1 00:00:00,280 --> 00:00:04,280 Speaker 1: Once someone has shown that they will never live up 2 00:00:04,280 --> 00:00:07,480 Speaker 1: to their side of an agreement, there's no reason for 3 00:00:07,520 --> 00:00:10,600 Speaker 1: anyone else ever to sign an agreement with it. And 4 00:00:10,640 --> 00:00:12,879 Speaker 1: that's essentially what the President's. 5 00:00:12,360 --> 00:00:22,239 Speaker 2: Done this week. President Trump imposed new tariffs on Canada. 6 00:00:22,400 --> 00:00:25,239 Speaker 2: You release an episode making the case that they are 7 00:00:25,360 --> 00:00:28,880 Speaker 2: actually more consequential than they may initially appear to be. 8 00:00:29,680 --> 00:00:32,600 Speaker 2: We're going to dig into some audience comments and questions. 9 00:00:32,720 --> 00:00:34,200 Speaker 2: I'm Megan Connors. 10 00:00:34,560 --> 00:00:37,400 Speaker 1: I'm Justin Wolfers, and this is the professor is in 11 00:00:37,840 --> 00:00:40,800 Speaker 1: think about this as office hours. Megan is bringing me 12 00:00:41,400 --> 00:00:44,200 Speaker 1: your questions. Let's get into it, Meghan. 13 00:00:44,560 --> 00:00:48,519 Speaker 2: Okay, So first up, I have to ask you the 14 00:00:48,520 --> 00:00:52,000 Speaker 2: timing all of all of this seems a little suspicious. 15 00:00:52,360 --> 00:00:56,240 Speaker 2: So in your professional opinion, do you think this has 16 00:00:56,360 --> 00:00:59,560 Speaker 2: anything to do with the Canadian wildfires. 17 00:01:00,320 --> 00:01:01,760 Speaker 1: I thought you were going to ask me for Adam 18 00:01:01,760 --> 00:01:05,720 Speaker 1: anything to do with the World Cup, because look, the 19 00:01:05,760 --> 00:01:10,680 Speaker 1: President's ego, bless him. We're all psychologically flawed, we all 20 00:01:10,680 --> 00:01:14,559 Speaker 1: deserve love despite our flaws. His are just a little 21 00:01:14,600 --> 00:01:17,039 Speaker 1: more naked and a little more obvious than the rest 22 00:01:17,040 --> 00:01:20,440 Speaker 1: of us. So the World Cup was an interesting one 23 00:01:20,520 --> 00:01:23,840 Speaker 1: where Prime Minister Karney was embraced by the players. They 24 00:01:23,920 --> 00:01:25,520 Speaker 1: thought he was cool, he was good to be around. 25 00:01:25,560 --> 00:01:27,959 Speaker 1: They quite explicitly turned their back on the President, and 26 00:01:28,040 --> 00:01:30,240 Speaker 1: in fact they had a FIFA had to usher him 27 00:01:30,280 --> 00:01:32,720 Speaker 1: off stage, explaining to him quietly that he was not, 28 00:01:32,800 --> 00:01:35,319 Speaker 1: in fact the star of the recent World Cup final, 29 00:01:35,760 --> 00:01:38,200 Speaker 1: and people were interested in the eleven men behind him. 30 00:01:39,040 --> 00:01:42,440 Speaker 1: That surprised the President, of course, And not much later 31 00:01:42,600 --> 00:01:45,759 Speaker 1: we got the Canadian tariffs. You have a different theory, 32 00:01:45,840 --> 00:01:47,440 Speaker 1: or you asked me about a different theory, which is 33 00:01:47,480 --> 00:01:50,040 Speaker 1: what about the Canadian wildfires? Let me deal people in 34 00:01:50,080 --> 00:01:53,840 Speaker 1: on that. On the previous Friday, the President tweeted, there's 35 00:01:53,880 --> 00:01:56,240 Speaker 1: so much smoke in America and there has been Megan, 36 00:01:56,320 --> 00:01:59,880 Speaker 1: You've had to stay inside in ann Arbor, Michigan. People 37 00:02:00,000 --> 00:02:02,880 Speaker 1: I've been coughing. They've had a really hard time. The 38 00:02:02,920 --> 00:02:05,600 Speaker 1: smoke's been hard. And what the President wanted to say 39 00:02:05,680 --> 00:02:08,200 Speaker 1: was I feel your pain where he look after you. Instead, 40 00:02:08,200 --> 00:02:12,120 Speaker 1: what he said was, damn you, Canada, this smoke comes 41 00:02:12,120 --> 00:02:14,560 Speaker 1: from your fires. We could come and help you a bit. Instead, 42 00:02:14,560 --> 00:02:17,640 Speaker 1: I'm going to swear at you, and he said he 43 00:02:17,680 --> 00:02:21,520 Speaker 1: would threaten tariffs. Was it twenty five percent on Canada 44 00:02:21,680 --> 00:02:26,560 Speaker 1: for having the temerity to have fires. My brother is 45 00:02:26,560 --> 00:02:28,519 Speaker 1: staying with me at the moment. My brother's from Canada, 46 00:02:28,560 --> 00:02:31,200 Speaker 1: it's from Toronto, and he made an observation that I 47 00:02:31,240 --> 00:02:34,000 Speaker 1: want to share with you. He said, Oh, it's Friday afternoon, 48 00:02:34,320 --> 00:02:37,560 Speaker 1: after market's closed, the President's going to say something crazy 49 00:02:37,720 --> 00:02:40,480 Speaker 1: on truth social My brother turned out to be right 50 00:02:40,560 --> 00:02:44,240 Speaker 1: yet again. My own view, for what it's worth is 51 00:02:44,960 --> 00:02:47,120 Speaker 1: people find it a little bit too much fun to 52 00:02:47,160 --> 00:02:49,799 Speaker 1: play the role of psychologist or psychiatrist and try to 53 00:02:49,880 --> 00:02:52,840 Speaker 1: understand the president's brain. I think understanding another person's brain, 54 00:02:52,919 --> 00:02:56,920 Speaker 1: their soul, their personality, and their characteristics is just profoundly difficult. 