The Trade Hub

In this week’s edition: Carney picks his main trade and security team; trade signals from Trump’s Middle East tour; and what to expect during U.S.-China negotiations

Noteworthy

By John Stackhouse

I was in Ottawa this week for something called the B7—a gathering of business leaders from the constituent countries of the G7, whose governments will be meeting in Alberta in a few weeks. 

The most divisive issue: trade.

• The mood was largely bearish. Despite the May bull run on markets, there’s a sense the democratic—i.e. free-trading—world is growing more divided. “Trade follows geopolitics” was how one speaker put it.

• Europe is turning more inward, with a focus on its own economic security. Get ready for more industrial policy and state investing, which won’t help trade.

• Canada is at a crossroads, needing to ease up on U.S. trade and expand trade with other markets, even as other markets get tougher to deal with. 

• A new age of “plurilateralism” is emerging, in which constant and continuous dealmaking is the norm.

• Some U.S. speakers urged Canadians to look beyond Trump’s attacks, saying the country is going through a bit of a mood adjustment. 

• But for now, at least, the U.S. is looking to show some Elbows Up, American-style. 

• Incoming ambassador Pete Hoekstra will give his first big briefing to POTUS next week and will highlight “outrageous” Canadian actions like removing American liquor brands and banning procurement from U.S. firms. 

• Expect some media donnybrooks between Hoekstra, a blunt-talking former Congressman from Michigan, and Ontario’s blunt-talking Premier Doug Ford. 

• New Industry Minister Melanie Joly may have to round out the line, as the three work to save the U.S.-Canada auto sector from further damage. 

• One suggestion: they meet at the Gordie Howe Bridge, in tribute to the OG of Elbows.

How things are shaping up on the all–important Canada-U.S. file

Carney has been clear that he’s the boss—and will run point on Canada’s relationship with the U.S. Still, his team will play a major role in a new economic and security agreement.

The Core 5: In selecting a main negotiating unit of Dominic LeBlanc, Anita Anand, David McGuinty, Francois Philippe-Champagne and Gary Anandasangaree, Carney opted for veteran ministers who collectively hold substantial clout and relationships in the Beltway. Expect this group to be supplemented by Melanie Joly, Minister of Industry, who holds considerable experience on the file, and will lead domestic negotiations with critical industries, including steel, aluminum and autos. And, in a lower-profile way, by Lisa Jorgenson, Carney’s recently appointed Senior Advisor on Canada-U.S. Jorgenson brings experience from Public Safety and Justice and will provide advice and behind-the-scenes coordination across political and bureaucratic levels.  

Committee shakeup: Trudeau’s Canada-U.S. Committee is out. And the ‘Secure and Sovereign Canada’ Committee is in. Chaired by McGuinty and Anand, the new committee has a couple noteworthy inclusions. Maninder Sidhu, Minister of International Trade, who is tasked with diversifying Canada’s trade away from the U.S., a key Carney promise. And Rebecca Chartrand, Minister of Northern and Arctic Affairs, a nod to the importance of Arctic security, one of the three legs of the economic and security pact.

Diplomatic and bureaucratic shuffle: The tenures of a few high-profile ambassadors—Kirsten Hillman in Washington, Ralph Goodale in London, and Stéphane Dion in Paris—are expected to end soon. Carney will likely prioritize a mix of experience, relationships, and political muscle, especially in filling the role in DC, as Hillman, well respected in Ottawa and Washington, leaves big shoes to fill. As for the public sector, Carney’s right hands in the Privy Council Office are Clerk John Hannaford and Deputy Clerk Chris Fox, who both hold a depth of experience on national security, energy and trade files. A broader public service shuffle could be in the offing as the PM looks for near-term results.

The week in numbers

7

Lawsuits filed against Trump and his administration challenging the ’emergency’ used to levy tariffs under the International Economic Emergency Powers Act. The U.S. Court of International Trade held a first hearing earlier this week.

150

Number of countries that Trump says want to negotiate a deal. Without the time to meet with them all, his administration will send letters to a list of leaders in the next couple of weeks simply telling them “what they’ll be paying to do business in the United States.”

1,000

Products marked as being impacted by tariffs at Loblaw. The grocery chain expects that number to climb to 6,000 in two months. Meanwhile, Walmart, which saw profits decline in Q1, announced it will be raising prices in the U.S. because of tariffs.

60 million

iPhones that Apple plans to produce from India for the U.S. market. While on his Middle East tour, Donald Trump blasted Apple’s CEO (“I had a little problem with Tim Cook”) for building iPhones in India despite committing US$500-billion in the U.S.

The view from Washington

Details of Donald Trump’s Middle East tour offer a glimpse into how ongoing and future trade talks, including with Canada, could play out:

• Spend big on U.S. Defense products: Saudi Arabia ($142 billion) and Qatar ($3 billion) signed defense sales and procurement deals that range from general upgrades to information systems to new air and missile defense capabilities. The Trump administration might push the purchase of U.S. defense products in its future trade deals, which is particularly relevant for Canada given the White House’s record of criticizing Canadian defense spending. Trump could use the U.S.-Canada deal to push Canada to get to 2% defense spending more quickly through deals with U.S. defense firms. 

• Don’t ignore Big Tech: Trump announced a $20-billion investment by a Saudi firm in AI data centers and related energy infrastructure in the U.S. And Qatar pledged $1 billion for a joint quantum technology venture between American Quantinuum and Qatari Al Rabban Capital. Data centres are particularly interesting in the U.S-Canada context because of Canada’s potential to be a strong partner (available land, renewable energy capabilities, cooler temperatures).

• Creating sector-specific funds: The U.S.-Saudi Arabia deal included the creation of investment funds for energy ($5 billion), aerospace and defense ($5 billion), and sports ($4 billion). Investments in areas of shared interest could arise in other negotiations. The U.S.-Canada deal could include shared funds for energy, border security or continental defense.

3 questions…on U.S.-China negotiations

With Jasmine Duan, Senior Investment Strategist, RBC Wealth Management, in Hong Kong

Q: How do you expect markets and Asian economies to react and perform during the 90-day negotiation window?
A: It will likely feature a mix of optimism and volatility. Markets may seek specifics on the agreement, which could lead to short-term volatilities.

Q: What signals will investors be looking for?
A: Investors will watch for what terms were finalized between the two sides and what concessions or incentives each party will offer. It would be a good sign if the negotiation focuses on trade-related issues like market access and goods purchase, not domestic topics such as fentanyl or politics.

Q: What structural changes will drive the U.S.-China relationship beyond trade and tariffs?
A: The trade talks have not addressed many structural issues such as how will the U.S. revive domestic manufacturing and reduce China’s trade surplus. We think near-term resolution remains unlikely but progress in establishing bilateral mechanisms to address issues like technological competition, climate goals, and crisis management, will be important to fostering a sustainable relationship in the long-term.