Disruptors

Risk as Signal: A Canadian Playbook 

SPEAKERS

Gerald Butts, John Stackhouse

John Stackhouse 00:00:03

Hi, it’s John here. I’m just back from Davos, Switzerland and the World Economic Forum. If you’ve been tracking the WEF as it’s known for years, it often feels and seems like the status quo. Well, this year was anything but.

The World Economic Forum was all about disruption and, of course, the disruptor in chief, Donald Trump, was there along with a massive US delegation, more CEOs, more cabinet secretaries, I think, than anyone could remember. That was quite intentional. Davos 2026 was America’s turn to make a statement to the world about America First. Of course, Mark Carney was there too, making his own bold, perhaps even disruptive statements about how Canada and our allies need to pivot. If you’re a middle power anywhere, and that’s what Canada is, this new world certainly will be for the brave, and that may be just what Canada needs more of, some bravery in how we take on new technologies, new economic opportunities, and new geopolitical forces right around the world.

I came home with another signal well apart from all the noise you may have heard, and that is the world is paying more attention to Canada. Big investors from Asia, the Middle East, and certainly Europe are looking to move billions of dollars to Canada if and when they can find the economic opportunities. That will be in infrastructure, it will be in natural resource development, but it also will be in technology, particularly in AI, where Canada’s leadership is known right around the world. Here’s the other message that was certainly clear to me, we don’t have a lot of time. If there’s a window open, it’s not going to stay open much beyond this year. So whatever our ambitions are, we need to get down to execution right now. Davos was about much more than Donald Trump and Mark Carney. There were incredible conversations about renewable energy and robotics, as well as how AI is being applied in pretty much every sector across the economy.

You can find my full Davos report on our website, rbc.com/thoughtleadership. It’s called “Davos ’26: Making Sense of a New World Order.”

Now, Davos isn’t the be all and end all, and we’re probably all better for that. We actually need a year-round conversation about where our world is heading and where that will take Canada. To help with that, we’ve teamed up with the Eurasia Group to build a new platform to help Canadians understand where the world is going and where that may be taking Canada. You’ll be hearing lots more from us in the coming months about that, including a big Canada-US summit we’re putting on in June to help our two countries build what should be the most vibrant, dynamic, innovative, and prosperous economic relationship in the world. Canada needs that, but so does the US. Building or rebuilding that relationship doesn’t come without a lot of risks, and, of course, doing nothing is also a risk.

To help us understand some of the biggest risks that Canada is up against in 2026, I’m joined today by Gerald Butts. He’s the vice chair and senior advisor at Eurasia Group, and you also may recognize him from one or two Canadian conversations. Before joining Eurasia Group, Gerry was a senior advisor to Prime Minister Justin Trudeau. He’s also been a key advisor to Prime Minister Mark Carney and a host of other leaders, not just in Canada, but around the world. Regardless of your politics, there aren’t many Canadians I know who cares deeply about Canada as he does. This year, we worked together to publish a report on the 10 biggest risks that Canada faces in 2026.

Now, let’s get right at it with Gerald Butts of the Eurasia Group. Gerry, welcome to Disruptors.

Gerald Butts 00:04:02

It’s great to be here, John.

John Stackhouse 00:04:03

You’ve seen a fair bit of history, not trying to age you, but you’ve seen cycles, political cycles, economic cycles, geopolitical cycles. How are you thinking about where we’re at in January 2026?

Gerald Butts 00:04:17

It’s really important that Canadian business leaders and policymakers and regular Canadian citizens understand that we’re coming out of a long period of stable equilibrium led by the United States. The United States, for all of our lifetime, has been the world’s most important shock absorber of geopolitical risk, and now it’s become probably the world’s most significant generator of geopolitical risk. So when the United States changes its disposition toward the world, when it’s inevitably going to affect us in Canada comprehensively, we’re all being reminded every day that economic growth, prosperity, innovation, all of these things depend on geopolitical peace and stability.

John Stackhouse 00:05:03

So I think most of us are coming to grips now with the reality that our best friend, best customer, best partner on so many things is also one of our biggest challengers on so many things as well. As we look deeper into 2026, how should Canadians be thinking?

