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Second annual US-Canada Summit focuses on security and trade
Toronto was the place to be this Tuesday for the second annual US-Canada Summit, co-hosted by Eurasia Group and BMO. The event featured a cross-border who’s who of speakers, including former Ambassador to Canada David Jacobson, Under Secretary for Policy at the US Department of Homeland Security Robert Silvers, Delaware Sen. Chris Coons, Illinois Gov. JB Pritzker, and Alaska Gov. Mike Dunleavy. Canadian political heavyweights included the premiers of Ontario and Saskatchewan, Doug Ford and Scott Moe, as well as federal cabinet ministers Mélanie Joly and Anita Anand. UN Climate Envoy and former governor of the Bank of England Mark Carney gave the closing keynote, and both the US and Canadian Ambassadors, David Cohen and Kirsten Hillman, shared the stage. A full list of speakers can be viewedhere.
This year’s themes were the economy and security north and south of the 49th parallel. A major focus was the shift from global to regional blocs in international trade. While Eurasia Group President Ian Bremmer reassured the crowd that “Globalization is not falling apart. We are not heading to a Cold War here,” the Chairman of Cynosure Group and former Vice Chair of the Federal Reserve Randal Quarles took a more skeptical view. “If you’re a 55-year-old furniture maker from Hickory, North Carolina, globalization is never going to be better for you,” he said. The hollowing out of the working class and its impact on politics featured prominently, from the possibility of a second Trump administration to the recent right-wing victories in European Parliamentary elections.
Geopolitical tensions were also on the menu. Speakers touched on the wars in Ukraine and Israel, with Joly underscoring that US President Joe Biden’s proposal is “fundamental” to resolving the latter conflict. China loomed large in the conversation, with Silvers discussing how the US Department of Homeland Security is securing America’s ports by engaging Japanese firm Mitsui to replace Chinese cranes currently dominating port infrastructure. Ford emphasized that “China has the nickel market cornered. You know where the last safe haven is? Here in Ontario.” The Ontario premier concluded his presentation in his trademark style by giving the crowd his phone number (and no, we’re not going to publish it here).
Several speakers emphasized the need for energy security, including securing the supply chain for critical minerals necessary to build EVs. According to Dunleavy, as the world order shifts from a globalist to a regionalist perspective, North America can prosper by securing both its domestic supply and transformation. Moe emphasized that “If we get our energy security, we’ll have our food security, we’ll have our national security. But it starts with energy security.”
Finally, speakers discussed the post-COVID employment landscape and the impact of AI. Jonas Prising, chairman and CEO of ManpowerGroup, said that remote work is here to stay for the world’s knowledge workers. Eurasia Group released a new survey, which found that when asked about job automation, 17% of respondents believe almost all or most of their work could be done by machines, 28% say some of it, and 31% think not very much or almost none. The remaining 24% reported that they do not have a job.
Carney concluded the conference by underscoring the need for an inclusive economy and the importance of a growth mindset, particularly in Canada. “We need to build an economy for all Canadians. We can’t redistribute what we don’t have. We have less to spend because we’ve become less productive.”
Keeping the trains running on time was GZERO Publisher Evan Solomon, who served as event MC while Eurasia Group Advisors Gerald Butts and John Baird and Director Shari Freidman moderated several panels. And in true Canadian form, hockey was a running theme for the day, starting with BMO CEO Darryl White citing the Gordie Howe Bridge as a testament to the strength of the Canada-US trade relationship, and finishing up with Carney wishing the Oilers good luck in the Stanley Cup finals. Based on the way they played last night, they’ll be needing it.
Should Canada give three F’s?
You’re leaving your role as president of the Canadian Chamber of Commerce after 17 years, which has been a transformative time. What is the biggest economic challenge facing Canada's trade with the US?
Perrin: The politics of trade has undergone a sea change in the US under the last two presidents. Previous presidents, from Ronald Reagan on, viewed America's interactions in the global economy as an opportunity to foster American prosperity, and they saw an integrated North American economy as a source of strength. More recently, however, US politicians have started to turn inward, increasingly viewing their country as a victim, and not as the primary beneficiary of international engagement. This change has led them to increasingly align themselves with domestic protectionists who want to build economic walls along the US border.
Unfortunately, this turn inward has coincided with a complacency here in Canada about our most important bilateral relationship. Even the best of friends can't afford to take each other for granted, or they will soon drift apart.
