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Hello, everyone. I&#8217;m Roman Dubczak, Deputy Chair of CIBC Capital Markets.
We have a very interesting session for you today on the back of what was a very eventful day yesterday in Ottawa when Prime Minister Justin Trudeau announced his intention to step down as leader of the Liberal Party and effectively as Prime Minister after the commencement of a leadership contest to be initiated in very short order.
Parliament was also prorogued until March 24th, and so there is an end date to the process. But certainly until that time, there is going to be quite a bit of anticipation as to who the new leader will be. And all of this is in context of the inauguration of President Donald Trump and the issues that have been raised vis-a-vis the direction towards Canada and tariffs.
To help us navigate some of the implications, I have with me The Honourable Lisa Raitt, Vice-Chair of Global Investment Banking, and CIBC’s Chief Economist, Avery Shenfeld.
Lisa, Avery, thanks for joining today. And just in context, we are just over 24 hours from the news that came out yesterday. So, Lisa, let&#8217;s start with you. As I said earlier, what happens next? There are a lot of outcomes. You know, what&#8217;s the initial call?
Lisa Raitt: Yeah. So, what you said at the beginning is very true. And the reviews are in. We are being left in Canada in a bit of a precarious situation with respect to Mr. Trudeau&#8217;s announcement that he will eventually step down as Prime Minister, he&#8217;s going to stay on as Prime Minister until the Liberals choose a new leader. So, there&#8217;s going to be a focus on that Liberal leadership.
I think it&#8217;s going to be important to watch, to see which contender and their ideologies, their points of view&#8230; However, they&#8217;ve governed in the past, or even if they&#8217;re an outsider, it&#8217;s going to be important to see what the Liberals are going to put in the window for the inevitable election, because all three parties that are in opposition, including the Greens, have indicated that they are going to bring down this government on its first opportunity.
Because Mr. Trudeau is prorogued, the first opportunity will be The Speech from the Throne, which has to be given at least two days after March 24th. So, if you put it together as a calculus, we&#8217;re looking at a general election probably the first week of May.
Roman Dubczak: All right. Prorogation until March 24th. But a new US president who is, no need for me to be embellishing what is being said in the public from the president elect, that is. Comes into power on January 20th, and we&#8217;re in a position of a prorogue parliament and a leadership race, etc&#8230; Like, how does business get done in that context?
Lisa Raitt: Well, business will get done in Ottawa, so the government continues to function. It&#8217;s just the legislature is not sitting, the committees aren&#8217;t meeting, the parliamentarians are at home in their ridings, which some would say is a good thing. Some would say it&#8217;s a bad thing.
The reality is, though, when it comes to these big issues with respect to Mr. Trump, its tariffs and its immigration matters, that we are going to have to have a response to almost instantaneously. Because of prorogation, because of the leadership race that’s happening, it&#8217;s really going to be on the shoulders of one individual. It&#8217;s going to be Prime Minister Justin Trudeau, who&#8217;s going to be making the call, in the interim as to how he&#8217;s going to approach the United States.
It’s going to be he and his staff. And the reason being is that you wouldn&#8217;t expect a number of his cabinet are actually going to be seeking the leadership, and they&#8217;re going to be out of commission and not available to the negotiations that may have to happen in the ramifications of whatever decisions Mr. Trump makes on January 20th.
Roman Dubczak: Okay, park the thought on the tariffs, because that&#8217;s big issue number one. The big issue number one-A, is what happened yesterday, Avery, and what&#8217;s your read on with the news and the process in Canada is? What implications is that going to have for the market?
Avery Shenfeld: So, if you believe in efficient markets, forward looking markets, remember that markets for some time would have been anticipating that we were going to have an election in 2025. That election has moved up, from the fall to, as Lisa mentioned, probably a vote in early May. But the outcome of that election probably already baked in, in the sense that if you look back historically and they did the process, there&#8217;s been three cases where a Prime Minister was very unpopular, left late in his term, handed the reins over to a new leader, and in all three cases they lost badly.
So, you know, there&#8217;s been one exception that I can find at the provincial level, where there was a turnaround from a new leader stepping in at the last minute. But even then, in the provinces, generally speaking, even in cases where a new leader came in and governed pretty well, they weren&#8217;t able to win.
