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United States North? Surely, you’re joking
Donald Trump was just joking when he told Prime Minister Justin Trudeau that if Canada’s economy can’t function in the face of US tariffs, it should just become the 51st state. At least that’s what Canadian politicians on the government side are rushing to clarify.
Trump made the comment over dinner with Trudeau at Mar-a-Lago after the Canadian PM went stateside in the hopes of establishing a smooth – or smoother – working relationship with the incoming president.
Canada is desperate to avoid the 25% across-the-board tariffs Trump has promised to introduce. The tariffs would hit Canada – and the US – hard, particularly if Trudeau decides to retaliate, which he almost surely will. Cross-border trade between the two countries is worth roughly $1 trillion a year.
On LinkedIn, former Trudeau principal secretary and current Eurasia Group Vice Chairman Gerald Butts noted that this wasn’t the first time Trump had made the 51st state joke.
“Trump used this ‘51st State’ line with Trudeau a lot during his first term. He’s doing it to rattle Canadian cages,” Butts posted before offering a bit of advice.
“When someone is trying to get you to freak out, don’t. #protip”
Good advice.
Warren Buffett recently made positive comments about investing in Canada.
Buffett's blessing: Praise of Canada sparks economic hope. Should it?
Comedian Jim Gaffigan recalls seeing the ubiquitous Canadian Tim Hortons coffee and donuts shops in America. “I always have the same thought: ‘Don’t force your culture on us’,” he quipped.
The joke gets a big laugh with Canadian audiences, wary about American influence seeping into their country. Lately, though, a bigger concern is that Canada is in danger of being ignored, particularly by US investors.
That is why comments made by Warren Buffett last weekend were welcomed so enthusiastically by Justin Trudeau’s unpopular Liberal government.
At the annual meeting of Berkshire Hathaway, the Oracle of Omaha said he was looking at new investments in Canada, adding that he has no hesitation about “putting big money” in the country.
“We do not feel uncomfortable in any way, shape or form, putting our money into Canada,” Buffett said, “... it’s terrific when you’ve got a major economy – not the size of the US, but a major economy that you absolutely, you feel confident about operating there.”
Greg Abel, CEO of Berkshire Hathaway Energy and vice-chair of the company’s non-insurance operations, is a Canadian and widely viewed as Buffett’s successor. He said the company is always looking to make incremental investments in Canada “because it’s an environment we’re very comfortable with.”
François-Philippe Champagne, Trudeau's industry minister, tweeted Buffett’s statement, calling it a “vote of confidence” – and the Liberals sure could use that.
Critics have accused Trudeau of lax fiscal and tight environmental policies, and of presiding over “the slow bleeding of Canada.” The worry is that jobs, capital, and head office functions have leaked south of the border for lower corporate and personal tax rates.
In recent years, investors have complained that Trudeau is more interested in taxing than generating wealth – that he’s a leader who believes the private sector is a golden goose that cannot be killed.
The chorus of criticism reached a crescendo in the aftermath of last month’s federal budget that increased spending and raised the capital gains tax on corporations and the wealthy.
David Dodge, a highly respected former Bank of Canada governor, said the tax rise would make Canada a less attractive place to invest, particularly for start-ups that rely on paying people in shares.
Another former Bank governor, Mark Carney (also an ex-Bank of England governor), said the budget did not focus enough on economic growth. “Governments that spend too much and invest too little will eventually pay a heavy price. The countries that nurture, welcome, and celebrate risk-takers will thrive,” said Carney, widely viewed as a potential and more centrist successor to the left-of-center Trudeau.
The prime minister reinforced his social activist credentials, telling VOX that when everything is going well “the wealthy will find lots of ways to make money off a prosperous and successful middle class.”
“I’m not worried about innovation and creativity. I’m worried about people being able to pay their rent and eventually buy a home,” Trudeau said.
Americans often don’t pay much attention to Canada. But if there is an impression after Trudeau’s eight and half years in charge, it is probably that the Great White North has veered toward quasi-socialism – or that its citizenry is even more reliant than ever on welfare.