As Canada's relationship with the US has moved from being strategic to being transactional, American leaders are increasingly looking at each issue as a standalone, and they are making their decisions, not on what is in America's long-term best interest, but on where they can find immediate political advantage at home.
We need to rebuild that strategic relationship. It's vital for Canada to be seen as bringing solutions to the major problems confronting the United States, as opposed to simply pleading to be exempted from the latest punitive measure. We need to demonstrate, both in Washington and far away from it that Canada should be treated not as a problem, but as a partner.
Perrin Beatty, outgoing president and CEO of Canadian Chamber of Commerce. REUTERS/Rebecca Cook
You recently said: “Canada is increasingly being viewed by our partners in the region as a well-meaning but unserious player on the international stage." In what ways has Canada become an "unserious player," and what needs to happen to change that reputation?
Perrin: Unfortunately, we have come to see ourselves as a moral superpower whose job is to tell everyone else what they are doing wrong. And we expect them to be grateful to us for it. Too often, we are driven more by a desire for good feelings than for good results. In contrast, other countries are both faster-moving and more engaged in the issues their interlocutors consider most important. The consequence is that, where the US and other countries used to ask, “How do we get the Canadians involved?” their question is now, “Should we inform the Canadians?” The fact that we learned about the AUKUS agreement at the same time as everyone else is just one example.
The Russian invasion of Ukraine two years ago should have been seen by Canada as world-changing, and our response should have been both meaningful and swift, with us marshaling what we have to offer in defense of the democracies. For example, Canada has an abundance of the “three F’s” – food, fuel, and fertilizer – and critical minerals that are essential to global stability. What we lack is the infrastructure, the vision, and the will to bring them to global markets to give countries an alternative to sending dollars to despots. This could be Canada's moment, but only if we are prepared to seize it.
You were a former defense minister under Mr. Mulroney, so you know about dealing with a dangerous world. But now, everyone is looking at the impact of the US election. Are we headed into a period of instability, conflict, and the dismantling of both trade and defense alliances that have been built since World War II?
Perrin: The problems we face, from global poverty to pandemics to wars to global climate change, all require an effective, coordinated international response. Instead of that, we are witnessing countries turning inward on themselves, as well as the increasing ineffectiveness of global institutions like the UN, the World Trade Organization, and the WHO in actually resolving issues that go to our very survival.
When I was privileged to be in government, there was a sense that, when the leaders of the G7 – leaders who included Reagan, Thatcher, Mitterrand, Kohl, and Mulroney – came together, problems would be resolved. Today, when international meetings take place, you get the feeling that our problems are bigger than our leaders. In fairness, the world is a much more complex and dangerous place today, but that's precisely why we need leaders whose vision, determination, and morality are up to the challenge. As your question suggests, we're at a crossroads that will determine whether we will be able to maintain the institutions and strategies that have guaranteed democracy, peace, and prosperity since the Second World War. The stakes have never been higher.
AI is both a transformative opportunity and a destabilizing threat. What is your view of how will impact business?
Perrin: Like businesses the world over, Canadian businesses will be transformed either for the better or for the worse by AI. AI, like the nuclear genie, can't be put back into the bottle. Our challenge is first to understand it, then to decide how to mitigate its potential bad effects, and then to determine how to unleash its positive aspects. In this instance, the technology is developing at a pace that far outstrips our capacity to understand it and manage it well. However, calls to initiate some sort of a standstill until we have thought these things through are naïve and unworkable; all that would happen is that the unscrupulous players would widen their lead.
The challenge for Canadian policymakers is how to successfully work with others on coordinated policies that limit the dangerous aspects of AI without denying its benefits to our industry and our society.
If there is a second Trump Presidency, what should Canada expect from the 2026 review/renegotiation of USMCA trade deal?
Perrin: Many Canadians expected that when Joe Biden became president, he would reverse the Trump protectionist measures. However, that assumption overlooked the fact that, in the past, Republicans were more in favor of free trade, while Democrats were more protectionist. In fact, the Biden administration has actually deepened some of the protectionist policies initiated by Donald Trump.
The danger is that the election will be a contest between two candidates trying to demonstrate who is more protectionist. Canadians must respect the right of US voters to determine their own government, just as we would insist on the Americans respecting our rights, but we need to demonstrate that it is in Americans' self-interest to foster a stronger relationship with their closest neighbor and best friend. And we must do that, not by special pleading, but by coming up with solutions to problems.
Finally, what is the best-case scenario for the US-Canada relationship in terms of economic prosperity and security? Is there a way to slalom through the protectionism, AI disruptions, political polarization, climate challenges, and conflicts and see a time of increased joint prosperity?
