In a trade war that is spiraling out of control, the gloves are off between the U.S. and Canada. Canada's next Prime Minister has promised to stand up to Trump. Eric Lascelles is Chief Economist of the Royal Bank of Canada Global Asset Management. He joins the show to look at what all this might mean.
Originally aired on March 13, 2025
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Amanpour and Company features wide-ranging, in-depth conversations with global thought leaders and cultural influencers on the issues and trends impacting the world each day, from politics, business and technology to arts, science and sports. Christiane Amanpour leads the conversation on global and domestic news from London with contributions by prominent journalists Walter Isaacson, Michel Martin, Alicia Menendez and Hari Sreenivasan from the Tisch WNET Studios at Lincoln Center in New York City.
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Originally aired on March 13, 2025
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Major support for Amanpour and Company is provided by Jim Attwood and Leslie Williams, Candace King Weir, the Sylvia A. and Simon B. Poyta Programming Endowment to Fight Antisemitism, the Leila and Mickey Straus Family Charitable Trust, Mark J. Blechner, the Filomen M. D’Agostino Foundation, Seton J. Melvin, the Peter G. Peterson and Joan Ganz Cooney Fund, Charles Rosenblum, Koo and Patricia Yuen, Barbara Hope Zuckerberg, and Jeffrey Katz and Beth Rogers.
Subscribe to the Amanpour and Company channel here: https://bit.ly/2EMIkTJ
Subscribe to our daily newsletter to find out who's on each night: http://www.pbs.org/wnet/amanpour-and-company/newsletter/
For more from Amanpour and Company, including full episodes, click here: https://to.pbs.org/2NBFpjf
This program is made possible by viewers like you. Please support your local PBS station: http://www.pbs.org/donate
Like Amanpour and Company on Facebook: https://bit.ly/2HNx3EF
Follow Amanpour and Company on Twitter: https://bit.ly/2HLpjTI
Follow Amanpour and Company on Instagram: https://bit.ly/3SaTUhk
Watch Amanpour and Company weekdays on PBS (check local listings).
Amanpour and Company features wide-ranging, in-depth conversations with global thought leaders and cultural influencers on the issues and trends impacting the world each day, from politics, business and technology to arts, science and sports. Christiane Amanpour leads the conversation on global and domestic news from London with contributions by prominent journalists Walter Isaacson, Michel Martin, Alicia Menendez and Hari Sreenivasan from the Tisch WNET Studios at Lincoln Center in New York City.
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NewsTranscript
00:00Returning now to a trade war that seems to be spiraling out of control, the gloves are off
00:04between the U.S. and Canada, and Canada's next prime minister has promised to stand up to Trump.
00:10Is there any way out of this cycle of economic violence? Eric Lacelle is chief economist,
00:16economist of the Royal Bank of Canada Global Asset Management,
00:19and he's joining Walter Isaacson to look at what this all means.
00:23Thank you, Chris John and Eric Lacelle. Welcome to the show.
00:27Thank you. It's a pleasure to be here.
00:29There have been tariffs slapped on the United States by Canada in retaliation for Trump's
00:34tariffs on Canada. And now the Central Bank of Canada yesterday lowered interest rates by a
00:42quarter of a point. I want to read you something that the governor of the Central Bank said.
00:47He said, we're facing a new crisis. And he said the tariffs on Canada could be severe.
00:55Tell me the state of play and what you think it might do to the Canadian economy.
01:00Tariffs are an enormous problem for the Canadian economy. This long friendship and partnership
01:06and North American relationship has really integrated these economies. And as it stands
01:11right now, about 20 percent of everything that Canada makes is ultimately directly consumed by
01:18Americans. And so you can imagine as these tariffs are put on and begin to impede those flows,
01:23it really is quite a concerning development for the Canadian economy. It's certainly not
01:28great for the U.S. either, but it is profoundly worse for Canada. And so it's hard to say with
01:34great confidence exactly what the economic damage will be in terms of magnitude just because there
01:40are so many swirling tariffs and on again, off again type of arrangements. But if significant
01:46tariffs are applied and if they stick, it's not an exaggeration at all to suggest that it could be a
01:51fairly profound recession for Canada. And so here we now see policymakers responding to that and the
01:58Bank of Canada has cut interest rates. It might have done that anyhow, but certainly it is on a
02:04path toward additional rate cuts relative to what might have otherwise been appropriate.
02:09And I would certainly think that as we get some additional clarity on just what tariffs are in
02:14place and how long they stick around, I would think that fiscal policy will come into play as well.