Gerald Butts 00:05:23

First of all, Canadians should recognize that we’ve been here before. We’ve had four, maybe five elections where the ballot box question has been the disposition of our relationship with the United States. We’ve been neighbors to the United States for a long time, and the United States has gone through some stuff in that period, and we have negotiated it well in the past. My favorite example that is almost eerily similar to what we’re enduring today is the US Tariff Act of 1890, which President McKinley expressly said he was designing to make Canada the 45th state. We’ve seen this movie before. It’s just been a long time, and we’re going to have to relearn all of the muscle memory that helped us negotiate it in the past.

John Stackhouse 00:06:11

John Stackhouse: That’s fascinating from a historical and a political theory point of view. I also want to think through what it means from a practical point of view. If I’m a tech company, for instance, a Canadian tech company, I’ve grown up with an assumption, and it’s been a pretty good assumption, that I’ve got the free flow of data, of people, talent, and of capital with US. That’s worked really well for tech centers from Waterloo to Burnaby in this country. If I’m a critical minerals operation or any mining operation, it’s been a pretty safe bet that I’ve got the free flow of rocks-

Gerald Butts 00:06:47

Of course.

John Stackhouse 00:06:48

… literally rocks across the border, both ways. Do we need to think about just recalibrating a little bit on the margins of that, or is it a sea change for those sectors and more?

Gerald Butts 00:07:01

It is a sea change, and it’s also a reversion to the mean that we have lived through this extraordinary period in economic history of the free flow with minimal friction of good services, people, data, capital, et cetera. We’re now firmly back in a world where there are impediments to all of those things. If you’re a firm whose business model depends on the trade in those commodities, you have to get very skilled in separating the sheep from the goats. You have to know what are real obstacles, what are being described as obstacles, but are really the political issue that will come and go with the mood of the president of the United States or the state of the point we find ourselves in the electoral cycle. Some things really matter, some things seem like they matter, and some things don’t matter at all.

John Stackhouse 00:08:00

When you think about the Canada-US relationship, what matters most of all?

Gerald Butts 00:08:04

The continuation of the Framework Agreement is what matters most. Maybe the best thing we can hope for coming out of this year is an annual continuation of the USMCA. We really don’t want to see it fall apart because it’s a trillion dollar trade, and a lot of people’s jobs depend on it on both sides of the border. So the challenge we have in the short to midterm 2026 to the end of the decade is to figure out how to walk and chew gum at the same time when it comes to economic development.

John Stackhouse 00:08:36

You at Eurasia Group have called it zombie CUSMA as the like of what we have now, but what is zombie CUSMA?

Gerald Butts 00:08:43

It’s a shorthand term for an agreement that exists on paper, but is impossible to enforce. Even if we do end up with a theoretical dispute resolution mechanism, there are all kinds of ways the Trump administration can avoid court, so to speak, but of course the agreement is there to facilitate trade. It’s not there to solve the problems that are associated with trade. The important thing is that the agreements stay in place so that there isn’t a massive disruption in trade.

John Stackhouse 00:09:15

Yeah, and Canada has an advantage there. We may not feel like one, but we still have the best arrangement compared to all of our other competitors, great access to the US, notable sectors that would not agree with that and are enduring significant economic consequences of the 232 tariffs and other measures. But how do we play this strategically knowing that we’re not the sole target of this, and others are enduring greater frictions or even barriers?

Gerald Butts 00:09:48

Even when you include the 232 tariffs, if you take an all-in comprehensive approach, we still have the lowest tariff rates of any economy to export to the United States. Part of that is due, of course, to the fact that we’re the biggest export market for the United States. This is an important fact to remind decision makers in Washington, to remind Congresspeople as they are campaigning for reelection, that, for many of them… and many of them are feeling the pain from the cratering of Canadian tourism and the decision Canadian consumers are making not to buy American alcohol. As Canadians, we have more power than we think. Obviously, the United States is a much more powerful country than we are by any objective measure, but we shouldn’t sell ourselves short either.

John Stackhouse 00:10:39

It’s also always interesting and important to follow the money. When I watch the money flows, it’s fascinating that a lot of Canadian capital is still going into the US, in fact, more.

Gerald Butts 00:10:51

Big time.

John Stackhouse 00:10:51

I haven’t seen the last quarter of evidence, but it’s significant. This is a critical strategic question for Canada. We need more capital, more growth capital for our tech companies, for our mining companies, and for all the big things we’ve talked about on this podcast, but how do we get more Canadian capital as well as global capital to work this year in our country?