So, markets should be already assuming that we&#8217;re going to have a Conservative majority government. And so, in essence, I don&#8217;t think the volatility in markets or any response in markets is going to come from anything that&#8217;s happening on this side of the border. As Lisa mentioned, people were watching who takes over the Liberal reins and what their platform is. But frankly, from a market perspective, who cares what their platform is?
What we&#8217;ll be watching is any details that emerge on the Conservative platform. But the biggest issue is what happens south of the border. And as we&#8217;re speaking just today, we had another long you can call it ‘press conference’. If you wanted to be uncharitable, you might call it ‘rant’ from Donald Trump. And Canada wasn&#8217;t the only country mentioned.
You know, he&#8217;s going to put big tariffs on Denmark unless they give up Greenland, potentially take the Panama Canal by force. So, lots of threats to other countries. But certainly, Canada still very much in the hot seat. Still a lot of commentary on, now it&#8217;s almost become he&#8217;s going to use economic force on Canada to compel us to join the United States.
So, it&#8217;s, it&#8217;s become, if anything, more extreme. And as Lisa mentioned, we don&#8217;t have anyone really in the chair other than the Prime Minister who can try to respond to this, avert an outcome. I want to add that, though, that we do have some provincial Premiers who are now stepping up a bit, including, Premier Ford here in Ontario.
And as well, I think we need to mobilize Canadian corporate Canada and their allies in the US. So, for those of our clients who are listening, the ball&#8217;s a little bit in your court. Canadian auto companies, auto parts companies and so on, need to be getting their counterparts in the US head offices of the big three to mobilize, to protect their tariff free status. Canadian energy companies and so on.
Because one possibility here is that tariffs are put on Canada. But we managed to win exemptions for things like oil, natural gas, perhaps the auto sector. And if you line up enough of those exemptions, actually you could dull the impact. So, there&#8217;s a big job to do. And I say the ball is in the Premier&#8217;s hands now. But significantly in corporate Canada&#8217;s hands as well. And their allies in the US.
Roman Dubczak: Okay. So Avery, given, your comments on tariffs, you know, as a normal CEO trying to run a company in this context, how does one set one sales for the next month, or 2 or 3 or year for that matter?
Avery Shenfeld: I think, you know, corporate CEOs, CFOs are actually in a similar position to where I&#8217;m sitting with more money at stake for them, in the sense that we can&#8217;t be too certain about the outcome. So, this is a time when you think about hedging risks and so on. Hedging the risk that the Canadian dollar weakens a lot if you&#8217;re an importer, for example, maybe stocking up on things that you import from the US in the event that Canada applies retaliatory tariffs to things that you&#8217;re importing from the US.
So, there&#8217;s certainly some forward looking things you might do now to hedge against risks. But I think we have to accept the reality that we&#8217;re operating under a cloud of uncertainty. And unfortunately for the Canadian economy, one likely response that many corporate CEOs will take is to hold off on decisions that involve particularly capital spending here in Canada.
And we saw that after the election in 2016, when we spent a couple of years trying to find out whether we would or would not have a replacement for NAFTA. And corporate investment in Canada, and our manufacturing sector actually took a two-year nosedive. So, I am a little worried that ‘caution’, which is clearly indicated when you don&#8217;t know where things are going, caution on the part of CEO is looking at capital spending projects in Canada, will likely slow the Canadian economy, even if six months from now, we find out that there has been no tariffs applied to Canada.
Roman Dubczak: Okay. Thanks, Avery. So, Lisa, back over to the spin, of all this, so to speak. How do you think the politicians in Canada should be managing the spin and the temperature in the room on this whole issue of tariffs?
Lisa Raitt: Take it seriously. But don&#8217;t lose your heads. Yeah. And I think that&#8217;s the approach mostly that&#8217;s being taken. Definitely, you mentioned Premier Ford. I&#8217;d mentioned Premier Smith as well. She has found her voice in the United States and she&#8217;s reaching out. Here&#8217;s the, here&#8217;s the issue. Donald Trump has a microphone any time he wants to have a microphone. And he also has two different social media platforms that he will use at various times of the day. And you can see what he&#8217;s putting out all the time.
He&#8217;s connecting directly with American citizens, and he&#8217;s putting out his narrative, which is “Canada is a laggard. They rely upon us for their defense. They also are subsidized by us to the tune of whatever million.” Now these things are laughable according, you know, as Avery chuckles at that. And I agree, but the Americans are hearing it in a different way. I mean, imagine the fact that we as Canada, being so tiny, have to try to penetrate the American viewing audience to make the counterargument to Donald Trump. He&#8217;s winning.
