WEBVTT - Royal Bank of Canada President & CEO Dave McKay Talks US Trade 0:00:02.400 --> 0:00:06.720 Bloomberg Audio Studios, podcasts, radio news. 0:00:06.800 --> 0:00:09.680 Let's turn to the election. Donald Trump doubling down on 0:00:09.680 --> 0:00:12.520 his trade policy, telling the Wall Street Journal he's committed 0:00:12.560 --> 0:00:15.840 to upholding the USMCA. The agreement, of course up for renewal. 0:00:16.160 --> 0:00:19.640 In twenty twenty six, RBCCO Dave McCay wank in on 0:00:19.800 --> 0:00:23.000 US Canada relations, saying it would be inflationary for America 0:00:23.079 --> 0:00:26.600 to make everything so by America can't be a go 0:00:26.680 --> 0:00:29.240 to loan strategy. Dave joined US Now for more. Dave, 0:00:29.240 --> 0:00:31.360 good morning, It's good to see you. Warren Jonathan, Let's 0:00:31.360 --> 0:00:35.280 start there. That's a big, big talking point for both economies. Actually, 0:00:35.479 --> 0:00:37.360 where do you think the US and Canada can work 0:00:37.400 --> 0:00:39.559 closely together? Be on twenty four. 0:00:40.040 --> 0:00:41.960 Well, you start with the history. I mean the longest 0:00:42.040 --> 0:00:45.680 undefended border. You look at the trade and balance trade 0:00:45.680 --> 0:00:49.240 over four hundred billion dollars crossing the border each way 0:00:49.440 --> 0:00:53.280 every year of thirty four states in the US, Canada's 0:00:53.280 --> 0:00:56.760 a number one trading partner. Look at we can take 0:00:56.800 --> 0:00:59.840 on energy. The US exports more goods and services to 0:01:00.000 --> 0:01:02.959 Canada than Canada exports the other way. Energy exports from 0:01:03.000 --> 0:01:05.039 Canada kind of balance that trade. So you look at 0:01:05.040 --> 0:01:08.680 this long standing relationship, you look at supply chains that 0:01:08.720 --> 0:01:12.800 are integrated, very very important. But the message is, you know, 0:01:12.959 --> 0:01:16.040 Canada has a challenge and America has an opportunity. And 0:01:16.080 --> 0:01:18.120 I think that's the key message for Canada. We have 0:01:18.160 --> 0:01:20.440 to put a business lens on our economy and we 0:01:20.480 --> 0:01:22.640 have to think about how do we become more relevant 0:01:22.680 --> 0:01:26.040 to the largest economy in the world, fastest growing economy 0:01:26.080 --> 0:01:27.559 in the world. And you can put a business lens 0:01:27.600 --> 0:01:29.200 on that. You look at what you're good at and 0:01:29.240 --> 0:01:32.360 what America needs. Canada needs to do a better job 0:01:32.400 --> 0:01:35.440 of aligning to what America needs. America needs Canada to 0:01:35.440 --> 0:01:38.960 produce more energy, not only for America but for its 0:01:39.080 --> 0:01:43.760 key trade partners as well globally. America needs Canada to 0:01:43.800 --> 0:01:46.920 be more involved in overall security. Canada can play a 0:01:47.000 --> 0:01:51.600 much bigger role in the Arctic growing area, trade area, resources, minerals, 0:01:52.280 --> 0:01:54.440 all of that. So when you think about the relevance 0:01:54.480 --> 0:01:57.640 of our economies, the integration of our supply chains, the 0:01:57.920 --> 0:02:00.680 natural resources we have, the people reason verses we have, 0:02:01.960 --> 0:02:05.640 America can't go on alone because it's challenged in meeting 0:02:05.680 --> 0:02:08.639 the demand of its economy from a human resource perspective, 0:02:08.639 --> 0:02:11.400 from a mineral's perspective, and therefore kind that can help 0:02:11.440 --> 0:02:12.960 tame inflation in America. 0:02:13.200 --> 0:02:15.600 I'll try and be diplomatic about this. Yeah, how big 0:02:15.600 --> 0:02:17.799 is the spence between everything you sent which just made 0:02:17.840 --> 0:02:21.400 sense and the policy is coming out of current administrations 0:02:21.440 --> 0:02:23.720 both north of the border and Santa the Border. 