02:18We've seen this go back and forth all the time. Do you think Canada will end up sort of
02:25accommodating whatever Trump wants, or do you think it's possible that Canada could fight and
02:30continue the trade war? Well, we've certainly seen Canada, I would say maybe the more proactive
02:35of the two main North American partners in the sense that Mexico has been notably rather quiet,
02:41Canada a bit more pugnacious and of the view that it is necessary to reciprocate and to
02:46punch back to some extent and recognizing that presumably a large fraction of this will come down
02:51to negotiations. And so there may be some advantage to having tariffs to lift on both
02:57sides of the border if those can be lifted. It's clear that the White House seeks any number of
03:03concessions from any of its trading partners. And I think some of those are perhaps not
03:08entirely unreasonable and perhaps in particular the thought that military spending might increase.
03:13Canada has been very light on that front for quite some time. We've seen already additional
03:17resources directed toward border security, though I would argue that it's much more of a Mexican
03:22issue than a Canadian one, but Canada has put several billion dollars in that direction. And
03:27I think it's a reality now that this USMCA trade deal will be renegotiated as well, and Canada
03:33likely in a position to oblige for that. I think maybe the bigger questions that exist, and this is
03:39relevant to all of the American trading partners, is the extent to which the thought of reciprocal
03:44tariffs seems to have grown beyond the idea of if you have tariffs on us, we'll have tariffs on you.
03:50And it seems now to express some measure of objection to foreign countries, including Canada,
03:55that have sales taxes, that have exchange rates that perhaps aren't precisely at their long-term
04:00fair value, and that have sectors that perhaps have some measure of protectionism, be it
04:06transportation, be it broadcasting and others, which the US has as well. And so I say all of that
04:11just to make the point that I think some of the US asks are going to be difficult to oblige to,
04:17and so as a result there is a real chance that these tariffs, or at least some fraction of them,
04:21stick around, because I'm not sure that negotiations will be entirely fruitful.
04:25Well, one underlying thing is that Canada has a pretty large trade surplus
04:30with the United States. Do you think that's the reason Trump is trying to negotiate this,
04:36or do you think he believes tariffs are kind of a good thing and we should start making aluminum
04:40and steel and other things in the United States and decouple a bit from the Canadian economy?
04:45I think there are a lot of swirling motivations. I'd be skeptical that it really is about Canadian
04:51border security, first of all, so I think that's a bit of a red herring. It does seem to me that
04:56the White House has some protectionist instincts and the idea that it would be better for the US
05:02to be self-sufficient, and I should say there are economic losses when one tries to do that,
05:06and for a country with an unemployment rate that's already fairly low, it's not clear there's room
05:11for additional industries to come in, and there always is a loss of selection and variety
05:17and quality and so on when countries try to go this alone, but I do think there is just an
05:22attitudinal shift that's taken place. You're right that Canada does have a trade surplus
05:27with the US. I would note that it's not quite as large as has sometimes been articulated.
05:31It's more in the realm of about a $60 billion annual surplus. A lot of that goes away if you
05:36include the service sector, which of course the US is exporting all sorts of cultural services
05:41and entertainment and many other products as well. It's been widely noted if you were to remove the
05:464 million barrels a day of oil that Canada exports to the US, which is done at quite a discount,
05:52it is generally considered to be a positive thing, that surplus shifts to a deficit,
05:57and so yeah, there is a surplus. I think that's part of it, but I think you would struggle to
06:01articulate why Canada is being so focused in terms of the tariff attack so far, simply because
06:08there are countries with far greater trade surpluses with the US, and I'm thinking Mexico
06:14and Taiwan and Vietnam and Germany and others, and yet they at least so far have not been hit
06:19to the same extent, and so I do think there is some measure of animosity that for whatever reason
06:24exists as well. Well, wait, let me pin that down. Animosity meaning
06:29personal by Trump towards maybe personally towards Trudeau? Is this an emotional thing?
06:35I think possibly. I would struggle to articulate the reasons entirely behind it, but yes,
06:40it did seem as though that particular relationship was not entirely constructive, and of course,
06:45as you know, Canada is going through a political change now that could perhaps
06:49lessen some of that impact, but that's quite speculative. Well, let's talk about that change.
06:53Mark Carney is a new leader of the Liberal Party. He's about as stable, as knowledgeable,
06:59as down-to-earth and as calm as you could find anybody. Do you think if he eventually is elected
07:08in this new election that'll come in a few months or so that he's the right person for this time?