Perrin: The best-case scenario is that we restore a strategic partnership with the world's greatest superpower. We've let the relationship slide for too long, and it won't be easy to regain that position. But I believe it can be done if we muster the vision and the will to make it happen.
Last thing: You worked for Brian Mulroney, who recently passed away. He was the architect of the North American Free Trade Agreement and worked closely with Ronald Reagan. What lesson can today’s leaders learn from that time?
Perrin: As Canadians commemorate Brian Mulroney, our leaders should ask what they can learn from Canada's last great transformative prime minister. Brian Mulroney understood that governments don't create jobs and prosperity, businesses do. He also knew that the best way to solve problems was not to shut people out but to bring them in.
It's impossible to say exactly what policies a different government would follow, but what we do know is that our economy and our country are under severe strain today. The leader history will remember best will be the one who brings people together again in what remains the most fortunate country on the face of the globe.
Canada braces for a Trump presidency
Canada’s Foreign Minister Mélanie Joly says Justin Trudeau’s government is working on a “game plan” for how it would respond to a right-wing, protectionist government in the United States after the 2024 election – just in case. She said she would work with local and provincial leaders as well as the business community and unions to do so.
Joly also referenced the efforts Canada made the last time, when Trudeau launched a charm offensive in 2016 in a bid to keep Trump sweet. Canadian political and business leaders made an unprecedented push to communicate with different levels of the US government and the business community about the value of the trade relationship. They eventually negotiated a new deal similar to NAFTA, the United States-Mexico-Canada Agreement.
The possibility of a second round with Trump, who forced Canada to renegotiate its crucial trade relationship with the US, is widely seen as a threat to the countries’ trading partnership.
And Trump is not doing anything to calm the waters. The former president met recently with advisers at his Mar-A-Lago compound in Florida to discuss his plans for the 2024 election, according to the Washington Post. They discussed the idea of a “universal baseline tariff” on imports to the US, with Trump interested in putting a “ring around the U.S. economy.” This, Trump told Fox News, could entail a 10% tariff on all imports.
Under the terms of USMCA, most trade between Canada, the US, and Mexico is currently conducted without tariffs. But that deal is due to be reviewed and renewed in 2025-2026.
More than $3 billion in goods and services cross the border each day, everything from auto parts to building supplies to Amazon packages. In 2016, the two countries did $627.8 billion worth of trade. By 2022, it had increased to $1.2 trillion – so any disruption could have cataclysmic effects on the trade-dependent Canadian economy, as well as serious effects on the US economy, particularly in border states.
Trudeau’s fight with big tech could bleed into US election
Justin Trudeau and Joe Biden appear to be headed for a showdown over tax policy that could bleed into the US presidential election – and Bruce Heyman, one of Canada’s best friends in the United States, is worried.
Heyman, a former Goldman Sachs banker who Barack Obama sent to Ottawa as ambassador to Canada in 2014, is normally upbeat about the relationship between Washington and Ottawa. During the long and difficult USMCA negotiations, when Donald Trump threatened to tear up NAFTA, Heyman was a loud and persistent voice calling for calm, pointing to the benefits of the enormous cross-border trade.
But he has been worried since last Friday when he watched Finance Minister Chrystia Freeland firmly defend Canada’s plan for a new digital service tax at a forum in Aspen, and absorbed a stern warning from current Ambassador David Cohen. The plan is to impose a 3% tax on big tech revenue in Canada.
“I would recommend everybody take Ambassador Cohen’s comments last week very seriously,” Heyman says. “The US would have to respond in some way.”
In a Canadian interview published Friday, Cohen said that if Canada proceeds with its tax plan, the United States will have “no choice but to take retaliatory measures in the trade context, potentially in the digital trade context.”
On the same day, in Aspen, Freeland stood firm, delivering lines that sounded very much like those she delivered during the high-stakes USMCA negotiations.
“We believe in being nice,” she said. “We believe in being polite. When we have disputes we think they should be negotiated in a civil way. But we also believe at the end of the day you have to stand up for the national interest.”
How we got here
The roots of the dispute go back to the Canadian election of 2019, when the Liberals promised to “make sure that multinational tech giants pay corporate tax on the revenue they generate in Canada,” in the form of a 3% digital services tax, similar to measures in the UK, France, and Italy. Freeland included the measure in a budget document in 2020 but postponed the plan for two years while OECD members worked toward an international agreement. The 143 countries in the tax deal are trying to reallocate taxing rights on about $200 billion in profits from multinationals to the countries where they do business.