0:02:25.120 --> 0:02:28.600 Look, the America will choose who they want to run 0:02:28.639 --> 0:02:30.840 the country at the end of the day, there's some 0:02:31.000 --> 0:02:33.800 common policy issues. I think any government in the United 0:02:33.800 --> 0:02:36.920 States and equally any government in Canada as we go 0:02:36.960 --> 0:02:40.520 through a similar election next year, First and foremost a 0:02:40.520 --> 0:02:44.359 fiscal deficit. We will not enjoy long term prosperity unless 0:02:44.360 --> 0:02:46.760 we get control of our fiscal deficit. And therefore, as 0:02:46.800 --> 0:02:49.880 we look at the policies, whatever party they're coming from, 0:02:49.960 --> 0:02:52.519 we have to banish this fiscal deficit. We've already talked 0:02:52.560 --> 0:02:55.280 this morning on your show about Marcus trying to digest 0:02:55.320 --> 0:02:56.920 the amount of debt coming through, how we're going to 0:02:56.919 --> 0:02:58.760 price that debt, how are we going to float that debt. 0:02:59.240 --> 0:03:02.040 We have to get control of these deficits. We don't 0:03:02.080 --> 0:03:04.400 need that stimulus in the economy right now. Economy is 0:03:04.400 --> 0:03:08.080 strong and therefore lower rates will stimulate further business investments. 0:03:08.120 --> 0:03:11.200 So I think from that perspective, we're looking for policy 0:03:12.080 --> 0:03:16.320 that really aims at stabilizing and reducing that deficit. I 0:03:16.360 --> 0:03:18.560 think is really important. So regardless of who's in power, 0:03:18.919 --> 0:03:20.680 we kind of we need that policy change. 0:03:20.880 --> 0:03:23.400 But how desperate is the big business community, especially in 0:03:23.400 --> 0:03:26.240 a place like Canada, for policy that they know is 0:03:26.280 --> 0:03:28.919 going to stick. You're talking about energy, in my mind 0:03:28.960 --> 0:03:33.360 immediately goes to Keystone. Right, three administrations start and go 0:03:33.919 --> 0:03:37.080 of this one project with executive orders. Why would any 0:03:37.280 --> 0:03:39.720 business in Canada want to make decisions about doing business 0:03:39.760 --> 0:03:40.360 in America. 0:03:41.200 --> 0:03:43.040 I think you look at the history that was one 0:03:43.080 --> 0:03:46.000 project exactly, and I think everyone's disappointed that we weren't 0:03:46.040 --> 0:03:48.120 able to conclude that project even though it was so 0:03:48.240 --> 0:03:51.880 close to coming online. At the end of the day, 0:03:51.920 --> 0:03:55.360 we still have the capacity to export to the United States. 0:03:55.600 --> 0:03:59.120 We're exporting in Canada to new markets Transmountain Pipeline was 0:03:59.160 --> 0:04:03.160 complete and therefore or exporting to Asia increasingly. That helps 0:04:03.240 --> 0:04:05.760 America as well. At the end of the day. If 0:04:05.800 --> 0:04:09.200 we can secure energy security for all trading partners, I 0:04:09.200 --> 0:04:11.360 think that's a big part. So Canada can play a role, 0:04:11.440 --> 0:04:14.440 even though pipelines aren't being built directly to the United States. 0:04:14.640 --> 0:04:17.720 We can help trading partners, whether it's in Japan, whether 0:04:17.800 --> 0:04:20.200 it's in South Korea and others who have an energy 0:04:20.240 --> 0:04:23.080 need for their growing economies. So there's roles we can play. 0:04:23.279 --> 0:04:25.160 We're going to go through bumps to the road. This 0:04:25.200 --> 0:04:27.520 is a long standing relationship, enery as you know, and 0:04:27.560 --> 0:04:31.520 therefore we will overcome any obstacles. We have to work together, 0:04:31.560 --> 0:04:35.760 and I think integrating supply chains leveraging those resources. You 0:04:35.880 --> 0:04:38.640 have to think about who you're aligned to. From an 0:04:38.640 --> 0:04:42.119 ideology perspective, I think the democratic process and our belief 0:04:42.120 --> 0:04:45.760 in the democracy, and therefore that long standing partnership I 0:04:45.800 --> 0:04:47.680 think can flourish to the benefit of both sides. 0:04:47.800 --> 0:04:50.320 How are you looking at trade under Harris and Trump, 0:04:50.400 --> 0:04:52.440 Because regardless of who wins, there's going to be this 0:04:52.520 --> 0:04:54.280 review of USMCA. 