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Front Burner Transcript for February 4, 2025

Host: Jonathan Montpetit

JONATHAN MONTPETIT: Hi, I'm Jonathan Montpetit, in for Jayme Poisson.

[Music: Theme]

JM: On Monday afternoon, with a trade war looming in the background, Prime Minister Justin Trudeau and U.S. President Donald Trump spoke on the phone for about 45 minutes. They apparently had a wide-ranging conversation that ended with some good news for Canada -- at least for now. The tariffs that were supposed to come into effect today -- 25% on Canadian goods, 10% on energy products -- have been delayed for at least a month. In return, Canada is implementing a billion-dollar border plan, including 10,000 front-line personnel and committing to appointing a fentanyl czar. Trump has insisted for weeks that the fentanyl crisis is a major reason for the tariffs, even though only a tiny fraction of illegal fentanyl in the U.S. comes from Canada. The president has repeatedly said that he wants Canada to join the U.S. as the 51st state. Just yesterday, he said that he would, quote, "love to see Canada join the union." Trump has also insisted that he's not making any concessions on the tariff front, and has said little about what it would take to avoid them for good. So why does Trump keep coming back to tariffs, and what is it that he really wants? CBC Washington correspondent Alex Panetta is with me to talk through all that and more.

[Music: Theme]

JM: Hey, Alex, thanks for coming back on the show.

ALEX PANETTA: So good to be here, Jon. And to hear your voice. It's been too long.

JM: It has been too long. Alex, I just want to start with a note for our listeners that we're recording this at around 5:30 on Monday. This is a fast-moving story. The 25% tariffs have been delayed for at least 30 days. What do these last-minute deals with Mexico and Canada, what does this brinkmanship tell us about where Trump's head is at and what he really wants?

ALEX PANETTA: You know, that's the multi-trillion-dollar question looming over the global economy. And he might want different things from different people at different times, right? So what he clearly wanted from Canada in the last few weeks and wanted from Mexico is some stuff at the border, right. And this kept getting conflated with other economic asks. And, you know, you'd have some of Trump's defenders saying, all he wants is for you to do some simple common-sense stuff in stopping fentanyl. Just get that done. But then Trump would keep saying stuff like Canada's trade deficit is unfair. I don't like what their farmers do, I don't like what, you know, like on dairy. I don't like the-- hey, also, by the way, they should become a state. It was really hard to disentangle all those things. I think we have just a touch more clarity right now. So Trump says, okay, these tariffs are off for 30 days. Now we're going to talk about economic concerns. So it's really, it's both. Like he wanted some changes on the border. He also wants a bunch of economic changes.

SOUNDCLIP

DONALD TRUMP: We have big deficits with Canada, like we do with all countries. I mean, I look at some of the deals made. I say, who the hell made these deals, they're so bad.

ALEX PANETTA: And he can't stop talking about making Canada a state.

SOUNDCLIP

DONALD TRUMP: If people wanted to play the game right, it would be a hundred per cent certain that they'd become a state. But a lot of people don't like to play the game because they don't have a threshold of pain. And there would be some pain, but uh, not a lot. The pain would be...

ALEX PANETTA: Who knows what he wants ultimately, but yeah, you know, we've got some... at least some peace when it comes to the border and fentanyl.

JM: It's been such a whirlwind couple of days, couple of weeks. And here we are, we're trying to understand Trump. And, you know, we're looking to you, Alex, to kind of like take us inside his psyche when it comes to tariffs. Why does he love tariffs so much?

ALEX PANETTA: So, you know, I've described in my own stories as tariffs is his one true love when it comes to public policy. Even immigration, right? He's been inconsistent on that over the years. Like in 2012, when Mitt Romney lost that election. After the election, he said, we should moderate on immigration if we want the Republican Party to win again.

SOUNDCLIP

DONALD TRUMP: But you have people in this country for 20 years, they've done a great job. They've done wonderfully. They've gone to school, they've gotten good marks, they're productive. Now we're supposed to send them out of the country? I don't believe in that, Michelle, and you understand that. I don't believe in...