55 00:02:57,320 --> 00:02:58,800 Speaker 1: What I know how to do is to look at 56 00:02:58,800 --> 00:03:02,200 Speaker 1: the incentives that they have and the economies within which 57 00:03:02,200 --> 00:03:06,520 Speaker 1: they're embedded. The coincidence that you said is what you 58 00:03:06,600 --> 00:03:10,320 Speaker 1: get from looking inside his brain and his ego. Let 59 00:03:10,400 --> 00:03:13,919 Speaker 1: me give you a different view. We currently have ten 60 00:03:13,960 --> 00:03:16,160 Speaker 1: percent tariffs on every country around the world under a 61 00:03:16,160 --> 00:03:20,519 Speaker 1: temporary tariff that is only allowed to last for six months. 62 00:03:21,000 --> 00:03:24,840 Speaker 1: That six months ends on July twenty fourth, which means 63 00:03:24,880 --> 00:03:28,440 Speaker 1: the administration is going to announce its next round of tariffs. 64 00:03:28,880 --> 00:03:31,160 Speaker 1: This is what are called forced labor tariffs, which, by 65 00:03:31,160 --> 00:03:32,880 Speaker 1: the way, have nothing to do with forced labor. It's 66 00:03:32,919 --> 00:03:35,600 Speaker 1: just a new invented legal rationale. My guess is they're 67 00:03:35,600 --> 00:03:38,600 Speaker 1: going to come out maybe July twenty four and a half. 68 00:03:39,040 --> 00:03:41,640 Speaker 1: And so what the president's actually doing is you're saying, hey, 69 00:03:41,720 --> 00:03:43,760 Speaker 1: look there's another round of the trade war coming up. 70 00:03:43,800 --> 00:03:46,160 Speaker 1: I want to send a message before that. And the 71 00:03:46,240 --> 00:03:48,160 Speaker 1: message was what do you do when you want to 72 00:03:48,160 --> 00:03:50,200 Speaker 1: send a message, You find someone just small enough you 73 00:03:50,240 --> 00:03:52,000 Speaker 1: can beat them up a little bit without it doing 74 00:03:52,080 --> 00:03:55,120 Speaker 1: you too much pain. To my middle power Canadian friends, 75 00:03:55,200 --> 00:03:57,840 Speaker 1: I'm sorry that was you, and I do want to 76 00:03:57,880 --> 00:04:02,280 Speaker 1: reassure our friends north of the border. Those of US 77 00:04:02,280 --> 00:04:05,800 Speaker 1: south the border still love our Canadian friends, and I 78 00:04:05,840 --> 00:04:07,800 Speaker 1: think people on both sides of politics are a little 79 00:04:07,800 --> 00:04:10,800 Speaker 1: shocked at how we're trading our nearest neighbors. 80 00:04:11,080 --> 00:04:14,760 Speaker 2: Okay, so next up, we had a lot of people 81 00:04:14,800 --> 00:04:18,800 Speaker 2: in our comments, I think Canadians that were complaining about 82 00:04:18,880 --> 00:04:23,919 Speaker 2: kind of the dairy related tariffs in particular. Some people 83 00:04:24,080 --> 00:04:27,640 Speaker 2: claim that you misrepresented the issue. I was just wondering 84 00:04:27,640 --> 00:04:29,880 Speaker 2: if you could dig into that a bit more. What 85 00:04:30,120 --> 00:04:33,880 Speaker 2: issue is there between the US and Canada related to 86 00:04:33,920 --> 00:04:38,359 Speaker 2: our dairy trade and are the US's concerns ballad in 87 00:04:38,400 --> 00:04:38,800 Speaker 2: any way? 88 00:04:38,960 --> 00:04:41,400 Speaker 1: What a wonderful question, because the Canadians are going to 89 00:04:41,400 --> 00:04:43,320 Speaker 1: be mad at me, the Americans going to be bored. 90 00:04:43,880 --> 00:04:45,800 Speaker 1: Let me, first of all explain why boredom is the 91 00:04:45,839 --> 00:04:52,279 Speaker 1: right posture. Total dairy trade between the it's something like 92 00:04:52,279 --> 00:04:55,040 Speaker 1: a billion dollars here compared to like hundreds of billions 93 00:04:55,040 --> 00:04:58,279 Speaker 1: of dollars in the total thing in the in US 94 00:04:58,360 --> 00:05:02,400 Speaker 1: Canadian trade. There is this kind of tiny, tiny little 95 00:05:02,480 --> 00:05:05,240 Speaker 1: side show, and both sides should just shut up about it. 96 00:05:05,640 --> 00:05:07,360 Speaker 1: And if one side can't get the other side to 97 00:05:07,360 --> 00:05:09,800 Speaker 1: shut up about it, they should be quiet. It's you 98 00:05:09,839 --> 00:05:12,480 Speaker 1: don't want to knock anything off the rails for very, 99 00:05:12,560 --> 00:05:15,760 Speaker 1: very tiny fractions of the economy. Now I know, I've 100 00:05:15,800 --> 00:05:18,920 Speaker 1: just upset all Canadian dairy farmers because they don't think 101 00:05:18,920 --> 00:05:21,440 Speaker 1: they're a tiny fraction. They think they're totally essential, and 102 00:05:21,440 --> 00:05:23,400 Speaker 1: they think that they deserve all the government support that 103 00:05:23,440 --> 00:05:28,039 Speaker 1: they can get fair enough, But you're still small. But 104 00:05:28,120 --> 00:05:30,000 Speaker 1: I don't want to upset the world economy just because 105 00:05:30,000 --> 00:05:33,400 Speaker 1: of you. Okay, let me try and explain. It's so complicated. 