world, I would say that Mark Carney has become some sort of a symbol
03:16of the resistance to Trump, the jibes, the constant poking, if you will, the taco tags.
03:22Is there a sense from people who keep following the trade economics, the economics, not the politics,
03:27the actual tariff levels, that what the US President says and threatens does not always
03:32materialise or, as you allude to, is there a real chance that he could follow through and
03:39really be ready to take the anti-Canada, anti-EU tariffs to the next level?
03:46So there's some potential options here or it's not necessarily set in stone.
03:52So certainly what you are pointing out, the fact that we have had these on again, off again,
03:57on one level, another level, you know, tariffs being enacted and pulled and changed, there's
04:03a lot of what economists refer to as regime uncertainty around tariffs, meaning we're not
04:08really sure or it's really difficult for us to plan what these kinds of trade relationships
04:13and the tariffs are going to look like either now or immediately in the future.
04:19One of the things that we can say about the tariffs, however, is that even though the kind
04:25of broad sweeping tariffs that were initially put in place have been struck down by the
04:30US Supreme Court, this doesn't mean that the administration lacks options when it comes
04:35to tariffs.
04:36And so with the Canadian case specifically, we are seeing things like more intensive sector
04:42targeted tariffs.
04:44And those are certainly things that the president in his capacity could do.
04:48There is, however, a really important kind of counter to this, which is that there's a lot
04:53of US industry, which is directly tied to Canada and to Canadian exports.
04:59And so to the extent that that begins really hurting US business interest, there's going
05:03to be a strong kind of counter in a way that it politically could be very important.
05:09And looking from the EU Canada side, Abigail, they are enjoying each other's political company.
05:16How might Carney's policy of strengthening middle powers, if we play that out, what Canada is proposing
05:22to do or alluding to, is it a thing that the middle powers, has the effect of the US turning
05:29on some of its traditional allies really started to move and shift the way trade is already done
05:36around the world?
05:37Has there been a shift?
05:39So I think that what's really happening here is you are having some different states who are
05:45paying really close attention to how concentrated or how diverse their trade partnerships are.
05:52So from the Canadian context, 71% of their exports are coming to the United States.
05:58It's not realistic that the European Union would replace the United States as Canada's dominant
06:04trading partner.
06:05But closer ties with the EU can certainly provide an important, large potential market for Canadian
06:14producers, which alleviates some of those economic pressures that the US government may try to
06:20impose on our neighbors to the north.
06:23From the European's perspective, you're looking at concerns about reliance on Chinese materials,
06:30as well as reliance on Russia for certain materials like oil.
06:34And Canada provides a potentially very secure, politically aligned trading partner in a way which,
06:41again, reduces reliance on partners that have either proven to be not reliable or subject to
06:49intensive disruption.
06:50And so with that, I think the important, just simple question is what kind of effect could
06:56that have on the US economy?
06:57I think you laid out the case really well as to how much Canada can do.
07:03You put it really clearly.
07:05But what kind of effect, if they do everything that they want and Carney has all of his wishes,
07:10what kind of effect could that have on the US economy?
07:14So realistically, if you see this kind of more intensive integration between Canada and the
07:20European Union and say Canada was to become this associate member in the EU, I don't really
07:27anticipate that this would have substantially kind of detrimental economic effects to the United
07:31States, even if you start looking out again, five, seven years.
07:35And then again, it has to do with existing supply lines, supply chains, shipping costs and other
07:43types of costs just going across oceans in terms of trade compared to the US and Canada.
07:50But the more kind of pressing potential problem for the US economy is if as a result of these
07:57potential or actualized trade agreements between Canada and Europe, that the US government would
08:03impose more intensive trade restrictions on our trading partners, which not only impacts
08:08our trading partners, but it has very, very intensive domestic implications as well.
08:13In terms of the trade specialists and the economists and Trump aside, what is the view from inside of
08:20the states of Canada's move among the more objective political and economic observers in the US?
08:27Is it understood that they have to go down this path?
08:32So from an economic perspective, this honestly makes a lot of sense if you're looking at it
08:37again, just as an economist assessing what it is that the Canadian government and the EU is
08:43attempting to do, which is they're recognizing the potential drawbacks to having so much concentration
08:51in the US as a trading partner and what it means when those trade relationships are not necessarily
08:57reliable. And so from that perspective, at least from the economists that I'm talking with,
09:03is this is perfectly understandable as a very reasonable choice by the Canadian government
09:09to attempt to diversify its portfolio of trading partners so that they can have, again, not a
09:16total diversion away from the United States, but have a mechanism that not only allows them
09:23alternative economic avenues, but also is a way of reducing the potential kind of US economic
09:30leverage within the Canadian context.
09:33I want to finish where we started. A great power rival only with better manners. It does seem
09:39a clear sideswipe at Donald Trump. I'll leave it to you as whether you want to expand or buy into
09:44the words of Canadian PM Carney. But I might ask you if you think I might rather ask you if
09:49you think
09:50the market, not the politics, but the economic markets don't flinch too much or as much anymore
09:56when new alliances are forming and Donald Trump is reacting.
10:02So I think that one of the things that we've certainly seen is that markets still can and do react
10:07to policy pronouncements from the US government. And again, that doesn't necessarily change when you
10:13have Donald Trump or someone else occupying the White House, but certainly all of the economic
10:20churn and the pronouncements. And again, the on again, off again nature of trade policy in particular
10:26has certainly, I think, dulled a lot of people's kind of intuition when it comes to taking these policies
10:33at their face value versus anticipating that there are going to be subsequent changes. But in terms of
10:41thinking about kind of how this works, this is really an illustration of this kind of messy
10:47intersection between economics and politics. And so ultimately, what this is revealing is that we can start
10:53talking about politics, or we could talk about political swipes or political egos. But at the end of the
11:00day, economic costs are significant. And they're not just born by policymakers, they're born by everyday
11:07people, whether they're in the US, they're in Canada, or they're within the EU or elsewhere in the world.
11:13Abigail Hall, always a pleasure. A professor of economics at the University of Tampa and senior
11:19fellow at the Independent Institute. Always a pleasure. Really appreciate your time. Thanks again.
11:28You
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