0:04:55.000 --> 0:04:56.840 I think at the end of the day, when the 0:04:57.520 --> 0:05:00.520 facts are put on the table and thirty four states, 0:05:00.800 --> 0:05:03.640 many of them Red states men and blue states, they 0:05:03.640 --> 0:05:05.880 look at Canada's number one trade partner, you look at 0:05:05.880 --> 0:05:08.919 the long standing relationship. We're going to have disagreements, I 0:05:08.920 --> 0:05:10.760 think at the fringe the way we did last time. 0:05:10.800 --> 0:05:13.680 I think Milkin, Wisconsin was an area of disagreement. There's 0:05:13.680 --> 0:05:16.440 going to be areas of disagreement. At the core, I 0:05:16.480 --> 0:05:18.839 think we see the benefit to both nations, and therefore 0:05:18.920 --> 0:05:20.599 I think we have to keep that front and center 0:05:20.600 --> 0:05:24.120 in business myself as a leader in Canada and a 0:05:24.320 --> 0:05:27.640 very large US operation, We as business leaders have to 0:05:27.720 --> 0:05:29.960 keep the strengths and the need for this at the core. 0:05:30.440 --> 0:05:33.279 And I think we'll argue with the French hopefully and 0:05:33.360 --> 0:05:35.400 resolve those but at the core we know how important 0:05:35.400 --> 0:05:35.680 this is. 0:05:35.839 --> 0:05:39.000 How much are you yourself planning to continue the expansion 0:05:39.040 --> 0:05:41.080 in the US or is that pretty much done? 0:05:41.640 --> 0:05:44.479 No, thank you for asking that. We have a fantastic 0:05:44.600 --> 0:05:47.440 US operation, a top ten capital markets flare at number 0:05:47.480 --> 0:05:50.360 six in wealth distribution. We have a commercial bank and 0:05:50.400 --> 0:05:53.720 a private bank with City National, and therefore we very 0:05:53.800 --> 0:05:57.880 much believe we're serving America and particularly through a capital 0:05:57.920 --> 0:06:01.360 markets operation, large corporate institutional, we're serving high net worth 0:06:01.760 --> 0:06:04.200 and ultra high networth individuals. For the wealth we're growing 0:06:04.200 --> 0:06:07.240 each franchise, whether it's a number of investment bankers we hire, 0:06:07.240 --> 0:06:09.160 the number traders we hire, the amount of balance sheet 0:06:09.160 --> 0:06:11.359 we put into the United States continues to grow. We 0:06:11.360 --> 0:06:14.280 put a significant amount of our balance sheet into the US. 0:06:14.839 --> 0:06:19.160 We're growing our commercial operations into big corporate. And then 0:06:19.320 --> 0:06:22.719 to your question, Lisa Nor South connectivity, we bank companies 0:06:22.720 --> 0:06:25.320 on both sides of the border. We understand the needs 0:06:25.360 --> 0:06:27.960 of the supply chains that are integrated, and therefore we're 0:06:28.000 --> 0:06:32.200 continuing to build out greater transaction banking and treasury management 0:06:32.240 --> 0:06:35.479 North South to help growth in both economies. So we're 0:06:35.480 --> 0:06:38.559 investing in America and it's a we call our second 0:06:38.560 --> 0:06:39.040 home market. 0:06:39.200 --> 0:06:41.479 So to me, this is fascinating because you really understand 0:06:41.480 --> 0:06:43.960 the cross border connection for a lot of companies, and 0:06:44.000 --> 0:06:47.000 I do wonder how much hesitation there is for companies 0:06:47.000 --> 0:06:50.880 to lean into some of their expansion cross borders, given 0:06:50.880 --> 0:06:53.680 the uncertainty and policy that we see. Do you see 0:06:53.680 --> 0:06:56.120 that in practice or is it the opposite. 0:06:56.400 --> 0:07:00.520 No, we do see it in practice. Uncertainty any outcome 0:07:00.560 --> 0:07:03.240 for businesses. We see it right now. Obviously in capital 0:07:03.240 --> 0:07:05.279 markets there's a lot of dialogue, but we haven't seen 0:07:05.360 --> 0:07:07.640 the pipelines come to fruition. We see it in cross 0:07:07.680 --> 0:07:10.280 border clients where you're thinking about making a ten or 0:07:10.320 --> 0:07:13.760 twenty investment. You need to know the rules around those returns, 0:07:13.800 --> 0:07:16.080 and therefore you're hesitating a little bit. You want to 0:07:16.120 --> 0:07:18.720 see how the policy and action, and therefore I think 0:07:18.760 --> 0:07:22.440 as businesses we have to keep advocating for balance policies 0:07:22.440 --> 0:07:24.600 that meet the needs of everyone. I mean, we're really 0:07:24.640 --> 0:07:28.200 looking