But the OECD talks ended two weeks ago with the parties agreeing to another delay, at which point Freeland said Canada would bring in its own tax on Jan. 1, 2024. “Canada is being asked, again, having agreed to a two-year standstill, to agree to further standstills with no fixed date … so for us, that’s clearly a disadvantageous position,” she said in Aspen.
Canada is isolated. Of the countries in the tax talks, only four other countries — Belarus, Pakistan, Russia, and Sri Lanka — rejected a one-year extension. “When you look at the countries that do not agree with that position, they are not countries that you would normally think Canada wants to be a part of,” Cohen said. “They are a combination of autocracies and Third World countries.”
This is the second run the Canadians have taken at Silicon Valley this year. In June, Trudeau’s government passed a law that would require social media platforms to make payments to Canadian news outlets. Both Meta and Google have balked and moved to drop Canadian news from their platforms rather than pay, embarrassing the government.
Tyler Meredith, a former advisor to Trudeau, helped write the tax policy in question. He says the Canadians are determined to implement a digital services tax, in part because multinationals are able to shelter their profits in low-tax jurisdictions, meaning they extract money from Canada without contributing meaningfully to the economy.
How Washington will respond
Meredith says that while the United States can impose tariffs, they may not win a trade-dispute resolution process on the issue because the tax measure is within Canadian jurisdiction, and any tax would apply to both Canadian and foreign companies. He says the government won’t want to just drop its plan.
“Having put effectively four years into this effort and already made assumptions in our fiscal framework … and having worked in partnership with the US and other OECD partners, it’s very hard for Canada to move off that position without confidence we’re getting something in return.”
But Heyman warns that Cohen isn’t bluffing. “The US embassy and the US government are going to work hard to stand up for US industry. I don’t know what actions will or could be taken. But, trust me, I would just take the ambassador's comments seriously.”
Jonathan Lang, Eurasia Group’s director for trade and supply chains, agrees that the US will feel obliged to respond if Canada proceeds. “I do think the US would have to respond with a tariff regime of some kind if DST were to move forward in Canada, sidestepping the OECD negotiations,” Lang says. “That would be a warning to others.”
Lang, who was director for international economic affairs in Trump’s White House, points out that the former U.S. president threatened France with a wine tariff when French President Emmanuel Macron brought in a similar tax in France. The Americans, under Biden or Trump, don’t want to see countries imposing taxes on U.S. tech companies. “I strongly suspect that the US would have to draw a line in the sand of some kind here,” he adds.
This high-stakes showdown is taking place in the run-up to the 2024 presidential election, in which Trump can be expected to argue that Biden is too soft on foreign competitors.
That is what makes Heyman nervous about the whole thing: “The US in 2024 may have a Trump card, and that changes the dynamic of the poker game entirely.”
Political fortunes, job futures, and billions hang in the balance amid labor unrest
A port workers' strike in British Columbia that has snarled trade between Canada and its trading partners, including the US, since early July was thought to have ended. But picketers were back in action on Tuesday after union leaders rejected a deal worked out through federal mediation. And then there was another twist.
Labor Minister Seamus O’Regan called the worker action “illegal” after a review by the Canada Industrial Relations Board found that the union failed to give the required 72 hours’ notice. The union defended its move, saying it had already been in a strike position, but following the CIRB finding, it acquiesced, took down pickets, and submitted a 72-hour notice with plans to resume the strike on Saturday. Prime Minister Justin Trudeau then assembled his Incident Response Group – a team of ministers and senior officials – to discuss the strike, the government’s options, and their next steps.
Hours later, the union revoked its strike notice. If the union plans to strike again, it must now offer a new 72-hour notice. It has not said what its next steps will be, but workers, industry, and governments on both sides of the border are watching closely for next moves.
Over 7,400 port workers from the International Longshore and Warehouse Union have been involved in the strike, seeking higher compensation to help meet cost-of-living challenges in one of Canada’s most expensive provinces and advocating for long-term job protection against automation. A resolution seemed to be in hand, but the union decided this week that the four-year deal was too long and that the employer, the B.C. Maritime Employers Association, didn’t sufficiently address demands for job protection.
It’s unclear whether the initial deal will now be put to a vote or if a new deal is in the works. In the meantime, the strike has done exactly what strikes are meant to do: disrupt, and a new strike threatens to disrupt even more.