That might be a bigger disincentive to investment were the Biden administration not even more addicted to taxing and spending. Canada has a slightly higher corporate tax rate at 26.21%, compared to America’s 25.77%, but President Joe Biden’s State of the Union address proposed to raise the US level to 28% and to increase the top individual income and capital gains tax rates. The Trudeau government has been criticized for a budgetary deficit that is 1.4% of GDP – small potatoes compared to the US’s 6.3% shortfall.
So, despite criticisms and the perception that it is antagonistic toward business, the Canadian government has been remarkably successful at luring inward investment in recent years. Foreign direct investment is at healthy levels, and Canada has established itself as a key player in the global electric vehicle end-to-end battery supply chain, announcing multi-billion-dollar manufacturing and assembly plants by Honda, Stellantis/LG, and Volkswagen, among others, in recent months.
Thanks to Biden’s Inflation Reduction Act, the effort has cost Canada dearly in terms of subsidies – the terms of the Stellantis and Volkswagen deals stipulated that Ottawa match incentives offered to battery makers in the US under the IRA.
Canada’s Parliamentary Budget Office has estimated that the federal government will take 20 years to break even.
But as Tyler Meredith, a former economic adviser to Trudeau, said, Canada’s auto industry is “an amazing story of industrial renaissance.”
During the financial crisis of 2009, it looked like Canada’s auto sector might go the way of Australia and lose domestic production altogether. It has not only maintained production, but it is building the next generation of electric vehicles. “It is super attractive because it has the natural resources, talent, and subsidies,” Meredith said.
The area that even the government’s strongest supporters like Meredith concede there is work to do is the decline in the capital investment base in the resource sector. In 2014, the year before Trudeau became prime minister, it was around $73 billion; today it is around half of that.
The collapse of commodity prices is largely responsible, but the price crash was
compounded by the new government introducing a more rigorous environmental assessment process that increased political risk and lengthened timelines for project reviews. Since then, the oil and gas sector has seen a 43% drop in investment value (in 2015 dollars). Critics contend that a Liberal government hostile to fossil fuels put hurdles in the way of future development and hoped the US shale revolution would price Canada out of the oil market.
But it is not only the oil and gas sector that has seen investment dip. The clean tech industry has also seen a 27% drop since 2017, and even the critical minerals sector, on which so many of the government’s EV hopes are resting, has atrophied, with nickel, cobalt, lithium, uranium, zinc, lead, and platinum all recording double-digit declines, according to a new report by the Macdonald Laurier Institute think-tank.
Contrary to the claims of the opposition Conservative leader, Pierre Poilievre, Canada is not “broken.” It continues to rank highly (though not as highly as it used to) in the World Competitive Index in the 15th spot. It has a well-educated workforce, modern infrastructure, an abundance of energy, and a strong banking sector – and it is relatively easy to start a business.
Meredith says that while people associate Trudeau with poverty and emissions reduction, “he also has an enviable economic investment record” – including the newly completed Trans Mountain pipeline expansion, EV plants, and AI clusters in Toronto, Montreal, and Vancouver. “All those things happened because of intentional government decisions and will serve Canada well over the long term,” he said.
But if the business environment is not as bad as the opposition claims, neither is it an investment Babylon.
Finance Minister Chrystia Freeland admitted as much when she hired another former Bank of Canada governor, Stephen Poloz, to figure out ways to convince Canada’s pension funds to invest more locally, rather than transferring four-fifths of their wealth overseas.
But, as David Dodge pointed out, the job of a pension fund is to raise money to pay pensioners so they invest where they get the highest returns. They are making long-term bets in places privatizing airports and ports, and building toll roads, which suggests that Canada is not as attractive as an investment destination as the government, or even Warren Buffett, thinks.
Republican presidential candidate and former U.S. President Donald Trump gives a thumbs up to supporters after filing the paperwork to put his name on the ballot for the primary election in Concord, New Hampshire, U.S., October 23, 2023.
Young, Angry, and Trumpy
Happy Top Risk Thursday, where we and our partner company Eurasia Group dive into the much-anticipated forecast of the biggest threats we all face this year. You can download the full report here and let us know if you agree or not (or if you now need a drink).
