BDL Podcast Episode 3
SUMMARY KEYWORDS
Canada-US trade, tariffs, economic impact, manufacturing sector, supply chain, investment, GDP, job losses, retaliatory tariffs, trade policies, export opportunities, women entrepreneurs, underrepresented business owners, trade diversification, business relationships.
SPEAKERS
Marwa Abdou, Mairead Lavery
Intro 00:01
Welcome to Canada's Economy, Explained — the Business Data Lab Podcast, an initiative of the Canadian Chamber of Commerce. With your host. Marwa Abdou, Senior Research Director. Using real time data and actionable insights, our experts and guests will break down the trends that are shaping Canada's Economic and Business landscapes to help you make better decisions. Let's dive in.
Marwa Abdou 00:26
Today's conversation is one that has occupied the bulk of our time, not just as economists, policy makers, thought leaders and politicians, really Canada as a whole, since at least November of last year. Back then we were grappling with the fact that President elect Trump was not only back but true to form of his attention seeking politics, so was his favorite bargaining tool, tariffs. Here's a snapshot of what's been happening.
[Audio clip] 00:55
Canada has a very big car industry. They stole it from us. They stole it because our people were asleep at the wheel. If we don't make a deal with Canada, we're going to put a big tariff on cars. Could be a 50 or 100% because we don't want their cars. We want to make the cars in Detroit. We're thinking in terms of 25% on Mexico and Canada, because they're allowing vast numbers of people. Canada is very bad abuser. Also vast numbers of people to come in and fentanyl to come in. When do you think you would enact? I think February.
[Audio clip] 01:27
that if tariffs are implemented against Canada, we will respond. We won't relent until tariffs are removed. And of course, everything is on the table. Tonight, I am announcing Canada will be responding to the US trade action with 25% tariffs against $155 billion worth of American goods.
[Audio clip] 01:51
President Donald Trump's decision to impose tariffs on all steel and aluminum imports starting next month, received condemnation from Canada, Mexico and the European Union Tuesday, and fanned fears of a potential global trade war. Ford Motor CEO Jim Farley said Trump's proposed and implemented tariffs have added quote, a lot of cost and a lot of chaos, but he said he believes the president aims to strengthen the US auto industry overall. Still more tariffs could be coming. Trump said he was considering them on cars, semiconductors and pharmaceuticals.
Marwa Abdou 02:27
In this episode, we want to begin exploring this intricate relationship between Canada and the US, one of the world's most significant trading partnerships. We'll discuss the impact of evolving trade policies, including those proposed measures, and what Canadian businesses can do to seize opportunities and mitigate risks amongst this uncertain climate. An overview of the numbers from the latest BDL tool, the Trade Tracker tool, which is available on the website, sheds more light on what's at stake Canada and the US share the largest bilateral trading partnership and relationship globally with over 1.3 trillion Canadian dollars in annual trade every single day, 3.6 billion Canadian dollars in goods and services crosses the border, and Canada is the number one customer for 34 US states, this partnership supports 2.3 million Canadian jobs that are tied to US exports, and 1.4 million American jobs that are tied to Canadian exports. And this only skims the surface of the potential economic impact of these tariffs and how they will continue to reverberate in virtually every aspect of our lives, as well as our neighbors down south today, we're honored to have married Lavery with us. Married is the former president and CEO of Export Development Canada, only retiring a couple of weeks ago. She is the first woman to lead the organization. Has extensive experience in finance, strategy and operations. She's been really pivotal in supporting Canadian businesses in international trade prior to EDC married, held senior positions and roles at Bombardier and has been recognized among Canada's top most powerful women. Welcome to the podcast, Mairead.
Mairead Lavery 04:20
Thanks, Marwa. I'm absolutely delighted to be here and thank you to the Business Data Lab for the invitation. Of course, it's a difficult subject and a very difficult time for Canadian companies, so let's hope we can find some things that might be of help to them today.
Marwa Abdou 04:36
Yes, absolutely. As you said, there's a lot to unravel. The importance of this trading relationship is obviously no surprise to those in Canada married. I want to ask you, and I want to start here, based on your experience at EDC, can you highlight some of the key industries that are affected by evolving trade dynamics?
Mairead Lavery 04:55
Yeah, well, unfortunately, given the status of the tariffs and that there are blank. A tariff other than the 10% carve out for energy. It means that all of our industries, with the exception of services, are going to be impacted. So that's already a very sobering thought, but I think then you start to go to where we see Canadian strength, which is in our manufacturing sector. I think we're all very familiar with the automotive industry and the level of integration and the movement of parts between our two countries, in fact, between the three countries of cusma, Mexico, the US and Canada. It's probably the most highly integrated supply chain in the world. So our manufacturing sector would be number one, and of course, it would suffer a 25% tariff regime, so at the high end of the tariffs. And then you do go to energy or oil or gas or electricity, that goes to the US, which would see a 10% tariff. But again, all our industries are impacted. You mentioned agriculture. We see seafood, forestry, and indeed, some of our technology industries impacted as well, so very significant across the board tariffs.