Gerald Butts 00:11:15

Ultimately, it comes down to whether or not we have investible assets. Basically, our entire career, John, people like you and me, business leaders, decision makers, and government politics, we’ve all grown up with this common macro policy that deeper and broader integration with the United States economy was our ticket to prosperity, and we need to build an economic strategy that absorbs that really important change in our relationship with our most important trading partners. We have a whole generation of economic actors in the country who are not accustomed to building our own assets without the participation, if not outright control, equity control, of the United States. We’ve got a lot of work to do to figure out how to build our own investible assets and attract capital to them. I think we’ve got to be probably a lot less judgy about the sources of our capital. We’ve got to think much more clearly and probably more hardheadedly about why and why not we would allow foreign capital to invest in the country.

John Stackhouse 00:12:24

There was a great book going way back into the 1980s with the title Money Has No Country-

Gerald Butts 00:12:30

Still true.

John Stackhouse 00:12:31

… and I think we’re coming to grips with that.

Gerald Butts 00:12:34

Yeah.

John Stackhouse 00:12:34

A lot of capital sources are looking to Canada because of all the great opportunities that we have, but the world, and you hear this over and over again, also has some raised eyebrows when it comes to Canada. We don’t deliver, especially projects, certainly with the speed that much of the world is used to. In our risk report that we did together, one of the risks is cheekily titled The Charter Strikes Back, which gets into this point that Canada is here by design as a confederation, and there is power sharing between the federal government and the provinces. Many of the provinces signed on after 1867 with a full expectation and even demand that there would be this power sharing. The same sentiment is held by many, if not all, Indigenous communities that some feel they haven’t signed on yet. That’s the beauty and frustration of our family called Canada. This is a real tension for the country, and it’s going to perhaps inhibit or slow down some of the things we want to do.

Gerry, how are we going to balance this need for speed, need for delivery, need for execution with the need to respect the design of our country?

Gerald Butts 00:13:54

I think it’s the old-fashioned fine art of persuasion. We’ve got a prime minister, full disclosure, as you know, I worked hard to elect him prime minister, who is, I think without question, the finest economic mind we’ve had in that chair ever. I really hope the premiers around that table seek common cause with the prime minister, and I think the early returns are good. There is no magic bullet to solve the complexity of our constitutional issues. It’s not a question of political will. This is in our constitution. So if you want to guarantee that we get nothing done, then we would ignore the views of the constitutionally enshrined rights holders of the country, and that includes the provinces and Indigenous people.

John Stackhouse 00:14:46

What is your sense of how China right now is viewing Canada? If you could put yourself in Xi Jinping’s shoes, how is he and the power structure there viewing Canada at this moment?

Gerald Butts 00:14:59

I think from a geostrategic point of view, they would love to use the United States’ treatment of Canada as an opportunity to wedge Canada against the United States. I think that that is at the macro level unlikely to happen, but it is more likely to happen than it would otherwise be, and it will probably happen around the edges of our relationship. If I’m Xi Jinping, I’m much more confident about my ability to throw my weight around. Because if you think of geopolitics as a complex version of price discovery, what he has figured out in 2025 is that he has a card that Donald Trump can’t abide being played. So he’s happy with the way the world is developing, and he’s especially happy with the way Russia’s ill-advised invasion of Ukraine has created a resource cubby for his country. The world has unfolded pretty well if you’re Xi Jinping, and he would see Canada as a nice-to-have, but not a necessary partner.

John Stackhouse 00:16:06

A lot of thinking right now seems to be binary.

Gerald Butts 00:16:09

Yeah.

John Stackhouse 00:16:09

Do we attach ourselves more to the US or more to China? Of course, the world is much richer and more complex and diverse than that. Auto sector is a great example of it has thrived for half a century by being integrated with the United States, and maybe that continues. How do we think about these third options, not just for the auto sector, but economically when we’re literally joined at the hip by geography with the United States and have a very attractive customer with a lot of potential for growth in China?

Gerald Butts 00:16:42

It’s really important to take a step back and look at what’s happened to the global economy since the last time we, in earnest, had a discussion about developing a, quote, unquote, “Third Way.” When the Pierre Trudeau government in the 1970s was trying to develop a trade diversification strategy, the United States was just a much larger share of global GDP. The challenge that the Canadian business community has is that it’s always been easier to get on a plane and go to New York or Los Angeles or Boston than it is to hoof it to Tokyo or Singapore, and we’re going to have to learn how to do both because it is undeniably true that we have too many eggs in one basket, and we ought not to because we have so many assets in our country. It’s been a rough time in Canada for sure, but there’s still no country in the world that wouldn’t trade places with us tomorrow. We’ve got a lot going for us in Canada. We just need to figure out how to organize ourselves to deliver prosperity for our people.