But let’s start with the Top Risk of the year, the US vs. itself. There was a small skirmish last night in the B-league, silver-medal debate between Republican candidates Nikki Haley and Ron DeSantis on CNN that was high on personal insult and low on political consequence. Meanwhile on Fox … he was back for Season 2! Donald Trump held a live town hall, ignoring the other candidates who stand little chance against him. It is Trump’s show now, and Fox is back on board. Here we go!
The Iowa caucus on Jan. 15 formally lights the election fuse on what could be the US electoral version of the film “Oppenheimer.” Bidenheimer? Trumpenheimer? Pick your potential destroyer of worlds, as per your partisan pallor. The rest of the globe is watching because what happens in the US impacts everything from trade to conflicts.
The US is at its most divisive point in generations, but the real story might be, well, generational.
GZERO Media has exclusive access to new polling from Abacus Data, which asked Canadians about the 2024 US presidential election, and the results are telling. Who wants Donald Trump to win? Apparently, young people do.
Overall, 34% of Canadians want Trump to win, and 66% want Biden, which is not a shocker. Neither is the party line breakdown. Preferences for Trump vs. Biden by political choice in Canada are as follows:
Conservatives: Trump 57%, Biden 43%
Liberals: Biden 86%, Trump 14%
New Democrats: Biden 83%, Trump 17%
But check out the breakdown by age: Canadians under 45 are much more likely to prefer Trump to Biden than those over the age of 45. Here’s how it breaks down:
Ages 18-29: 40% want Trump
Ages 30-44: 41% want Trump
45-59: 34% want Trump
60+: Only 23% want Trump
More than any other demographic, young people really want Trump to win. "The strength of Trump in Canada, especially among younger Canadians, reflects a shift in voting behavior and preferences among younger people as they react to a world they feel is deeply broken,” David Coletto, president of Abacus Data, told me (see his Substack here). “In Canada, 49% of men under 45 would prefer to see Trump win the presidency. But even one in three younger women would prefer Trump.”
By the way, this also reflects polling done in the US. A new Gallup survey shows that 42% of Americans between ages 18 and 34 are Trump supporters, and 44% of those aged 35-54 also favor the former president. Biden is losing support among young people and, interestingly, with people of color.
This upends all sorts of assumptions about how younger people vote and how Biden’s economic and social record is not resonating. In the Age vs Rage election, Rage is winning so far, and it’s starting to steal the younger demographic. It also likely reflects where younger people get their information, like TikTok, which recycles a lot of pissed-off voices shouting about why everything sucks (despite many facts to the contrary) and turns it into news.
What does this mean for elections outside of the United States? The conventional wisdom is that Trump might hurt the chances of other conservative or right-wing parties and boost the Left’s prospects, but that might not be the case. “For politicians in Canada who think they will be able to use the US election to their own political advantage – like the Liberals – these results suggest that may not be possible,” Coletto says.
This is consequential. We’ve seen the same story in polling around Israel and Hamas, where older people support Israel’s fight against Hamas, which is recognized as a terrorist group by both the US and Canadian governments. But many younger people feel very differently about the situation, and their support for the Hamas-led fight in Gaza is revealing. It’s not a stretch to forecast that political support for Israel from places like Canada and the US, as the next generation comes to power, might look different than it does today. “The shift in youth preferences may become the story of 2024 with big political implications in the US and in Canada,” Coletto says.
It is still very early in the US election cycle, but the biggest surprise so far? Trump connects with the kids. Everywhere.
________
As I finished writing my column today, news broke that former federal New Democrat leader Ed Broadbent has died at age 87. Broadbent was the very definition of a true public servant and embodied the best of what people expect from political leaders. He transformed and modernized the NDP from the left-wing political conscience of Parliament to a viable power player in government.
Broadbent, as my colleague Graeme Thompson, a senior analyst with Eurasia Group's Global Macro-Geopolitics practice, put it, “distinguished himself as a political thinker, a champion of working-class Canadians, and a politician who earned the respect of his peers across the House of Commons and of people throughout Canada."
- Evan Solomon, Publisher