JM: Now, he realized that's not where the action was among the Republican Party grassroots, and he pivoted hard on that. Tariffs are a thing he's never budged on, all right. I'm going back to a 1987 ad he placed in a New York City newspaper where he complains about Japan taking advantage of the United States and saying we need to tax them -- basically talking about tariffs. And you know, I was talking to someone who lived in New York at the time, just thinking that maybe his view on this was informed by seeing Japanese companies buying up New York State property that he wanted. And he's just never budged on this public policy view that our allies are really not our friends, they rip us off, and we need to punish them.

JM: Yeah, so it's like, it's this throughline throughout his whole career. And it was a feature, tariffs were a feature of his first term in office, right? He slapped tariffs on a wide range of products from China, and he kind of sparked a mini trade war with Canada by putting tariffs on steel, aluminum and softwood lumber. Looking back now on those first term tariffs, how did that work out for Trump?

ALEX PANETTA: You know, there's, this debate is unresolved. There are people who will say that they were a resounding success. And if you look at investment in manufacturing facilities in the United States, there's this flat line in investment in building new manufacturing facilities. And it kind of bumps up a little bit in the early 2010s, and it goes up a little bit after 2016. But then later, like it just soars after 2020. Historic levels. Hundreds of billions of dollars being invested in new plants in the U.S. And so Trump and his defenders will say that, well, that was obviously the result of this changed world, that he helped change by putting tariffs on a lot of people, cutting corporate taxes in 2017 in the Tax Cuts and Jobs Act. And so, you know, the Trump critics will say, well, wait a second, that didn't happen when he was president, it happened in the early 2020s when Joe Biden was president, and it's a result possibly of the investments in infrastructure and in electric vehicles and in, you know, alternative energy production under Biden. So there's that debate. One thing tariffs have not done is bring back a whole bunch of manufacturing jobs, right? So you're seeing like over the last three, four years, just like, like I said, hundreds of billions of dollars invested in new facilities. Whether that leads to a renaissance in American, you know, hard hats going to work in the morning, making these blue-collar paycheques, hasn't been decided yet.

[music]

JM: I don't think it's an overstatement to say that most mainstream economists aren't really big fans of tariffs, and support for free trade has, you know, long, long been a pillar of conservative politics in the U.S. To what extent is Trump at odds with other Republicans when it comes to tariffs? Have they jumped on the bandwagon willingly?

ALEX PANETTA: Some of them, no.

SOUNDCLIP

MITCH MCCONNELL: It will drive the cost of everything up. In other words, it'll be paid for by American consumers. I mean, why would you want to get in a fight with your allies over this?

ALEX PANETTA: You know, you have The Wall Street Journal, which is, you know, representative of the old wing of the Republican Party and the old country club Republicans, putting out this editorial the other day, you know, calling this "the dumbest trade war ever." And, you know, there's definitely a lot of support for that point of view in the Congress. But it's, right now, it's in retreat, right? I'm pretty sure there are not more than a handful of Republicans in the Senate who think tariffs on Canada are a good idea. And yet, when Howard Lutnick was at his confirmation hearing for commerce secretary, you had these cryptic comments in public. People saying, we discussed this thing with Canada in your office. I just want to know what the plan is. Like basically, they're afraid to challenge Trump in public. For a couple of reasons. One, they don't want to fall, you know, get offside on a president who's more popular than they are with their own supporters. And the second thing is, I think there's some understanding that Trump is going to use these things as negotiating leverage to a certain extent. And you don't want to negotiate against the United States in public. So people are complaining, but not that much.

JM: All right. Since we're kind of getting our nerd on here a little bit, let's take it one step further. You know, are there any historical precedents that you can think of for how Trump approaches trade policy? I think the last time an American administration tried to put in large scale, large scale tariffs like this was way back in 1930. The much discussed nowadays Smoot-Hawley Tariff Act.

[laughter]

JM: Alex, like is this, is this the right kind of historical analogy we should be looking at here?