07:14Certainly, he has the policy chops and the economic chops, and so you can argue he's the
07:19right person for the time in the sense that this is, for Canada, at least a time of really having
07:24to prioritize the economy and find a way forward from a trade perspective and sort out just what
07:29the right level of support is for an economy that could be significantly diminished. I might broaden
07:34it out a little bit, maybe cop out a little bit as well and say he is the prime minister,
07:39or at least shortly will be. There is an election that will have to be held at some point in 2025
07:45for Canada. Let the record show, until quite recently, actually, it was the opposition
07:49Conservative Party with a very large lead in the polls. That's narrowed quite a bit, I suspect,
07:54in part as there's been a real sense of patriotism and nationalism expressed in Canada given
08:00recent threats toward the country, and so that has favored the incumbent Liberals. And so now
08:04it's a really close race, and so I wouldn't want to prejudge exactly who is the prime minister
08:09coming out of this, but I would say that between perhaps Carney being somewhat more of an economic
08:14centrist versus a more left-leaning set of policies that predate it, even under the same
08:18Liberal Party, or a Conservative win, which is also possible and also envisions some significant
08:23economic changes, I think either way it's probably one that puts Canada in a better position for
08:28growth and for productivity gains and so on, and perhaps in a slightly better position in terms of
08:33negotiating with the U.S. to the extent that there may, as you say, perhaps be some personal animosity
08:38at stake right now. Let me read you something that President Trump posted on social media,
08:43which is about Canada. We don't need your cars, we don't need your lumber, we don't need your energy,
08:49and very soon you'll find that out. Is he right? Well, gosh, it probably depends on time frame. I
08:56think if we could fast forward 10 years, I don't doubt, or even a few years, I don't doubt that
09:01the U.S. could find other foreign providers for some of those products and could be in a position
09:06to increase its production of some of those products domestically as well, at a cost, I should
09:13say, because it would require then deprioritizing other things the U.S. is already very good at, and
09:18of course that's one of the central charms of international trade, is you let countries
09:21specialize and everyone is better off as a result, and of course every dollar of trade that's
09:26exchanged is entirely voluntary, and so therefore to the benefit of all parties. But I do think in
09:31the short run that probably isn't correct in the sense that it would be very hard for the U.S. to
09:37substitute away from many of the things that Canada makes, and so this may be stylized,
09:41but Canada provides a lot of raw materials to the U.S., and so when I think about the oil
09:46sector as an example, 4 million barrels of oil a day are provided to the U.S. The U.S. consumes
09:51about 18 million. This is more than 20% of the oil supply. That's not likely Americans are going to
09:56drive a whole lot less. It's not likely you can suddenly get oil from another place in that
10:00magnitude. It's not likely American refiners could refine any other oil if they were able
10:05to find it. That oil refinery is very specifically focused on Canadian heavy oil. For potash,
10:12Canada provides the great bulk of the imported potash, and while Russia and Belarus produce
10:17some, and one might theoretically think of a way in which that could be secured, they just don't
10:22make enough for U.S. needs, even if you were able to swap all of the production over to the U.S.
10:28The auto sector, this is a highly integrated North American auto sector, and so of course
10:32there's pressure now for companies to shift some measure of production toward the U.S.,
10:36but you can't build factories in a day. You can't even build them in a year, and very similarly,
10:41and perhaps apropos given that the steel and aluminum tariffs have come on, Canada produces
10:46the great bulk of the aluminum used in the U.S. We're talking 10 times more than any other country
10:52provides to the U.S., far more than the U.S. produces, and aluminum is needed for motor
10:58vehicles, including pickup trucks. It's needed for planes. It's needed for construction. It's needed
11:04for every soda can that you've seen, and there really isn't another way to get that in any kind
11:08of timely way, and so the pain is greater for Canada, but the pain is significant for the U.S.,
11:14and you would expect higher inflation, and you would expect palpably weaker economic growth as
11:19well. Well, that's what you do at the Royal Bank of Canada, or RBC, is you're very good at making
11:26predictions about the economy, doing analysis. Let's start with the United States. Do you think
11:31a recession is in the works in the United States? I'm doubtful about that. I can certainly say we've
11:37seen evidence of an economic deceleration. I can say that tariffs, if applied in a significant way,
11:43and there's such radical uncertainty around that, you need to think in a scenarios context,
11:47but there are certainly ways in which there could be significant damage emerging from that. I still
11:53struggle to conclude that that's a recessionary blow. It's one that could significantly dim growth.
11:58It's one, increasingly, that points to an economy that might grow at its slowest rate since 2020,
12:03since the pandemic, to the extent these tariffs come on. To me, it's not a full-on recessionary
12:09blow, and I would say as much as markets are recoiling, the sort of scale of market recoil
12:13is probably consistent with that as well. And so, would you see higher unemployment? Absolutely.
12:18Weaker growth? Absolutely. To my eye, at least, probably not an outright economic contraction.
12:23Well, let me then ask you about Canada. Do you think it will be recessionary for Canada?