at in many ways of ca shaped economy. You 0:07:28.240 --> 0:07:31.240 see it in some of your discussion already today businesses 0:07:31.280 --> 0:07:33.920 and large corporates are feeling a little bit better about things, 0:07:34.120 --> 0:07:35.840 are starting to get ready to move forward. But to 0:07:35.880 --> 0:07:37.960 your point, they're looking and they're hesitating a little bit. 0:07:38.160 --> 0:07:41.000 At the margin, small businesses are really struggling with inflation 0:07:41.080 --> 0:07:45.760 and supply chain, and therefore you're seeing a different perspective 0:07:45.800 --> 0:07:50.400 on investing between large corporates in small corporates. You're seeing 0:07:50.400 --> 0:07:52.520 the same thing. On consumers. The top twenty percent of 0:07:52.600 --> 0:07:56.960 US consumers are driving the economy. Forty percent of US 0:07:57.120 --> 0:08:00.200 dollar consumer spending comes from the top twenty percent of consumers. 0:08:00.960 --> 0:08:04.000 Bottom sixty percent of consumers income wise are struggling to 0:08:04.000 --> 0:08:05.640 make ends meet and aren't driving the economy. 0:08:05.720 --> 0:08:08.000 Can you give us a sense of how much you 0:08:08.040 --> 0:08:11.480 expect transactions and other types of investments to come back 0:08:11.480 --> 0:08:13.640 online after the election, regardless of who wins can you 0:08:13.640 --> 0:08:15.880 give a sense of what kind of volume could get 0:08:15.920 --> 0:08:19.360 generated after there is some degree of certainty whenever that 0:08:19.400 --> 0:08:20.680 may be right. 0:08:20.720 --> 0:08:24.040 So you're seeing the fear revenue in the pools is 0:08:24.080 --> 0:08:27.200 up twenty percent. You're seeing capital markets m and a 0:08:27.280 --> 0:08:30.040 advisory pipelines build. We're seeing that in our own pipeline. 0:08:30.080 --> 0:08:33.040 We're feeling good about that. You're seeing more debt capital 0:08:33.120 --> 0:08:35.719 markets activity as the lower rates trigger that. So it's 0:08:35.760 --> 0:08:40.040 a combination of lower rates, pent up demand from sponsors 0:08:40.080 --> 0:08:42.200 and trying to move some of the properties they've been 0:08:42.240 --> 0:08:44.720 sitting on since the pandemic. So you see this pent 0:08:44.840 --> 0:08:47.599 up need. You see their rate environment being more constructive. 0:08:47.600 --> 0:08:50.240 You see the uncertainty of the elections slowing things down. 0:08:50.320 --> 0:08:53.680 But you see the pipeline moving slowly through the process 0:08:53.679 --> 0:08:56.959 and therefore it pretends to an active year in twenty 0:08:57.000 --> 0:08:57.679 twenty five. 0:08:57.720 --> 0:09:00.400 Got to squeeze this in with sixty seconds. Last housing 0:09:00.440 --> 0:09:02.440 market in Canada since we last spoke. 0:09:02.360 --> 0:09:05.400 The houses looking like the housing market stable housings driven 0:09:05.440 --> 0:09:09.440 by demand. Curtainly construction is way off given interest rates, 0:09:09.480 --> 0:09:13.839 so people listing ratios are going up. You're seeing a 0:09:14.080 --> 0:09:17.559 slow resell activity. You're seeing slow construction activity, but that demand, 0:09:17.559 --> 0:09:20.280 given the amount of immigration, we have pent up demands. 0:09:20.280 --> 0:09:24.480 So you're still, Jonathan, a situation of excess demand over supply. 0:09:24.960 --> 0:09:27.840 We are short three million houses in Canada. We're building 0:09:27.960 --> 0:09:30.520 roughly two hundred and fifty to three hundred thousand houses 0:09:30.520 --> 0:09:33.800 a year. We have a ten year backlog on supply, 0:09:34.280 --> 0:09:37.280 and we're more concerned about how fast we're going to build. Therefore, 0:09:37.480 --> 0:09:40.520 that lends to stability and prices over time, even when 0:09:40.520 --> 0:09:41.240 demand drops. 0:09:41.320 --> 0:09:43.160 It's the time of the year where American stace a threat. 0:09:43.200 --> 0:09:43.959 It's Amaves to Canada. 0:09:44.040 --> 0:09:44.840 You know what this goes. 0:09:45.200 --> 0:09:47.360 Thanks going to see the weather's coming one half of 0:09:47.400 --> 0:09:50.960 the country anyway, David Kaye AVC, Thank you appreciate it.