106 00:05:33,440 --> 00:05:35,920 Speaker 1: I literally not only am I going to bore the Americans. 107 00:05:36,200 --> 00:05:39,400 Speaker 1: I am going to make a mistake with where I 108 00:05:39,400 --> 00:05:42,480 Speaker 1: put a semicolon, and the Canadians know a lot about 109 00:05:42,480 --> 00:05:43,919 Speaker 1: this and they're going to be mad at me for that. 110 00:05:44,240 --> 00:05:47,800 Speaker 1: So the Canadians have a very highly regulated dairy industry. 111 00:05:48,080 --> 00:05:50,119 Speaker 1: There's a lot of ways you could describe the reasons 112 00:05:50,160 --> 00:05:53,159 Speaker 1: for that. Canadians who fall in for all the political 113 00:05:53,200 --> 00:05:56,320 Speaker 1: logic trying to be a little provocative, there have a 114 00:05:56,440 --> 00:06:00,000 Speaker 1: very highly regulated market. Basically, the government says how much 115 00:06:00,040 --> 00:06:03,560 Speaker 1: can be produced and at what price, and then they 116 00:06:03,600 --> 00:06:08,919 Speaker 1: feel secure. Canadians like security. To my friends, I'm just 117 00:06:09,000 --> 00:06:13,480 Speaker 1: teasing that, and so they would rather not have any 118 00:06:13,520 --> 00:06:15,960 Speaker 1: of that upset by anything. Okay, the Americans come along 119 00:06:16,000 --> 00:06:18,040 Speaker 1: and they say we want market access. We want market 120 00:06:18,080 --> 00:06:21,320 Speaker 1: access originally part of NAFTA than USMCA, which our Canadian 121 00:06:21,320 --> 00:06:25,400 Speaker 1: friends called COSMA. It's an unused So Canada has a 122 00:06:25,440 --> 00:06:28,760 Speaker 1: protected dairy industry, very unusual form of protection. So we 123 00:06:28,800 --> 00:06:31,200 Speaker 1: all know what tariffs are. If you import something, you 124 00:06:31,240 --> 00:06:33,400 Speaker 1: have to pay a tax. We all know what a 125 00:06:33,480 --> 00:06:36,600 Speaker 1: quota is. A quota is you're only allowed to import 126 00:06:36,640 --> 00:06:39,279 Speaker 1: so much of something. The Canadian dairy industry uses what's 127 00:06:39,279 --> 00:06:42,159 Speaker 1: called a tariff rate quota. You can only import so 128 00:06:42,320 --> 00:06:46,080 Speaker 1: much American cheese, but you're allowed to break the quota. 129 00:06:46,080 --> 00:06:47,280 Speaker 1: But if you break the quote, you have to pay 130 00:06:47,360 --> 00:06:51,039 Speaker 1: really high fine that they call a tariff. Okay, let's 131 00:06:51,040 --> 00:06:54,040 Speaker 1: forget the fine part, because it makes for great politics. 132 00:06:54,080 --> 00:06:55,680 Speaker 1: The Americans talk a lot about it because if you 133 00:06:55,680 --> 00:06:57,600 Speaker 1: break the quota, then the tariff rate is like two 134 00:06:57,680 --> 00:07:01,120 Speaker 1: or three hundred percent. It's so high for a great SoundBite. 135 00:07:01,200 --> 00:07:04,080 Speaker 1: It's also so high it doesn't matter. It's effectively a quota. 136 00:07:04,120 --> 00:07:07,160 Speaker 1: No one ever pays it, Okay. So then effectively Canada 137 00:07:07,240 --> 00:07:13,200 Speaker 1: has quotas on dairy imports from the United States. Here's 138 00:07:13,760 --> 00:07:17,200 Speaker 1: the funny thing. Under the letter of the law, the 139 00:07:17,240 --> 00:07:20,320 Speaker 1: Canadians have given the Americans exactly the quantity of access 140 00:07:20,320 --> 00:07:22,440 Speaker 1: that they promised. They said, you will get a quota. 141 00:07:22,880 --> 00:07:25,280 Speaker 1: You've got it. Good on you. It turns out that 142 00:07:25,360 --> 00:07:28,320 Speaker 1: quote is not being used, that the Canadians are not 143 00:07:28,360 --> 00:07:31,040 Speaker 1: actually importing as much of the American cheese as they're 144 00:07:31,040 --> 00:07:34,520 Speaker 1: allowed to. The Americans are upset about that because under 145 00:07:34,560 --> 00:07:37,840 Speaker 1: the spirit of the law, you would have thought that, 146 00:07:37,960 --> 00:07:40,760 Speaker 1: you know, American cheese is good enough. It's not French 147 00:07:41,360 --> 00:07:44,400 Speaker 1: but our friends in Wisconsin grow make good cheese, and 148 00:07:44,600 --> 00:07:47,600 Speaker 1: so if Canadian consumers got their way, they would buy 149 00:07:47,600 --> 00:07:52,800 Speaker 1: a lot of American cheese. So here's the trick. Quotas 150 00:07:52,840 --> 00:07:57,080 Speaker 1: are so complicated. I hate them tariffs. You just pay 151 00:07:57,080 --> 00:07:59,400 Speaker 1: attack a quota. You say you're only allowed to import 152 00:07:59,440 --> 00:08:01,720 Speaker 1: this much. But then the problem is that makes sense 153 00:08:01,760 --> 00:08:03,520 Speaker 1: if you think you're just talking about two countries Canada 154 00:08:03,520 --> 00:08:06,680 Speaker 1: in the US, But actually trade doesn't occur between countries. 