Joe Kernen
President Trump hitting Canada in Mexico with 25% tariffs on imports to the United States. Canada responded with 25% tariffs on about $20 billion worth of U.S. imports, and more than 80 billion additional dollars’ worth of imported goods in about three weeks if the new U.S. tariffs are still in place.
Joining us now, David McKay, president, and CEO of Royal Bank of Canada, which has $982 billion in assets under management. What's your S&P target? That's not why you're here, is it?
Dave McKay
No, it not why I’m here. Well it's all up in the air right now based on what's going on in geopolitical world.
Joe Kernen
What do you think is the rationale, and the stated reasons for this you were talking off camera. Obviously, you're, you know, Canada's very close to the United States in terms of trade, friendship, history and everything else. Do you think it's fentanyl? That it has to do with that?
Dave McKay
To your point, fentanyl is an issue on both sides of the border. There are some borders where on per capita basis, more Canadians are dying from fentanyl. So, it absolutely is an issue on both sides of the border. And we've got to do everything we can, whether it's in the financial services sector on anti-money laundering or just at the border, making sure it doesn't cross. And I think Canada has done a good job in responding to that, as has Mexico.
But I think the bigger issue here is trade, obviously. The President has signaled that the US wants to be a little more isolationist, it feels and they're make more in America. I think to me that just runs contrary to what 100 years of success in America is the multilateralism, the trade, leveraging the strengths around itself. And that draws capital into the US as the kind of the center of innovation and center of capital. So, this playbook that we're running, we haven't run before. And I think it's risky for sure. And the markets are reacting now.
Joe Kernen
I mean, we've had NAFTA, we've had a renegotiated NAFTA under USMCA. So, there are things around the edges that maybe aren't perfect otherwise we would need these trade deals to even, things out.
Do you think Canada at this point is, does anything unfair in terms of trade and tariffs prior to what we're seeing right now that would cause, President Trump to look up and say, you know, I don't like this, whether it's dairy or lumber or what's the most egregious things do you think?
Dave McKay
Well, let's start with the facts that the balance of the trade agreement is $400 billion.
Go back and forth each way each year, almost $500 billion. So, trade is balanced and therefore that's the most important message. There's not one side where is the deficit that America sees with Mexico or China for its balance. And that's the most important. And every trade agreement you talk about some win, or some lose or so, but you start with balanced trade.
Joe Kernen
When he says we're subsidizing Canada the tune of $200 billion every year. What number is he referring to?
Dave McKay
Trade is balance between two countries at the end of the day. So, a trade deficit is not a subsidization right as it is, because there's benefits that accrue each way, you can take that excess capital and reinvested in another part of your economy if you're not making that specific item. So, it's the uncertainty, Joe, that this creates.
Joe Kernen
What does he want? What could Canada do other than the fentanyl? What do you think he wants to hear from? From Canada that, I don't know. They're going to they're going to move some factories in Canada or down in the United States or not?
Dave McKay
Canada supplies 25% of the oil consumption. United States, 25%. As we think about electrifying our economy and growing, you've got to rely on your most trusted partners like Canada supply. Whether it's to inflationary, it's too expensive to create that.
Yesterday just had a discussion with a global mining CEO, in Asia, and we talked about the tariffs and whether he would put, long term capital based on the tariffs. He said, I can't make a 15-year decision on the basis of potentially tariffs for four years. So, when you think about even trying to attract capital in to build smelters, to build these capabilities, whatever sectors happens to be in that, that's not a proven strategy as well.
So, what do I think Canada can do here? We can we negotiate the parts of the USMCA that aren't working, whether it's dairy or other small tweaks. The overall, when you're in balance, you're not going to make material change. But certainly, I think the country's open to looking at it both ways and trying to see if there's a way to improve it. So certainly, willing to accelerate that on the scale.
Rebecca Quick
There's there are long term decisions that are going to have to be made. And, and I guess I wonder from Canada's perspective, seeing you of the U.S. as a long-term ally and good friend, where you have been sending us so much of our oil, you all haven't done things like build pipelines so that you could send it elsewhere. Is that changing at this point? Is that a long term funding that you think Canada is going to put more toward?
Dave McKay
Great question. So, in the category of let's not let a crisis go to waste. So, Canada has hasn't been able to do some of the bigger investment projects, get them approved through our processes, and we are determined to do that. So, this is a wake up call for the country. We are not going to let this crisis go to waste. So, one option for us and one opportunity, interprovincial trade barriers within our own provinces. We have barriers to trade. We're going to get rid of that. That's $200 billion of economic growth for us. We heave to get more pipelines to the West Coast to Asia. Our LNG is needed there. Just completed TMX, and a lot of that is not actually going into, US refineries, but that can also go to Asia. So, there's other markets for our uranium or rare minerals or LNG or oil or potash, like we've just significant investments in potash. 25% of potash is consumed by US farmers. The end of the day, if you're going to grow more food, you're going to need that potash. You can't do it all yourself. So, you need partners. I think that's what's made America great over the last 100 years, is building these multilateral partnerships around the world, that's allowed you to focus on what you do best and let us provide resources, you know, content, tech, whatever we happen to, to sell to the US, I think there's a reason for it, that there's a reason for Canada to import.
Joe Kernen
I think I think Trump says said Trudeau is too woke too. I think it just makes him mad. I know his popularity is not great. North of the border either, at this point, is it?
Dave McKay
While we're going through an election process, this process will take its form. We're going to elect a new leader of the Liberal Party that will immediately become prime minister. And then we expect them to call an election, sometime within the next six months. But maybe as soon as a couple of weeks from now and we'll go through that democratic process and then we'll choose a new leader for the country, and we'll have to move these policies forward to really prosper, in the long term.
And there's so much that Canada has resources, great universities, great people, access to market, free trade agreements with multiple countries, not just the US – Asia, Europe. So, as we think about this is an opportunity for Canada to diversify what it does really well. So, we will find new markets for our products. But we still view America as our closest partner. There's so much we can do together I think we're stronger together. We’ve proven that for 100 years that model works. Yeah, I don't think we should disrupt that.