Employers and business leaders fear a fresh strike could cost anywhere from CAD$775 million to CAD$1 billion a day in trade. The Greater Vancouver Board of Trade even has a running counter to show the “value of trade disrupted” by the strike. Jobs may soon be on the line, as management has begun warning that the halt in port trade could lead to layoffs.
The agitation has renewed calls for back-to-work legislation, with politicians like Alberta Premier Danielle Smith supporting such a move. If the strike resumes, there will be increased pressure on the government to go nuclear – and similar pressure from labor across the country, and the New Democratic Party in parliament, for it to respect collective bargaining rights and hold back.
How the strike is muddling supply chains
Annual trade between the two countries reached nearly US$800 billion in 2022 and over $321 billion in the first five months of 2023. But last week, the Association of American Railroads reported a 46% drop in freight rail moving from north to south as a result of the strike. The logjam is expected to affect the flow of petroleum, chemicals, forest products, and minerals.
“There’s no question that the strike is already affecting Canada-US trade,” says Graeme Thompson, a senior analyst with Eurasia Group's Global Macro-Geopolitics practice. “A lot of the goods that come into port in British Columbia subsequently cross into the US.”
But Thompson believes geopolitical incentives and realities will trump short-term disruption. “It’s hard to see significant medium- or long-term damage to US-Canada trade, at least once the backlogs are cleared and the situation returns to normal.” But the short-term pain is significant.
The US faces a potential supply chain headache of its own
The US is facing its own trade-disruption labor unrest: UPS workers may strike if the company can’t reach a deal with the Teamsters before July 31. Compounded with a potentially rebooted port strike, that could spell trouble for US consumers and the economy.
The UPS strike would include 340,000 workers who are seeking more money and better, safer working conditions. UPS is second only to the United States Postal Services in US shipping, moving 5.2 billion units last year. The Anderson Economic Group says a 10-day strike would be the most expensive the country has seen in 100 years, racking up over US$7 billion in losses. Once more, the pressure is on management to make a deal with workers.
Getting workers back on the job
Angella MacEwan, senior economist at the Canadian Union of Public Employees National (which does not represent the striking port workers but does represent port workers in Montreal who were legislated back to work by the Trudeau government in 2021), opposes the use of back-to-work legislation. Forcing workers back on the job, she says, would undermine collective bargaining rights and leave underlying issues “to fester and potentially create a worse labor relations situation in the future.”
Instead, MacEwan points to a path for resolution. “The workers’ original position was that they needed language to protect workers (now and in the future) around AI and automation, and this wasn’t in the mediated deal,” she says, adding that the ask is similar to that seen in the US with the SAG-AFTRA and Writer’s Guild strikes. To get this, the port workers would need a new offer, which may or may not be in the works.
She suggests that employers and the government take workers' concerns seriously. “As AI and automation transform work, it makes sense that there’s going to be a struggle between workers and employers over both how work changes and how the economic surplus generated from that change gets distributed.”
Consumers like to buy things … and to vote
As the Canadian labor action threatens to continue and with a potential UPS strike looming, consumers may begin to feel the pinch, fueling calls on both sides of the border to end the strikes. In the short term, Thompson says “trade disruptions will likely hit consumers in the form of goods shortages, higher prices, and slower growth – none of which are things that governments in Canada or the US want to see amid ongoing cost-of-living pressures and fears over a potential recession.”
With both President Joe Biden and Trudeau expected to face elections in 2024 and 2025, respectively, Thompson believes this is a risk both leaders are likely considering.
“It’s not simply that high prices and rising interest rates are economic problems – there’s a wider potential fallout in terms of how cost-of-living pressures and slower growth can rebound politically,” he says. “No incumbent wants to face reelection under these circumstances.”
The Graphic Truth: US-Canada agriculture trade boom
The US and Canada, whose trade relationship topped $1.2 trillion in 2022, have long been at loggerheads over one key sector: agriculture. Indeed, both countries have accused the other of putting in place protectionist policies that undermine the spirit of free trade.
This all came to a head in 2018, when then-President Donald Trump played hardball over the renegotiation of a US-Canada-Mexico trade agreement, citing Ottawa’s role – dating back to the 1960s – in stabilizing agricultural prices at home. And Trump isn’t the only one with protectionist proclivities: President Joe Biden has kept many of his predecessor’s trade policies intact.
Despite claims that broad free trade agreements have hurt their respective farming sectors, bilateral agri-trade has in fact boomed over the past few decades due to the eradication of trade barriers. We take a look at US-Canada agriculture trade since 1990.