John Stackhouse 00:17:47

That’s a great way to set up maybe my last question here. As you think ahead well beyond 2026… You’ve got young kids who are going into adulthood, I’m in the same situation, we have kitchen table conversations about like, “What is our country going to be like 25 years from now?” I wonder what you tell your kids in how you think about Canada in the 2040s and ’50s well beyond 2026. We’ll get through 2026, but what kind of country are we shaping up to be for the next generation?

Gerald Butts 00:18:24

I often reflect on the fact that my real source of success in life was being born in 1971 in Canada, that the dice were loaded in my favor by the circumstances of my birth, having parents who loved me and having a community where my public schools were excellent and all I had to do was study hard and do well and the world was my oyster. I understand why younger Canadians are very pessimistic about the future. I think if you put yourself in their shoes, the millennials, for instance, the first real geopolitical event they remember is 9/ 11. It was followed quickly by the ill-advised invasion of Iraq. Coming on the heels of that was the great financial crisis. Then Donald Trump got elected, and they had to endure COVID. If that’s the first 30 years of your life, that’s a much tougher start than winning the Cold War, watching the wall come down, and narrowly but successfully fighting a referendum campaign. That was kind of our version of what millennials have gone through.

What Jodi and I have tried to do with our kids is just to give them a broader sense of the spectrum of possibilities that, in the grand scheme of things, they were still extraordinarily lucky to be born in Canada in 2006 and 2007, they’re both studying at public universities that will give them excellent educations mercifully, and I consider this my greatest achievement in life along with my wife, that both my kids are studying science and not social science. The world is going to be probably a more difficult place to be in than the one we lived through in the late ’80s and ’90s, but it’s still a big, beautiful place, and they live in the best country in the world, and it’s really their responsibility to make it even better. That’s probably less true than it was when I was born, but it’s still true, and it’s precious, and it’s worth holding onto and fighting for.

John Stackhouse 00:20:43

What a great note to end on that Canada is such a great country for regular people, not only those who are born here, but those who continue to line up to come here from pretty much every-

Gerald Butts 00:20:53

Absolutely.

John Stackhouse 00:20:53

 … corner of the world. It’s also a great place to be an extraordinary person. We have to continue to make it an even better place for all people, including the builders, the innovators, the darers.

Gerald Butts 00:21:04

Those are not mutually exclusive things.

John Stackhouse 00:21:06

Absolutely, it’s not mutually exclusive. Finding that balance, that equilibrium has always been actually one of Canada’s quiet strengths. We’re just being put to a fresher and maybe harder test, but I think we both agree we’re up to it as a country.

Gerald Butts 00:21:22

Yeah.

John Stackhouse 00:21:22

Gerry, thank you so much for this conversation.

Gerald Butts 00:21:26

Real pleasure, John.

John Stackhouse 00:21:29

If you take one thing from that conversation, to me, it’s that risks aren’t new to Canada. In fact, this country was built by risk takers who dared to do things that people all over the world might’ve thought crazy or even impossible. That’s the Canadian way. We just tend to be a bit quieter about it. That’s probably part of our risk management. But we should also recognize that the risks facing the country today are as great as perhaps many of us have ever seen, but with risk comes opportunity. Canada is blessed with a better mix of geography and natural resources, as well as people and talent, and an ability to build communities that not only live together, but work together and build together.

In the year ahead, we’re going to have to figure out how to hold on to those strengths while also being bolder and more daring than perhaps we’ve ever been. I don’t know if it’s an overstatement to say that the country is at risk, but we should all get at it every day with that possible threat in mind. That doesn’t mean being defensive, quite the contrary. It means embracing a bigger, more ambitious world, and a whole new age of technologies, as well as the incredible relationship that we have with the United States to create even more opportunities for the country. That’s how disruptors succeed. When they see risk, what they really see is opportunity.

We’ve linked the full RBC Eurasia Group risk report in the show notes, along with my Davos report. If you’re looking for more ideas and insights, check out our website, rbc. com/ thoughtleadership. Our team delivers critical insights to help businesses, policymakers, and communities make informed decisions in a rapidly changing world.

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I’m John Stackhouse. Thanks for listening. Talk to you soon.