155 00:08:06,680 --> 00:08:09,680 Speaker 1: That occurs between companies. So which Americans are allowed to 156 00:08:09,720 --> 00:08:11,640 Speaker 1: sell to which Canadians? And how do you ensure that 157 00:08:11,720 --> 00:08:14,360 Speaker 1: some of the amount the Canadians import isn't created in 158 00:08:14,400 --> 00:08:15,720 Speaker 1: the quota. What you do is you say to a 159 00:08:15,760 --> 00:08:18,320 Speaker 1: bunch of Canadian firms, you're allowed to import this much, 160 00:08:18,360 --> 00:08:20,200 Speaker 1: and you're allowed to import that much and so on. 161 00:08:20,400 --> 00:08:24,920 Speaker 1: If you gave those quotas to retailers, say a supermarket, 162 00:08:25,120 --> 00:08:27,880 Speaker 1: they would import a lot of American cheese because it's 163 00:08:27,960 --> 00:08:33,600 Speaker 1: high quality, low cost, and Canadians wanted they didn't. Instead, 164 00:08:33,600 --> 00:08:35,800 Speaker 1: what they did is they gave it to the Canadian 165 00:08:35,880 --> 00:08:40,280 Speaker 1: cheese producers who make their own cheese. And so what 166 00:08:40,320 --> 00:08:41,959 Speaker 1: they don't want to do is they don't want to 167 00:08:42,000 --> 00:08:44,920 Speaker 1: import cheese that undercuts the cheese they're making. So the 168 00:08:44,960 --> 00:08:49,080 Speaker 1: Canadians technically did create the quota they were meant to, 169 00:08:49,880 --> 00:08:53,240 Speaker 1: which gives certain people the right to import American cheese, 170 00:08:53,240 --> 00:08:55,080 Speaker 1: but they gave it to the exact people who are 171 00:08:55,200 --> 00:08:59,319 Speaker 1: least likely to import American cheese. Maybe you could say 172 00:08:59,320 --> 00:09:02,959 Speaker 1: the Canadians better lawyers, or maybe say Canadians are being 173 00:09:03,000 --> 00:09:05,000 Speaker 1: a bit of a bar set about it. I want 174 00:09:05,000 --> 00:09:06,840 Speaker 1: to come back to something else. I want to say, 175 00:09:06,840 --> 00:09:12,600 Speaker 1: both sides grow up, don't destroy either economy over a 176 00:09:12,640 --> 00:09:15,000 Speaker 1: tiny industry that's already highly protected. 177 00:09:15,480 --> 00:09:19,280 Speaker 2: Okay, so what do we know thus far about how 178 00:09:19,320 --> 00:09:23,240 Speaker 2: Canada has been impacted by Trump's kind of wider trade 179 00:09:23,280 --> 00:09:25,200 Speaker 2: war in this second term. 180 00:09:25,679 --> 00:09:29,880 Speaker 1: Yeah, it's the Canada story is fascinating, I think poorly 181 00:09:29,960 --> 00:09:33,959 Speaker 1: understood south of the US Canadian border outside the American side. 182 00:09:35,000 --> 00:09:39,720 Speaker 1: Here's why. So, remember the first country President Trump went 183 00:09:39,800 --> 00:09:43,400 Speaker 1: after he was elected, The first tariffs he put on 184 00:09:43,440 --> 00:09:47,480 Speaker 1: with a so called fentanyl tariffs, where he went after 185 00:09:47,559 --> 00:09:51,480 Speaker 1: China or that wasn't very surprising, but then he went 186 00:09:51,520 --> 00:09:57,280 Speaker 1: after Canada and Mexico and imposed these big tariffs purportedly 187 00:09:57,320 --> 00:09:59,160 Speaker 1: because we were getting a lot of fentanyl from Canada, 188 00:09:59,160 --> 00:10:02,840 Speaker 1: which is also just flatly untrue. So Canada got the 189 00:10:02,840 --> 00:10:04,839 Speaker 1: biggest impact of the first round of the trade war, 190 00:10:05,640 --> 00:10:08,400 Speaker 1: and then came Liberation Day, and then came Unliberation Day, 191 00:10:08,440 --> 00:10:11,000 Speaker 1: and then came Liberation Day Part two, the sequel, and 192 00:10:11,040 --> 00:10:15,480 Speaker 1: then Liberation bites back, Liberation Day Part four, Summer Vacation, 193 00:10:16,120 --> 00:10:17,560 Speaker 1: and you know, we went through all of these things. 194 00:10:17,559 --> 00:10:22,160 Speaker 1: But somewhere along the way, the President got convinced that 195 00:10:22,960 --> 00:10:27,600 Speaker 1: he'd put tariffs on everyone around the world, but goods 196 00:10:27,640 --> 00:10:31,360 Speaker 1: that were compliant with the existing US Canada and US 197 00:10:31,400 --> 00:10:34,840 Speaker 1: Mexico free trade agreement would be exempt. By the way, 198 00:10:34,880 --> 00:10:37,080 Speaker 1: that wasn't true for other free trade agreements. Australia has 199 00:10:37,120 --> 00:10:39,080 Speaker 1: a free trade agreement with the US, Korea has a 200 00:10:39,080 --> 00:10:40,960 Speaker 1: free trade agreement with the US, but we still paid 201 00:10:41,000 --> 00:10:43,640 Speaker 1: these higher trunk tariffs like the Liberation Day tariffs. But 202 00:10:43,800 --> 00:10:48,559 Speaker 1: Canada had its free trade agreement recognized. Now you might say, 203 00:10:48,600 --> 00:10:50,400 Speaker 1: what does it mean to be a good that's compliant 204 00:10:50,440 --> 00:10:53,280 Speaker 1: with the USMCA. There's a bunch of rules in order 205 00:10:53,360 --> 00:10:55,719 Speaker 1: for your goods to be protected. Historically, a lot of 206 00:10:55,760 --> 00:10:59,520 Speaker 1: Canadian firms didn't bother getting their goods certified because tariffs 207 00:10:59,559 --> 00:11:01,400 Speaker 1: between the US, US and Canada were so low. What's 208 00:11:01,679 --> 00:11:04,920 Speaker 1: what's the done point? When the President jacks up tariffs 209 00:11:04,920 --> 00:11:08,280 Speaker 1: on everyone around the world, including Canada, rather than pay 210 00:11:08,320 --> 00:11:10,520 Speaker 1: the tariffs, all the Canadians went and said, oh, look, 211 00:11:10,559 --> 00:11:13,240 Speaker 1: our goods are compliant with the existing free trade agreement. 