ALEX PANETTA: You know, so I wrote a story the other day saying that this wasn't just a trade spat. This is North America, as we know it, changing. Now, that's tempered a bit by the fact that, you know, three days later, we don't know if these tariffs are coming in or not. But the truth is, it was an interruption after roughly 90 years. Like since -- you mentioned Smoot-Hawley, and you're correct to mention that. Because in 1935, then-Prime Minister King and President Roosevelt negotiated the end of hundreds of these tariffs on a whole bunch of products. And so, they negotiated the end of these tariffs. And then, you know, 30 years later, we get the Auto Pact. And 20 years after that, we get the Canada-U.S. Free Trade Agreement and then we get NAFTA with Mexico, and then we get the USMCA or CUSMA a few years later. And so there's like this general trend line toward liberalization. And that moment definitely appears to be over. You don't-- like, you're not talking about a free trade area of the Americas anymore. Like, the sort of the liberalism era seems to have paused. And now it's kind of in retreat too, right? You're seeing, you know, Trump talk about just crippling tariffs on products across the board. And yeah, you're back to Smoot-Hawley. I mean, we would be had he done this. But, you know, he didn't apparently. And maybe he will, maybe he won't in the future. Who knows?

[music]

JM: Let's try to unpack some of the reasons that Trump has given for imposing these tariffs on Canada. You mentioned a bunch of them off the top. Let's just kind of go through some of them. So he has said that it's because of a $250-billion trade deficit with Canada -- it's actually only a $65-billion trade deficit. He said it's about fentanyl crossing from Canada into the U.S. -- less than 1% comes from Canada. He said it's about illegal immigrants. Same thing -- less than 1% comes from Canada. Earlier today, he said it was about U.S. banks not being allowed to operate in Canada, when in fact, they are allowed to operate in Canada. And the latest news as of Monday night is that by adding some anti-drug measures at the border, Canada has convinced Trump to delay the tariffs for 30 days at least. Now, Alex Panetta, you're a veteran Washington correspondent. How do you make sense of all this?

ALEX PANETTA: Look, it's driving me crazy. Like you're describing the central, the central struggle in my mind over the last several months. Like, I wake up in the morning, I go to bed at night, often trying to figure out the end game here. So I'll fill you in on my own personal journey, right. Back in November, I was of the view -- when Trump first threatened these tariffs -- I was like of the view that he wanted a quick win on the border. Not too different from what we got today, right? Then a few weeks later, when I started talking to people around him who worked on fentanyl policy for him, they're like, no, Canada actually has a real problem. And stop talking to me about this 1%, you know, of fentanyl caught at the border comes from Canada. They're like, no, you guys, your banks are a global hub for money laundering. These organizations that sell this fentanyl are using Canada as an office. You guys have a problem here. And so then, okay. So the second phase of my evolution was, oh, there actually are significant things Canada needs to do perhaps to sort of get good with Trump on the border and the drug trade. And so then he starts talking about all this other stuff like you just mentioned. You know, dairy and trade deficits and cars and lumber, and then making Canada a state. And I'm like, wait a second here, this has nothing to do with the border.

SOUNDCLIP

DONALD TRUMP: Canada does not allow banks to go in. If you think about it, that's pretty amazing. If we have a U.S. bank, they don't allow them to go in. Canada has been very tough on oil, on energy. They don't allow our farm products in essentially. They don't allow a lot of things in and we allow everything to come in. It's been a one-way street.

ALEX PANETTA: And now I've kind of come full circle today. And you see his statement after the agreement with Trudeau. And the agreement with Trudeau was relatively mundane. It's stuff that, like I said, Canada mostly had committed to doing on the border. But then that statement also says, and now I'll be talking to Canada about these economic issues in our next negotiation. So it's kind of everything. It's all of the above. And the only unresolved question in my mind is whether that 51st state stuff comes back, because that's, that's the big one.

JM: So what can we expect like over the next 30 days? Are we just kicking the can down the line? Are there going to be... the goalposts going to continue to shift, or are we going to see some concretization of issues that could lead us to a more lasting solution of this trade spat?