12:28Well, listen, if anything like a 25% tariff comes on on April 2nd, I think the answer is yes. I would
12:34assume the Canadian economy is beginning to shrink almost immediately at that point. I'd like to think
12:39there will be negotiations. I'd like to think that smaller tariffs will ultimately prevail
12:45within a matter of months or perhaps quarters. But either way, you would still have an economy that
12:49was shrinking initially and quite a bit of pain being felt. And maybe the only distinction I can
12:55make between the two, and it's not really an economic one, is that Canadians are incredibly
12:59united around this and willing to suffer and broadly in line with the reciprocal tariffs being
13:05applied to the U.S. And so, I suspect we will see Canadians rally and perhaps that will dampen
13:11some of the blow. But at a minimum, the government at the central bank likely to be rowing in the
13:16right direction. Explain to me something about the way Canada works. We see Doug Ford of Ontario's
13:23premier, right, talking about putting his own tariffs on the United States and coming to meet
13:29with Howard Lutnick, the Treasury Secretary. Could he do things? What do you expect of that meeting
13:35with Lutnick? And could he do things that are non-coordinated with the central government of
13:40Canada? It's certainly unconventional. I will say that he's been among the more pugnacious of the
13:46provincial leaders, and so that's been undeniable. I guess time will tell whether that's the right
13:51strategy or not. It's not quite clear yet, but perhaps not the worst thing to be experimenting
13:55with different responses and engaging what the U.S. response to that is. You can argue perhaps
14:01there's been some value in that, just to the extent that, as you say, there is now a meeting
14:06schedule, though I would note prior meetings have not been overly fruitful. So I'll believe it when
14:10I see it in terms of whether there's actual forward progress that occurs. But I will say
14:15that as much as we're seeing slightly different strategies out of different provinces and it's
14:19unconventional for a sub-sovereign level of government to be applying tariffs, ultimately
14:24Canada is rowing in the same direction. And these premiers and the prime minister and others are
14:29meeting regularly and are on the same page. And so I wouldn't say that's particularly concerning
14:34right now, but it does reflect the fact that stage one of the Canadian retaliation is tariffs in a
14:41conventional way. There are other options that exist, whether it be tariffing non-traditional
14:47items like electricity or limiting the export of certain critical products. And I'm hoping that
14:52bridge doesn't get crossed, but that option does exist. And of course, it's so critical to Canada
14:57to get back to some sort of proper trade footing with the U.S. You made a very strong point about
15:02how coupled the Canadian economy is to the American economy and vice versa, the U.S. economy.
15:08Do you think that this sort of uncertainty is going to lead to a long-term decoupling of the
15:16two economies? It's a great question. And it's awfully hard to say because, of course, it's
15:22difficult to say what trade policy might look like under a different administration 40 years
15:27from now or what it might look like a decade or two from now. And I wouldn't want to underestimate
15:32the long and incredible and almost unparalleled friendship the two countries have had.
15:37And so I wouldn't want to write that off on the basis of a couple of bad months. But I would say
15:42that certainly Canada is of a mind that it needs to work harder to diversify its trade.
15:48It's been such a positive partnership that Canada doesn't trade that much
15:52with Europe or China or some of the other obvious markets. And so there is quite a scramble
15:57underway. I'm a bit skeptical of the ability of Canada to significantly pivot in short order just
16:03because, again, these other places are far away. They're already provided with perhaps the potash
16:08that they need or the oil that they need and so on. And it's not particularly easy to transit
16:13some of these products to foreign shores. And so I think that we will see a scramble to reduce
16:18reliance on the U.S. And it's been a real wake up call, I think, for Canada and one I suspect that
16:23won't be forgotten anytime soon. All the same, even with gargantuan tariffs, I very strongly
16:30suspect Canada's biggest trading partner will be the U.S. And I would think it will be probably
16:35again a fairly close trading relationship within a number of years. But you say there'll be a
16:40scramble to reduce relationship to the United States trade relations. Do you think that would
16:46put Canada more closely aligned with China? It's a great question. And I think the natural
16:53strategy is to flirt with other countries and perhaps induce some jealousy from the U.S. And
16:57the obvious flirting would be with China and Europe in particular. And so I'm sure those
17:01conversations will happen. Do note that Canada already has a free trade deal with Europe. And so
17:07I suppose the opportunity there is to trade more that the negative is there isn't room for an
17:12explosion of trade because the barriers have already been fairly low. One of the challenges
17:17for Canada is that Canada and China have often had a contentious relationship, ironically, in part
17:23because of the U.S. And so, for instance, Canada put on a large tariff on Chinese vehicles to
17:28synchronize with the U.S. tariff on Chinese vehicles. China has just punched back at Canada
17:34in the last week and is now applying tariffs to various agricultural products on Canada. And so
17:39I wouldn't say that the relationship is entirely proceeding in the right direction right now.
17:44And so there are challenges there, but I'm sure Canada will do its best to diversify as it can.
17:49Eric LaSalle, thank you so much for joining us.
17:51Thank you very much.