Marwa Abdou 06:04
Yeah, I mean, I think you touch on, the manufacturing sector alone represents at least a 10th of Canada's GDP. So I think that is a very, very sobering statistic to sit down with on its own. Now, we recently published at the BDL a report called Partners in Prosperity, will link the report in the show notes for our listeners who want to go ahead and read it, the report really emphasizes the deep economic integration between Canada and the US, and really highlights the impact of some of these numbers on Canada's GDP and growth and also the potential impact also on the US. How? From your experience, obviously, this isn't the first time that we've we've heard Trump threaten these tariffs, perhaps now more drastically than he did before. How do you think businesses can leverage this integration for growth, and why hasn't it happened? Why haven't we learned from the last time that he actually raised those threats?
Mairead Lavery 07:05
Yeah, great question. So first I'd shout out to the business data lab, because I had the chance to read the partners and prosperity report. And I also want to call out the work that you're doing to give the analysis of the tariffs by the impact by Canadian cities, and I'm going to get to that shortly. Those are both great tools that any company should really looking at this point in time. So for me, when I read the partners in prosperity report, there were, what I really had is five key takeaways. One was that a significant portion of our exports are for the benefit of us inputs to their exports. So we're part of a supply chain at the end. Consumer may not actually be a US consumer. It may be an international consumer. We look at the amount of bilateral trade that we do, but 50% of that is between related parties. So there's such a level of integration in our two business communities, and we know that a large portion of our exports are done by US companies in their Canadian base. So there's us owned companies that are actually transferring back to the US parts and on or indeed finished goods. Two things that really highlighted to me, that I do want to mention is the level of investment. Sometimes we talk a lot about trade, and when we talk about leverage, we have to also remember that there's a lot of bilateral investment. Canadian investment in the US is standing at about 1.1 trillion, and US investment in Canada at 620 million. So, so that's a point that we can't forget. Investment is a really huge lever, and one we should be thinking about. But the last I think, maybe the key takeaway that I got from the report, I think, starts to answer maybe your last point about why, why haven't we reacted? What's happening? What can Canadian companies leverage? Of course, we'll continue to leverage the very strong relationships that we had and that we've built up with these states, but we we really have to change the dialog with our trading partners, the companies that are investing in Canada, the Canadian companies that are investing in the US. That includes our pension schemes. It includes our banks. It includes partners that we don't often talk about, versus the Canadian companies who are actually doing the trade of goods and services. But there's many more Canadian investors, and we have to work with them. We have to bring them into the conversation and understand how they're thinking about it at the at the company level, it just goes to company survival. It goes to everything companies know they need to do, which is look at themselves first, look at their own supply chains, look at their own customers. And given that level of integration, they know their US customers and supply chains really well, and that's what they can leverage. Those business relationships at this point in time, time, believe it or not, notwithstanding the March date for tariffs, time is more on our side, because these supply chain relationships, as was proven during COVID, we you can't actually change them very fast. They've been built up over years. They reflect manufacturing capacity, they reflect educational capacity, they reflect knowledge and learning. So you can't change them. So part of our leverage is to use the time we have to think about what might be different in the future. So you know the level of integration that you've highlighted in the report is quite incredible and probably quite shocking to a lot that has to be unpacked and see what we can then actually ask all of the players who are in that integrated system what they can do to actually help at this time.
Marwa Abdou 10:56
You know, there's always been this perception that US trade is important for Canadians, but not the other way around. The impact that Canadian trade has on the US, and the impact that these tariffs are going to have not just on Canadians and Canadian companies and Canadian you know, citizens, is going to also be mirrored in the US, for their companies, for their citizens, for really everyone. Now, I want to go back to the tariffs and the trade risks that are really fundamentally underlying all of this. Tariffs have been obviously a significant topic as of late. We know from what we can piece together that it is a negotiation tactic that he is after other aspects as well. You know, in terms of border and safety measures, a lot of the things that he had highlighted in terms of the fentanyl now we know the numbers behind that. There's been a lot of the proposed measures that Canada had even started before Trump had even taken office are partly why we have this one month kind of delay in imposing those tariffs. So we know that he's using this as a bargaining tool.