ALEX PANETTA: Yeah, so the 30-day timeline's a problem, right? Because in 30 days, the Liberal Party of Canada will be on the verge of picking a leader. And I don't, like... I don't know if Trudeau is going to announce some sort of agreement with Trump on economic concerns. Okay, well, let's say Mark Carney or Chrystia Freeland is prime minister for a few weeks, I don't know, and then there's an election campaign. Who's negotiating this in the midst of an election? And the government, by the way, in Ottawa, could be in caretaker mode, where the civil service is not supposed to make any major waves. I honestly have no idea what the timeline is going to look like.

[music]

JM: I want to get us back to our original mission here, which was like, you know, trying to get to the bottom of Trump's obsession with tariffs. So another reason that's kind of been floated about, you know, why he's so fixated with imposing tariffs, is that he needs revenue to finance a continuation of a generous set of income tax cuts. How much stock should we put into that justification?

ALEX PANETTA: I think it's part of it. And, you know... Okay, so more broadly, there's an issue with the United States' deficit and debt. It's growing to an uncomfortable degree, and you want to at some point find new sources of revenue. The tax cuts plan that Trump signed into law in 2017 expires in a few months. And that's because if you want to take a shortcut around the United States' Senate's filibuster rule and just pass a bill with 51 votes, it needs to be a certain type of budget bill. And to make the tax-- the elements in that bill permanent, you need it to be revenue neutral. You can't add to the deficit. If it adds to the deficit, you need 60 votes in the Senate. And that's not going to happen. So there might be some temptation from Republicans to say, okay, let's put some tariffs in the bill, and then we raise some money and then we could do more tax cuts and they'll be there forever. Right? I got doubts about that as a strategy because if you put tariffs in the bill, you're entrenching tariffs permanently, okay, as opposed to by executive order, which can be undone at any moment. And I don't think that Republicans are going to want to put tariffs in legislation forever. And then you could lose votes in the Senate. So I don't think that's going to be the reason. I think they might look at it. They'll sniff around that as a solution, but I don't think that ultimately is where they go. I just think they have a problem, a budget problem, and tariffs are seen as part of the solution. It can't be the whole solution, because like these tariffs he's talking about would only cover a fraction of the cost of those tax cuts.

JM: To what extent is this about leverage? For example, the trade agreement between U.S., Mexico and Canada, USMCA, it's set to be renegotiated next year. Is this trade war Trump's way of softening up Mexico and Canada to extract better concessions? Is trade policy just a blunt tool for him to get what he wants?

ALEX PANETTA: Absolutely. Right? And the thing about maintaining tariffs as leverage is you've got, you have to use them sometimes, right? Just to use the analogy of a schoolyard bully -- you can go around threatening everyone. And it only works if you're willing to punch one kid in the face. Right? You got to bloody somebody's nose. Because if you go around just saying, I'm going to use these tariffs, and then you never do, people just laugh at you. The markets already seem to be discounting his threats, right? The stock market had barely reacted over the last couple months to his terror threats. It started taking them seriously on Friday. When the stock market dropped, I think, half a point on Friday. The Dow Jones dropped half a point on Friday. And it dropped like another point and a half Monday morning. And so clearly, you know, he had the market spooked, which indicates that he's finding new creative ways to exercise this leverage. But at some point, he's going to have to bloody someone's nose. And no one -- not Canada, not Mexico, not the European Union or Asian countries -- want to be the country whose nose he bloodies. So expect more tariffs sometimes and expect more bluster. The trick is knowing which is which.

[music]

JM: There are a number of advisers around Trump who believe firmly in the benefits of tariffs. You know, people who have thought very seriously about this, whether you agree with them or not. And one argument they make is that tariffs can help revitalize the U.S. manufacturing sector. That was an argument that Trump was making again today in the Oval Office, saying he wants to see all American cars to be built in America.

SOUNDCLIP

DONALD TRUMP: We don't need them to build our cars. I'd rather see Detroit or South Carolina or any one of our -- Tennessee -- any one of our states build the cars. They could do it very easily. We don't need them for the cars.