He&#8217;s going to win the communications battle the whole time with the general populace. So, it&#8217;s going to be really important, as Avery points out, that we are very specific about who we go to in terms of making sure they understand the intricacies and the importance of the communications of the economic factors. I&#8217;d also say Mayors. Mayors have an incredibly close relationship across the border.
So, that&#8217;s another area where they can utilize, chambers of commerce. Any kind of those relationships, especially on border states. I think they&#8217;re going to be super important to deal with, to be able to move the ball forward on that. But don&#8217;t lose your head, but take it seriously. Don&#8217;t fluff this off. The communications battle is at play, and it&#8217;s going to have an impact on how we&#8217;re viewed by Americans writ large.
Roman Dubczak: So, early days of this tariff discussion so to speak, there was talk of a Team Canada approach. Do you think that&#8217;s going to evolve?
Lisa Raitt: Think it has.
Roman Dubczak: Are we ready for Team Canada go?
Lisa Raitt: I think a really good friend of ours, of course, Ambassador Kristen Hillman is leading the charge in Washington. She&#8217;s doing a fabulous job. I would assume that all of the ex-ambassadors to the United States from Canada are also hitting the phones as best they possibly can, so I think the Team Canada is there, but it&#8217;s not the splashy Team Canada of everyone getting on one plane. I heard this morning that cabinet ministers are being dispersed throughout the United States.
Well, how many of them are left, because most of them are going to run for leader? But they&#8217;re going to get dispersed throughout the United States to try to make the case with respect to the importance of it. But as I said, think about the fact that Trump has the American eyes on him. He&#8217;s going to win that bigger battle. So, we have to make sure that we also have an offensive. But you need a defensive at home, and you got to think about how you&#8217;re going to protect your own economy and your own workers.
Roman Dubczak: Okay. Thanks, Lisa. Avery, I&#8217;ll finish with you. And in your role, and you know what we do in Capital Markets in particular, what impact do you think this whole week, and what happens after this week, has in the eyes of international investors on Canada?
Avery Shenfeld: So, I think they&#8217;re going to share that concern that many international investors understand that Canadian exports to the US is a big chunk of our economy, and that trade access is therefore a big risk one way or the other. So, there&#8217;s going to be a cautious approach to Canada. It is worth noting that we do have some levers we can pull. We can improve interprovincial trade.
We could, if we&#8217;re hit more dramatically on exports, we can take steps to stimulate domestic demand, which might mean deeper interest rate cuts, somewhat weaker Canadian dollar, as a way of cushioning the blow on trade. So, there are things we can do. Unfortunately, it will be hard to get around the initial shock. Anything we can do in response is going to take longer to show up in the numbers than the initial hit on our export sector.
So, I think international investors understand that we&#8217;re vulnerable here, and that&#8217;s part of the reason why we&#8217;ve seen not just the Canadian dollar, but other major currencies softening up against the US dollar. We&#8217;re in the same boat with Europe and another regions where they&#8217;re also being threatened with tariffs, certainly Mexico.
And so, I think that there&#8217;s a general understanding that there&#8217;s a risk here. And as well, I think there&#8217;s an understanding that it might end up not that bad too, because we replayed this in 2016, we ended up with a new trade agreement that wasn&#8217;t really inferior to the one we had before. So, there&#8217;s still some hope that we can work through this. But I think that international investors and you can see it in the currency, at least, are recognizing that there&#8217;s some downside risk to the Canadian economy here.
Roman Dubczak: Yeah.
Avery Shenfeld: Look and a strong US dollar, I don&#8217;t think is the end game for the US administration in this.
Roman Dubczak: They don&#8217;t want.
Avery Shenfeld: They don&#8217;t want that, exactly. But that&#8217;s what they&#8217;ll get if we have a two way trade war.
Roman Dubczak: Yeah for sure okay. Look, thanks, Avery, Lisa. Exciting, you know, day-and-a-half so far. And we&#8217;ll see where things pan out over the course of the coming weeks and months. And we&#8217;ll be revisiting this issue with our clients. I want to thank you all for joining today&#8217;s webcast. And like I said, stay tuned. We&#8217;ll have quite a few insights in the weeks and months ahead. And thanks for joining us. Thanks.

CIBC Perspectives

Government

Trudeau, Trump and Tariffs: An analysis of the PM’s announcement to step down as Liberal leader

Trudeau, Trump and Tariffs: An analysis of the PM’s announcement to step down as Liberal leader

Roman Dubczak

Deputy Chair

CIBC Capital Markets

Lisa Raitt

Vice-Chair, Global Investment Banking

CIBC Capital Markets

Avery Shenfeld

Managing Director and Chief Economist

CIBC Capital Markets