Canada's key resource against Trump's potential trade war

It's hard to overstate how big of a deal this would be for us. Like, if you look at trade and how important it is to Canada, exports make up nearly a third of our economy. For the US I think exports make up around like 10%, maybe less.

Huge difference. Right now, there's the caveat of, will Trump actually follow through on these tariffs? And if he does follow through, and it is Saturday, is it going to be 25% or a smaller number? But if we take that at face value, like three quarters of our trade goes south to the U.S. we get a 25% tariff, we're looking at a recession in Canada, maybe a pretty sharp recession. This is going to hit the biggest sectors of our economy, right? Energy, autos, agriculture, mining. We would be looking at people losing their jobs. I mean, it runs into real stuff, Adrian. Not like, hey, we're talking about back to back quarters of negative GDP growth, but we're talking about people losing their jobs, losing their homes. This is economic hard times in a way that is just scary for us.

Yes, we do have a trade deal, but if you put a 25% tariff on us, then do we really have a trade deal? Trump will come up with ways to do that. Loopholes in different agreements. The Trade act of 1974 or the International Emergency Powers act, he'll say, this is an issue of national security. But do you really Think so. He said that about steel and aluminum tariffs in 2018. And was it really an issue of national security or was he just trying to leverage us in NAFTA negotiations at that time? So, yeah, the USMCA has dispute reconciliation mechanisms, but that's going to take years at least.

Well, the conversation now is really about retaliatory tariffs. You hit us, we hit you. It's tit for tat. It's dollar for dollar. We be coming after things like Florida oranges, Kentucky bourbon. You know, they say no one wins a trade war. We don't want to be in a trade war. But if we get these tariffs, like, what else are you going to do? Like that is the response.

Yeah, if you look at where we actually could hit you, where it would hurt, oil is definitely the biggest arrow in our quiver. It's the one thing that we have here that you really actually do need. Like, we export about 4 million barrels of oil a day to you, so that's nearly one out of every four barrels that you refine comes from Canada. A little less than that. Yeah. Most of that goes to the Midwest. So there's a really active discussion in Canada right now about. Well, if we wanted to hit them in a way that it hurts oil, is the way we do that, we could restrict oil exports. Bunch of different mechanisms we could use to do that. What does that do? Well, it sends gasoline prices up in mostly the Midwest. Of course, voters in the Midwest, a lot of swing states in the Midwest, Michigan, Wisconsin, etc. They don't like when gasoline prices go up. So this is risky politically. We're not aligned on this in Canada. Not every province wants to do it, but. But it's something that is being discussed.

There's three ideas being floated right now. There's export tariffs, which could be a really bad idea for Canada's economy.

Exactly. That gets complicated. We could go export restrictions on the federal level, but we've got like some. Some state and federal friction. So if the feds came along and said to Alberta, which is where most of Canada's oil comes from, hey, we're going to restrict the flow of oil. Basically, our premier's equivalent of our state governors, her head would pop off. So that's going to be a really big problem. But there are other ways you could do that. You could actually say, look, natural resources are under provincial jurisdiction. Why don't we let the province curtail exports? Or we could say something really wild and say, hey, why don't we take away our laws around competition policy and let Canadian oil and gas firms collude, essentially act like OPEC in their own best interests? Canadian oil and gas firms could say, look, these tariffs come in, we're going to trim output. We know exactly what's happening in oil markets, and we're going to keep Canadian oil prices high. And then if Canada wanted to turn the screws just a little bit more and say, well, why don't we get more aggressive with this, Adrian? Why don't we not just keep oil prices high, but why don't we let drivers in the Midwest and, hey, we like drivers in the Midwest. Again, we don't want to hurt anybody. We just want to make a point. So it's, again, if Canada's looking at using all the tools in our toolbox or at least having those tools on the table, oil is our biggest tool, and it's one we're contemplating using.

If you look at the way the US Oil industry has grown up, gasoline and refineries are very much regional. And because those refineries in the Midwest, from Illinois all the way down through to Oklahoma, they're designed, they were made to take heavy oil from Canada.

Exactly. And what they take is heavy crude from Canada. And so, yeah, you could drill for oil, but it wouldn't be the right kind of oil. And moving it around is. It's, you know, unclear how that would happen.

Yeah, well, part of the discussion in Canada is also like, why are we so vulnerable to this tariff threat. Shouldn't we be more resilient? You know, shouldn't we be more diversified? And, yeah, Canada should always be more diversified, but we live next to the richest country in the world. You know, there's 340 million of you, and you're the best customer in the world. We don't have a lot of incentive to diversify. Maybe we do now. So there's like, we have this pipeline project to the west coast northern gateway that got canceled. The oil industry is saying, see, we need to build that now. We need to be able to get our oil to customers in Asia. Others are saying this is the time to get rid of interprovincial trade barriers or dismantle our system of supply management for dairy. Or, hey, how about we lower corporate taxes, because that's going to make us more attractive to international companies to come here. All of the hobby horses are being trotted out right now. Some of them may be good ideas, some of them may be just opportunistic. But it's basically a lot of folks right now trying to get some of the stuff they've wanted to get done for a long time, and they're taking this opportunity to put that on the agenda.

We don't want a trade war, Adrian. And all this rhetoric about Canada being a bad actor and taking advantage of you. Like, yes, we have trade irritants, as everyone does in a relationship, but the idea that these are somehow a national security or we're taking advantage of the U.S. on a grand scale, it's a fiction. Plus, Canadians, we like America. We like Americans. We like going there. I want to see Patrick Mahomes win a third super bowl in a row. I love going to a US Diner. It's like one of my favorite things in the world. You do breakfast just so well.

That's the one thing I think we can guarantee.

Thanks, Adrian.