Mairead Lavery 12:13
So there certainly is a lot of tough talk going around at the moment, but you know, it has very severe impacts pretty rapidly. I think if you take it at the at the country level, you know, certainly the discussion there is the impact on GDP, but more importantly, the impact on jobs in Canada. And you know, a 25% tariff could cause a shrinkage in in Canadian GDP by 2.6% US GDP by 1.6% these are incredible numbers when you think of just the level of GDP itself. And certainly, you know the big or word has been thrown around for Canada, which is recession and a very challenge, and it's going to feel pretty, pretty rough. So that's going to filter down to every consumer, everyone in the Canadian and in the US economy. But how does it get there? What is the impact on the business? Well, fundamentally, the impact on the business is the increased costs that they're going to face, the supply chain disruption. Because you could see companies now change suppliers, whether they're a buyer or whether they're a part, you know, a purchaser of these supply goods, you could see a lot of supply chain disruption, meaning, you know, did you may not get the products that you want or the products that you're used to getting. We're already seeing retaliatory tariffs, so those are now on the table, both by Canada and now by the US, and they're actually also encompassing non tariff trade barriers. So those are things like regulations or things that prohibit trade, which aren't actually $1 value, but are actually there as a barrier to trade as well. So that just starts to become an escalating trade war and a race to the bottom when you find, you know, someone puts tariffs on someone else slaps on their tariffs. Very difficult to break that cycle. Obviously, there's lots of sectorial impacts. Different sectors are going to be different impacts. Indeed, your tariff finder and the impact on Canadian cities shows the impact by city in Canada. So we're going to see that, and that's got a secondary follow on impact, where you start to see communities like service industries, hotels, retail food also impacted, if there starts to become lot job losses associated with the impact of these tariffs and just the amount of uncertainty. That means no one's going to be investing at this point, investing in equipment, investing in productivity. They're going to be keeping their powder dry for what might happen in a tariff situations. So huge, huge impact. And then obviously, EDC, by its mandate, is to try and help with diverse. Diversification. It's to try and help Canadians export. It's to try and help increase their ability to export. So you're going to be looking at the whole range of tools that they have, their offices abroad, the intelligence they have, the connections they have abroad, to be able to do this. Because this is a there's no silver bullet here, like you're no people are companies are going to have to get into their operations, into the details of their contracts, with their suppliers, with their buyers, and then they're going to have to look at the long term. They're going to have to say, what can I do that's different going forward, and that's always been very difficult for Canadians when you have such a purchasing power that was actually easy to access. Time wise, distance wise, language wise. There's no logistical market. That's right, that's right. There is no there's comparable size markets. Nothing as easy to deal with as the United States. So that's always been the easier place to go, and now it's very much more complicated and going to take a lot more work.
Marwa Abdou 16:03
Now, something that maybe some people don't know is that my background is in international trade and development. In preparation for this conversation, I was selfishly reflecting on what I personally wanted to ask you and what I wanted to learn from you as somebody who's been not just a visible and successful female leader in this space, but perhaps someone who's had a very direct line of sight in terms of how women entrepreneurs and underrepresented business owners can continue to play part in this critical moment in time.
What we know from the data, and this is something that we're hoping to kind of talk more about in the coming episodes with upcoming research, is that we know that Canada is leaving a lot on the table in terms of engaging a lot of entrepreneurship here in Canada. We know also from the research is that there is a different advantage of engaging these these immigrants, women entrepreneurs, they have a very different impact in terms of export and their ability to engage in international markets than, you know, non racialized business owners, and that's by proxy of their personal experience. So diversity really can, can be one of Canada's strongest tools in continuing to expand its markets abroad. I wanted to ask first and foremost, what advice would you have in terms of women owned businesses or women entrepreneurs or racialized or marginalized or marginalized business owners, how they can continue to play part in this business landscape and continue to look to export opportunities and on a larger kind of scale? How can women continue to play a part in international trade at this critical juncture in time?
Mairead Lavery 18:00
That is a very big question. And you mentioned trade and development. So development being, of course, a totally different, a different perspective on things and EDC and through find Canada, Canada's development finance institution, there's lots of work underway there as well. On the development front, I think if we come back to entrepreneurship and understanding the importance of, you know, the the large number of very small companies that we have, and we would have called them micro companies, and small companies sort of linked to their revenue base, and it is to encourage like that, continuing opening of the funnel, to make sure that all those groups get represented in trade, but those the needs that they have are very different than medium sized companies or large sized companies. And I guess if I had a few things to flag, one is you've got to recognize those differences, and you have to create pathways that work for those differences. So for example, for women entrepreneurs, often it's actually getting a financing relationship that recognizes them as an owner of the corporation, and doesn't require their husband to sign off on the loan, etc, but to actually recognize the role that they will they're playing as the owner of the enterprise. So often we spend a lot of time with our women entrepreneurs, with their formal banking partners, with their formal relationships in the financing space, and one of the ones that's most difficult is actually with equity providers, where you find a lot of women and indeed underrepresented groups have very have social purposes as well as business purposes, and you have to find that combination that actually works, and you have to find investors that are interested in that social purpose as much as they are in the business return. So it's like a double. Whole bottom line that you have to find an answer for when you're looking at underrepresented groups.