212 00:11:13,880 --> 00:11:17,080 Speaker 1: So suddenly ninety percent of trade between Canada and the US. 213 00:11:17,120 --> 00:11:20,000 Speaker 1: And by the way, there I've seen estimates between eighty percent, 214 00:11:20,120 --> 00:11:22,040 Speaker 1: ninety seven and a half percent. No one's quite sure, 215 00:11:22,040 --> 00:11:25,360 Speaker 1: but nearly all goods from Canada to the US were 216 00:11:25,480 --> 00:11:29,400 Speaker 1: usmc A complaint, which meant they no tariffs. What that 217 00:11:29,480 --> 00:11:32,280 Speaker 1: actually means is, as of a week ago, Canada had 218 00:11:33,160 --> 00:11:35,520 Speaker 1: the lowest tariffs from the US of any country in 219 00:11:35,520 --> 00:11:39,320 Speaker 1: the world because most of its goods had no tariffs, 220 00:11:39,360 --> 00:11:41,800 Speaker 1: and that wasn't true for other countries. Canada went from 221 00:11:41,800 --> 00:11:44,160 Speaker 1: getting hit the hardest to get and hit the least. 222 00:11:44,240 --> 00:11:46,400 Speaker 1: And then what happened last week, as the President said, 223 00:11:46,800 --> 00:11:49,080 Speaker 1: I'm going to apply these tariffs. These are new tariffs, 224 00:11:49,080 --> 00:11:53,040 Speaker 1: They're only on Canada and they apply irrespective of the USMCA. 225 00:11:53,520 --> 00:11:56,560 Speaker 1: The end of that carveout is really really dangerous for Canada. 226 00:11:56,600 --> 00:12:00,640 Speaker 1: It now means if the president's no longer recognizing the USMCA, 227 00:12:01,559 --> 00:12:04,040 Speaker 1: it now means whatever his next actions are, Canada could 228 00:12:04,080 --> 00:12:07,120 Speaker 1: get hit as hard as any other country. Three things 229 00:12:07,160 --> 00:12:09,560 Speaker 1: to take from this one. What a tumultuous ride. This 230 00:12:09,640 --> 00:12:14,080 Speaker 1: has been a soap opera of epic proportions telenovella. If 231 00:12:14,160 --> 00:12:16,920 Speaker 1: you will more for Canada than anyone else. They're closer 232 00:12:16,960 --> 00:12:21,760 Speaker 1: to us, they're more dependent on us, and they've had 233 00:12:22,240 --> 00:12:23,440 Speaker 1: more dramatic changes. 234 00:12:23,920 --> 00:12:24,160 Speaker 2: Two. 235 00:12:24,320 --> 00:12:28,199 Speaker 1: For much of this period, Canada in fact had lower 236 00:12:28,240 --> 00:12:30,880 Speaker 1: tariffs than everyone else, even as the headlines were the opposite. 237 00:12:31,320 --> 00:12:32,640 Speaker 1: Three that appears to be over. 238 00:12:33,520 --> 00:12:38,040 Speaker 2: Okay, So how do you think Canada should respond in 239 00:12:38,080 --> 00:12:38,720 Speaker 2: this moment? 240 00:12:38,960 --> 00:12:39,080 Speaker 1: Like? 241 00:12:39,120 --> 00:12:41,360 Speaker 2: What advice would you give them? 242 00:12:41,640 --> 00:12:45,000 Speaker 1: Yes, such a hard question. Let me go back to 243 00:12:45,120 --> 00:12:48,440 Speaker 1: a question of economic theory. This actually comes from an 244 00:12:48,480 --> 00:12:53,240 Speaker 1: old expression from Joan Robinson, the great Cambridge economist. She 245 00:12:53,400 --> 00:12:56,720 Speaker 1: once said, just because other countries put rocks in their harbor. 246 00:12:57,360 --> 00:12:59,760 Speaker 1: Let me explain the metaphor here. If a country were 247 00:13:00,120 --> 00:13:02,000 Speaker 1: rocks in their harbor, it would be harder for ships 248 00:13:02,000 --> 00:13:06,280 Speaker 1: abroad to come in. Tariffs are effectively a rock in 249 00:13:06,320 --> 00:13:08,600 Speaker 1: the harbor. They make it harder for imports to reach 250 00:13:08,600 --> 00:13:13,080 Speaker 1: a country. Countries choose to do that because countries seen 251 00:13:13,280 --> 00:13:16,240 Speaker 1: some countries in certain times are against inputs. So if 252 00:13:16,280 --> 00:13:18,520 Speaker 1: another country were to put rocks in its harbor, does 253 00:13:18,559 --> 00:13:20,400 Speaker 1: that mean it makes sense for you to put rocks 254 00:13:20,440 --> 00:13:23,000 Speaker 1: in your harbor? And the answer to that is, no 255 00:13:23,480 --> 00:13:25,480 Speaker 1: rocks in the harbor make it harder to do business. 