JM: I want to examine this argument in a bit more detail, Alex, and I think maybe a good place to start is NAFTA and the glory days of free trade.

SOUNDCLIP

BILL CLINTON: I'd also like to welcome here the representatives from Mexico and Canada and tell them they are, in fact, welcome here. They are our partners in the future that we are trying to make together.

[applause]

JM: What did NAFTA do to manufacturing in the U.S.?

ALEX PANETTA: NAFTA is a dirty word in large swaths of the United States, all right. I went to some counties in Pennsylvania, north of Philadelphia, before the election. And I started my trip in two counties, Luzerne and Carbon County, which had voted for Barack Obama. These were like staunch Democratic counties. And to understand those counties that flipped to Trump -- I think [unclear] they vote like 70% for Trump, right? To understand these Obama-to-Trump counties, you need to understand trade. And I talked to people who talked about all the manufacturing jobs that left after NAFTA came in. You know, they were talking like-- I don't, I don't remember the specific industries they were referring to, but it could be furniture making. I mean, you know, basket weaving. I don't know. They made a whole bunch of stuff. And they say within months of NAFTA taking effect, these jobs went away, okay. Now, that's their anecdotal experience and the reality that they lived in in these communities. Overall, NAFTA didn't cost the United States that many jobs. If you look at, you know, manufacturing employment in the United States, the early '90s saw a recession across North America. And, you know, manufacturing jobs didn't really grow back that much in the '90s. But you didn't see this massive drop. But NAFTA probably had an effect. A small one. And then seven years later, or six years later, you get China joining the World Trade Organization.

SOUNDCLIP

BILL CLINTON: Our products will gain better access to China's market in every sector, from agriculture to telecommunications to automobiles.

SPEAKER: By adding China to the WTO, we strengthen the organization by further integrating China's 1.2 billion people and one-trillion-dollar economy into the world market network.

ALEX PANETTA: And then you see manufacturing employment in the United States falls off a cliff. And, you know, for years, sort of the general political consensus around this was, well, you know, it sucks, it's too bad for people who have lost, you know, jobs in factories, but guess what? We're going to have all these new service industry jobs. Salaries are higher. The goods we buy are cheaper. But a few things happened in the subsequent years. Number one is that China started moving up the value chain. Suddenly they're making artificial intelligence products and they're making... Like, you know, employment in every sector is at risk. The second is you realize that the absence of a manufacturing sector is a national security risk. And not just that, but in terms of cohesive communities. That, you know, a world where working class people have lost, you know, jobs that make them-- that bring pride to themselves and their families, and are told either learn to code or, you know, go work at McDonald's. That's not a happy, cohesive society. And so the political consensus on this has swung the other way. It's like we need manufacturing now. That manufacturing is fundamentally different from other types of employment. And now you're living with the sort of the backlash to that globalization era.

JM: You know, you're talking about reversing a trend that is several decades long. You know, that this trend towards globalization, this trend towards freer markets, dispute resolution mechanisms, that sort of stuff like that. That, you know, it took many years for the economies of the U.S. and Canada to kind of adapt to this reality, to adapt to the reality of NAFTA. Reversing that process, Alex, how difficult, how disruptive will that be? Are we already-- Or is that process kind of already underway and we're, you know, we don't have that much further to go in order to kind of reverse that process.