But there are pathways. So again, it's you know. One, we've got to show that the door is open. We've got to attract as many in as we can. Two, we've got to find the path that works for them. What specifically are their needs. And then three, we've got to continue strengthening them. We've got to continue finding ways so that they get the contract that changes the size of their business, that they can access large company procurements, government procurements, things that give them stability and strength so they can grow to become what would be more formally recognized in the trade system, but you cannot do that if you don't recognize the differences, whether that's in our indigenous community, whether it is in our women entrepreneurs, our black entrepreneurs, or indeed the many different immigrant groupings that we have, We have to celebrate the differences and find a path for them, and then we'll benefit from those differences in the long run.
Marwa Abdou 21:06
You know, I think this is a very, very good place to end this conversation. Canada has so much to leverage, so much diversity, so much opportunity. And I think, you know, obviously we all say the work should have started yesterday, but we're now here, and I think it's a critical juncture in time where everybody can can take part and can play a role in driving the path forward. Married. Do you have any additional thoughts that you want to share with our listeners?
Mairead Lavery 21:37
Let me go to this sort of the macro level first, and then I'll come back to the individual company level, even saying all the challenges I still see, there's opportunities for Canada. There's opportunities in the sectors that Canada is very strong in, in our capabilities, and there's equally geographic opportunities. There's many countries that are willing to trade with Canada and are looking for their own diversification or their own growth. So let's not forget that there are opportunities at this point in time. And I summarize it very quickly for you, as I've traveled the world for EDC and for Canadian companies. You know, in the last two years, the discussion has been in many countries about national security, economic security, energy security and food security. And if you just that's how they talk about it, security of those four elements. And if you look at that, that equals defense, energy, agriculture, mining, manufacturing and technology. And all of those sectors are sectors that Canada can actually excel at and has the capability. And so I think Canada has what the world needs. We need to get out there and do that. Our government needs to help. There's lots of discussion on in tariffs at the moment about what the governments could do to help. The big one that everyone's talking about is interprovincial trade barriers. But there's more. There's trade enabling infrastructure, there's our tax regimes. There's many more things that government can do that would enable that you create that macroeconomic environment, you then work with the companies. The companies today need to be looking short term. They need to be doing risk assessments, impact analysis and scenarios. A lot of words to say. They need to understand their contracts with their suppliers, their contracts with their buyers. They need to be watching FX rates and making sure that they're covered. They need to be looking at their business and understanding what it is. They need to be connecting with others that can help them, and then they need to be planning for the long term, because we are where we are today, because we continue to benefit from the short term view, which was our largest trading partner, was the US, and it was easy to trade there. It is going to be harder, but the best day to start was yesterday. The next day to start is today. So today it's about planning for the long term.
Marwa Abdou 24:02
Mairead, thank you so much for your time today, you've definitely given me a lot to think about and reflect on, and I'm sure our listeners will have so much to take from this conversation. I want to give our listeners some actionable steps. You need to stay informed on tariff developments and trade policies, and that includes the BDL. The BDL has been producing so much important work, and that's without bias in breaking down some of the impacts on Canadian cities and industries and geographies, including analysis, recent analysis that we've published on and Marion Mary thoughtfully mentioned this in our conversation on which Canadian cities are most exposed to trade tariffs, you can access that on the blog section of our website.
We encourage you to utilize tools like the Canada US Trade Tracker and EDC’s market intelligence reports. So much depends on how we can continue to expand our engagement. On how we can continue to figure out what we don't know and learn and collect intelligence about what's happening abroad and the opportunities that we can continue to explore in emerging sectors, in markets that we can continue to diversify in. I also encourage all of our listeners to learn more about what the expert Development Canada can do for your business at EDC.ca and be sure to check out their website and their valuable trade insights resource to help your businesses succeed in international markets. Thank you married for sharing your insights on Canada US trade relations and for helping business leaders to stay ahead in today's rapidly changing trade environment. That's it for today's episode. Thank you for listening to the business data labs podcast, Canada's economy explained, where we do our best to help you make sense of Canada's numbers. Thank you.
Outro 25:59
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