256 00:13:26,440 --> 00:13:29,080 Speaker 1: And just because some other idiot is going to harm 257 00:13:29,120 --> 00:13:32,080 Speaker 1: themselves doesn't mean you have to match them them and 258 00:13:32,160 --> 00:13:34,959 Speaker 1: harm yourself as well. Now you might say, you wait 259 00:13:35,000 --> 00:13:37,760 Speaker 1: a minute, but if we put a tariff on Canada, 260 00:13:37,840 --> 00:13:41,160 Speaker 1: doesn't harm them No, And this is the really important point. 261 00:13:41,360 --> 00:13:44,040 Speaker 1: What economic theory tells is this when the United States 262 00:13:44,080 --> 00:13:47,280 Speaker 1: imposes tariffs on Canada. First of all, most of the 263 00:13:47,280 --> 00:13:50,599 Speaker 1: price rises affect Americans rather than Canadians. The President is 264 00:13:50,640 --> 00:13:54,240 Speaker 1: simply lying when he says Canada will pay for it. Secondly, 265 00:13:54,360 --> 00:13:58,439 Speaker 1: it harms Americans. It harms Americans because instead of getting 266 00:13:58,480 --> 00:14:02,880 Speaker 1: access to this wonderful chi technology for creating affordable goods, 267 00:14:02,920 --> 00:14:05,680 Speaker 1: which is buying them off a ship, we no longer 268 00:14:05,720 --> 00:14:09,520 Speaker 1: get access to that, and Americans end up worse off. 269 00:14:10,160 --> 00:14:13,160 Speaker 1: That's the amazing thing. Trade theory doesn't say, you want 270 00:14:13,200 --> 00:14:15,640 Speaker 1: to allow imports because it creates a market for our exports. 271 00:14:15,679 --> 00:14:17,679 Speaker 1: It actually says you want to allow imports because they 272 00:14:17,760 --> 00:14:22,120 Speaker 1: make Americans better off, irrespective of what's happening to exports. Again, 273 00:14:22,200 --> 00:14:24,520 Speaker 1: so economic theory says, if someone wants to put rocks 274 00:14:24,520 --> 00:14:27,440 Speaker 1: in their harbor, do the dumb thing hurt themselves, You 275 00:14:27,480 --> 00:14:30,600 Speaker 1: shouldn't do the same here. Now I have to recognize, 276 00:14:30,640 --> 00:14:34,120 Speaker 1: of course that's economic theory. We're in political reality land. Okay, 277 00:14:34,240 --> 00:14:36,120 Speaker 1: my job here, I'm an economics teacher. I'll teach the 278 00:14:36,200 --> 00:14:39,640 Speaker 1: econ You could now think of this as a strategic interaction. 279 00:14:39,720 --> 00:14:42,360 Speaker 1: And if every time the president punches we don't punch back, 280 00:14:42,400 --> 00:14:44,160 Speaker 1: then he's just going to keep punching you. So maybe 281 00:14:44,160 --> 00:14:47,480 Speaker 1: we should punch him, even if you're Canadian. Maybe Mark 282 00:14:47,560 --> 00:14:50,240 Speaker 1: Carney should punch back, even though it hurts Americans to 283 00:14:50,360 --> 00:14:55,360 Speaker 1: do so. Maybe let me come back to a different point. 284 00:14:55,480 --> 00:14:57,120 Speaker 1: If the claim is at the end of all of this, 285 00:14:57,240 --> 00:14:58,720 Speaker 1: the President's going to do this because he wants a 286 00:14:58,720 --> 00:15:02,480 Speaker 1: better deal, the most important thing for the Canadians to 287 00:15:02,520 --> 00:15:04,760 Speaker 1: understand now is there is literally no such thing as 288 00:15:04,800 --> 00:15:07,560 Speaker 1: a deal anymore. We have a deal. We had n't AFTA. 289 00:15:07,800 --> 00:15:10,640 Speaker 1: The President ripped it up and created USMCA. The President 290 00:15:10,760 --> 00:15:13,200 Speaker 1: ripped up the deal that the full before him created. 291 00:15:13,240 --> 00:15:16,600 Speaker 1: That full was him, and now he says, even though 292 00:15:16,720 --> 00:15:19,960 Speaker 1: it's passed through the US Congress, we are not going 293 00:15:20,000 --> 00:15:22,560 Speaker 1: to live up to it. In the President's actions both 294 00:15:22,600 --> 00:15:25,000 Speaker 1: in Iran and throughout various parts of the trade will 295 00:15:25,000 --> 00:15:27,880 Speaker 1: basically say the value of a piece of paper signed 296 00:15:27,920 --> 00:15:31,240 Speaker 1: by this president is zero. Therefore you should give up 297 00:15:31,440 --> 00:15:34,560 Speaker 1: zero to get it. So any trade deal it's of 298 00:15:34,600 --> 00:15:36,440 Speaker 1: the former Canada is going to take some pain now 299 00:15:36,440 --> 00:15:38,000 Speaker 1: and the US will make it up to us later. 300 00:15:38,120 --> 00:15:41,400 Speaker 1: It just simply shouldn't do it. Should only trade when 301 00:15:41,440 --> 00:15:43,960 Speaker 1: trading is in Canada's best interest. That would be the 302 00:15:43,960 --> 00:15:46,120 Speaker 1: advice I would give were I a Canadian. 