ALEX PANETTA: Well, I guess it's already begun. I mean, how many Chinese cars do you see on the roads in Canada, right? And they are inexpensive. And so we're paying a lot more for cars than we otherwise would in a completely open, you know, trading system. But I think most people have agreed that it's probably a price worth paying. Because you want to have an auto sector in Ontario. You want to have the ability to make stuff. You know, somebody around... who worked for Trump on trade policy in his first term told me, like, this is the big issue. This is-- Auto construction is the big, his big objective here. And what he told me, he says, look, Australia's not going to have a car sector. The U.K.'s auto sector is going to disappear. He said, like, we are determined -- he's speaking to the United States -- are determined to have an auto sector, and you have to decide whether you want one with us. And that's going to take tariffs and it's going to take a really muscular trade policy. And Canada-- But the thing, see, is that I think Canada had done just about everything it had to do to be inside the tent. It put tariffs on Chinese vehicles and other products. It kicked Chinese companies out of Canadian mines. It kicked 5G, Huawei, out of the 5G network. It had done everything it had to do to be inside the American tent. And the thing that was so terrifying about this 25% tariff threat is it would have meant there is no American tent, there's no American orbit. It's like every person and every country for itself. And that's a scary world for Canada. Because we've never been like kind of untethered to a major superpower throughout our entire history. And we don't have the economy, the geography, the muscle memory for that. Now, we'll see. Maybe we continue to be tethered to the U.S. economically and all this will work out. But it's, it's an uncertain moment.

[music]

JM: I know this is an absolute non-starter for just about every Canadian, but as you mentioned several times, Trump keeps talking about making Canada the 51st state. I mean, like he said it again today.

SOUNDCLIP

DONALD TRUMP: So I say, why are we doing this? Why do we, why are we willing to lose between a hundred billion and 200 billion dollars a year? We don't need them. As a state, it's different. As a state, it's much different. And there are no tariffs. So I'd love to see that, but some people say that would be a long shot.

JM: And I feel like a lot of Canadians aren't sure whether to laugh this off as a joke or to start panicking. Alex, what's your latest read on this talk about us becoming the first 51st state?

ALEX PANETTA: I think he's testing the waters. And this is just my own opinion. I don't have, I don't have insight into his thinking to, you know, report it. I just, I think he's testing the waters to see how people react. And people reacted very badly in Canada. Like, it's not that-- it's not popular in the United States either. A big majority don't like the idea, partly because it's Trump. A lot of Americans who dislike Trump, Democrats, don't like the idea because they don't want to, they just don't want to indulge him on that. And a lot of conservatives, Republicans, don't like it because it's like, well, wait a second here. How many Senate seats is Canada going to get? And it's like, how many blue seats are we adding to the Senate? How many electoral votes does this mean for Democrats forever, right? So it's not going to get through the U.S. Senate. It's not going to-- like, it would have to go through Congress. It doesn't have the votes for it. I just don't see it getting anywhere. But if Canada wants to stave off that pressure, there are a few things it'll have to do to get stronger at home, including like reinvesting in hard power. And hard economic power too, in a way it hasn't.

JM: Okay, Alex, last question. And maybe this is the perennial question, but still an important one. Are we playing a fool's game by trying to find rationality in Trump's actions, like trying to find a reason to his rhyme, or does dismissing it as incoherent bullying ignore a larger goal that's at play here?

ALEX PANETTA: No, I don't think it's wrong to try and figure out his motives because, you know, I think... it turns out everyone had a point. Like people saying, oh, he just wants more border measures. Oh, he's just using-- it's just a negotiating ploy. Oh, he's just picking on Canada to send a message to other countries. No, he's also doing this for other economic reasons. It turns out everyone was kind of right. Right? Because like if you look at the result today, yeah, it was just border measures. He's happy he took the win. They weren't massive changes, but he got some changes. Two, it sends a message to the rest of the world: look, I'm willing to go through with this with my closest trading partners and neighbours, I'm definitely willing to go through with it on Germany. And I would advise Canadians not to fight too much amongst themselves. You know, like I thought it was a mistake for people to be talking about what sorts of threats were off the table. I think you sort of want to let him believe that every single thing he can imagine Canada would consider doing to him, and that would keep him in check a little bit. I don't think you take any leverage off the table before he announces the tariffs are off.

JM: Alex Panetta, thanks so much for joining us.

ALEX PANETTA: Good to be chatting with you again, Jon.

[Music: Theme]

JM: That's all for today. I'm Jonathan Montpetit. Thanks for listening to Front Burner. Talk to you tomorrow.

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What is Trump's tariff endgame? - Transcript

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