303 00:15:46,760 --> 00:15:51,560 Speaker 2: Okay, So panning back now thinking about the US, what 304 00:15:51,600 --> 00:15:53,920 Speaker 2: are the long term implications. I know you've spoken on 305 00:15:53,960 --> 00:15:56,640 Speaker 2: this before, but what are the long term implications for 306 00:15:56,720 --> 00:16:01,560 Speaker 2: the US of this new style of three negotiation we're 307 00:16:01,600 --> 00:16:02,080 Speaker 2: engaging in. 308 00:16:02,800 --> 00:16:05,120 Speaker 1: I've been thinking a lot about this recently, and I'm 309 00:16:05,160 --> 00:16:07,000 Speaker 1: still trying to find the best way to articulate it. 310 00:16:07,040 --> 00:16:09,479 Speaker 1: But it's actually related exactly to what I just said. 311 00:16:10,920 --> 00:16:14,920 Speaker 1: Once someone has shown that they will never live up 312 00:16:14,920 --> 00:16:18,120 Speaker 1: to their side of an agreement. There's no reason for 313 00:16:18,120 --> 00:16:21,240 Speaker 1: anyone else ever to sign an agreement with it. And 314 00:16:21,280 --> 00:16:25,040 Speaker 1: that's essentially what the President's done. It's ironic because this 315 00:16:25,160 --> 00:16:27,480 Speaker 1: is the president who regards himself as a deal maker 316 00:16:27,520 --> 00:16:29,800 Speaker 1: and is always talking about deals and says he's using 317 00:16:29,880 --> 00:16:32,000 Speaker 1: all this leverage and power in order to get deals. 318 00:16:32,440 --> 00:16:35,200 Speaker 1: And he might get deals in the very narrow sense 319 00:16:35,240 --> 00:16:37,080 Speaker 1: of he could force a foreign leader to come to 320 00:16:37,160 --> 00:16:39,200 Speaker 1: the White House, say charming things about him at a 321 00:16:39,240 --> 00:16:42,560 Speaker 1: press conference, pretend that they write a deal, go out 322 00:16:42,600 --> 00:16:45,160 Speaker 1: the front and shake hands in front of an imported 323 00:16:45,160 --> 00:16:48,960 Speaker 1: car from some done country, make a bunch of claims, 324 00:16:49,040 --> 00:16:52,600 Speaker 1: and get a good media the next day. But a 325 00:16:52,640 --> 00:16:56,000 Speaker 1: real deal in terms of a lasting infrastructure that allows 326 00:16:56,040 --> 00:17:02,160 Speaker 1: tighter integration between two countries, long term investments where for instance, Megan, 327 00:17:02,200 --> 00:17:03,520 Speaker 1: you and I live very close to one of the 328 00:17:03,520 --> 00:17:05,800 Speaker 1: most important long term investments that came out of a 329 00:17:05,840 --> 00:17:10,080 Speaker 1: trade deal ever, which is that the North American auto 330 00:17:10,640 --> 00:17:15,200 Speaker 1: industry is totally integrated across the US Canadian border. That 331 00:17:15,320 --> 00:17:17,800 Speaker 1: your car doors might come from Canada and they come 332 00:17:17,840 --> 00:17:20,720 Speaker 1: down to meet us in Detroit, and then we might 333 00:17:20,760 --> 00:17:23,880 Speaker 1: send some parts up there, and the car that you're 334 00:17:23,960 --> 00:17:27,879 Speaker 1: driving right now, literally parts of it may have crossed 335 00:17:27,880 --> 00:17:31,400 Speaker 1: the border half a dozen times. And that's because they're 336 00:17:31,400 --> 00:17:33,399 Speaker 1: better at some things. We're better at others. But that 337 00:17:33,520 --> 00:17:38,200 Speaker 1: whole region now is a specialized car growing region and 338 00:17:38,240 --> 00:17:40,320 Speaker 1: one of the best in the world. And if we 339 00:17:41,480 --> 00:17:44,080 Speaker 1: put a wall between those two countries, neither region beer 340 00:17:44,119 --> 00:17:48,600 Speaker 1: is good and so but that required really deep, profound, 341 00:17:48,640 --> 00:17:51,840 Speaker 1: long run investments from both Canadian auto firms and American 342 00:17:51,880 --> 00:17:55,760 Speaker 1: auto firms, and I'm not sure they'd make those investments 343 00:17:55,800 --> 00:17:59,679 Speaker 1: anymore because if there's now the risk that we are 344 00:17:59,680 --> 00:18:01,040 Speaker 1: going to set up so that we can be the 345 00:18:01,040 --> 00:18:04,080 Speaker 1: preferred supply in Windsor Ontario, so we can be the 346 00:18:04,119 --> 00:18:07,679 Speaker 1: preferred supply to Detroit, Michigan, and a wall could come 347 00:18:07,760 --> 00:18:11,320 Speaker 1: up at any moment, then that investment's no longer a 348 00:18:11,320 --> 00:18:17,760 Speaker 1: good investment, and likewise elsewhere. So that long term integration, 349 00:18:17,960 --> 00:18:22,040 Speaker 1: I think, is really what's under threat. And so the 350 00:18:22,200 --> 00:18:23,919 Speaker 1: United States is going to become a lot more like 351 00:18:23,920 --> 00:18:27,880 Speaker 1: an island. I come from an island. Some islands are beautiful, 352 00:18:27,880 --> 00:18:30,359 Speaker 1: but I will tell you that being part of a 353 00:18:30,400 --> 00:18:33,360 Speaker 1: global economy gives you access to other goods, other skills, 354 00:18:33,400 --> 00:18:36,400 Speaker 1: other people, other ways of doing things, and it tends 355 00:18:36,400 --> 00:18:38,719 Speaker 1: to make an economy more competitive and to deliver more 356 00:18:38,760 --> 00:18:40,520 Speaker 1: innovative products at lower prices. 357 00:18:41,240 --> 00:18:45,639 Speaker 2: Okay, our last question. Given all of that, do you 358 00:18:45,640 --> 00:18:49,760 Speaker 2: think it's possible to rebuild trust on trade for a 359 00:18:49,880 --> 00:18:53,120 Speaker 2: post tromp America? And if so, what would it take 360 00:18:53,200 --> 00:18:54,520 Speaker 2: or what would be the first steps. 361 00:18:55,320 --> 00:18:57,600 Speaker 1: That's one of the most important questions for the next 362 00:18:57,640 --> 00:19:02,320 Speaker 1: four years. I think the president is a person. We 363 00:19:02,400 --> 00:19:04,919 Speaker 1: have a very personalist regime. The idea that the president 364 00:19:04,920 --> 00:19:07,480 Speaker 1: could rescue his reputation between now and twenty twenty eight 365 00:19:07,600 --> 00:19:09,800 Speaker 1: is absurd. Let's give up on the next four years. 366 00:19:09,880 --> 00:19:13,040 Speaker 1: The question is if the Trump era is behind us, 367 00:19:13,080 --> 00:19:19,280 Speaker 1: had we forever lost our reputation as reliable partners. I 368 00:19:19,320 --> 00:19:22,639 Speaker 1: think it's pretty clear that if the next president is 369 00:19:22,680 --> 00:19:26,080 Speaker 1: Don Junior, we have to put off that project for 370 00:19:26,080 --> 00:19:28,840 Speaker 1: another four years. If we were JD. Vance or some other 371 00:19:29,040 --> 00:19:33,040 Speaker 1: or Marco Rubio. While they may be Maga Republicans, they 372 00:19:33,040 --> 00:19:35,040 Speaker 1: may have a different approach to deal making, and so 373 00:19:35,080 --> 00:19:36,760 Speaker 1: that could be the beginning of it. So it doesn't 374 00:19:36,760 --> 00:19:40,040 Speaker 1: have to be a democratic administration. So a good democratic 375 00:19:40,040 --> 00:19:45,520 Speaker 1: administration or a Republican administration. It was interested in being 376 00:19:45,520 --> 00:19:48,200 Speaker 1: a reliable partner. This is going to be a really, 377 00:19:48,240 --> 00:19:52,479 Speaker 1: really important project. I think it's a hard question. So really, 378 00:19:53,040 --> 00:19:55,560 Speaker 1: what the United States is going to want is people 379 00:19:55,600 --> 00:19:58,160 Speaker 1: to say, hey, remember that once in a century, crazy 380 00:19:58,240 --> 00:20:00,320 Speaker 1: moment when we decided to no longer let up to 381 00:20:00,359 --> 00:20:05,399 Speaker 1: our obligations. That's what we want. The other possibilities. People 382 00:20:05,720 --> 00:20:10,560 Speaker 1: will always remember the American people twice elected a leader 383 00:20:10,920 --> 00:20:13,600 Speaker 1: who was isolationist, and they did it at very very 384 00:20:13,640 --> 00:20:16,480 Speaker 1: unexpected moments when people weren't really seeing as the writing 385 00:20:16,480 --> 00:20:18,720 Speaker 1: on the wall. And if it's happened before, maybe it 386 00:20:18,760 --> 00:20:22,560 Speaker 1: would happen again. I think the way forward, by the way, 387 00:20:23,000 --> 00:20:25,800 Speaker 1: is actually fairly obvious. A lot of what's going on 388 00:20:25,920 --> 00:20:28,320 Speaker 1: right now is because everything's coming out of the White House. 389 00:20:28,640 --> 00:20:33,640 Speaker 1: It's all executive order. Now. If you put stuff through Congress, realize, 390 00:20:33,680 --> 00:20:36,800 Speaker 1: of course that the single worst thing about Congress is 391 00:20:36,800 --> 00:20:39,960 Speaker 1: Congress never gets anything done. The single best thing about 392 00:20:39,960 --> 00:20:43,119 Speaker 1: Congress is Congress never gets anything done. Because if we 393 00:20:43,280 --> 00:20:49,320 Speaker 1: pass trade agreements through Congress, because Congress never gets anything done, 394 00:20:49,400 --> 00:20:51,640 Speaker 1: they can't walk away from them. And so I think 395 00:20:51,680 --> 00:20:54,040 Speaker 1: a lot of what's missing at the present moment is 396 00:20:54,080 --> 00:20:57,680 Speaker 1: that extra friction created by Congress. That friction here is useful. 397 00:20:57,720 --> 00:21:00,760 Speaker 1: That's Ulysses tying himself to the mast. That's the way 398 00:21:00,800 --> 00:21:02,480 Speaker 1: we show that we're in it for the long run. 399 00:21:02,520 --> 00:21:05,480 Speaker 1: And so I think if the next administration wants to 400 00:21:05,520 --> 00:21:08,240 Speaker 1: be taken seriously, it's going to have to figure out 401 00:21:08,240 --> 00:21:10,040 Speaker 1: a way to work with Congress to make that happen. 402 00:21:10,359 --> 00:21:12,560 Speaker 2: Okay, I think that's a great note to leave it on. 403 00:21:12,720 --> 00:21:15,880 Speaker 2: As always, thanks to our audience for your questions and comments. 404 00:21:16,080 --> 00:21:18,439 Speaker 2: We hope you enjoyed this episode. If you'd like your 405 00:21:18,520 --> 00:21:20,879 Speaker 2: question answered in a future segment, just leave a comment. 406 00:21:20,960 --> 00:21:24,159 Speaker 2: Wherever you're watching or listening to this, make sure to 407 00:21:24,280 --> 00:21:28,840 Speaker 2: liken to subscribe to Justin Wolfer's and Platypus Economics on YouTube, substack, 408 00:21:29,000 --> 00:21:39,440 Speaker 2: and social media.