>>> RETURNING NOW TO A TRADE WAR THAT SEEMS TO BE SPIRALING OUT OF CONTROL, THE GLOVES ARE OFF BETWEEN THE U.S. AND CANADA.

AND CANADA'S NEXT PRIME MINISTER HAS PROMISED TO STAND UP TO TRUMP.

IS THERE ANY WAY OUT OF THIS CYCLE OF ECONOMIC VIOLENCE?

CHIEF ECONOMIST OF THE ROYAL BANK OF CANADA GLOBAL ASSET MANAGEMENT, HE IS JOINING WALTER ISAACSON TO LOOK AT WHAT THIS ALL MEANS.

>> THANK YOU, CHRISTIANE, AND ERIC, WELCOME TO THE SHOW.

>> THANK YOU, IT IS A PLEASURE TO BE HERE.

>> THERE HAVE BEEN TERMS SLAPPED ON THE UNITED STATES BY CANADA IN RETALIATION FOR TRUMP'S TARIFFS ON CANADA.

NOW THE CENTRAL BANK OF CANADA YESTERDAY LOWERED INTEREST RATES BY A QUARTER OF A POINT.

I WANT TO REVIEW SOMETHING THAT THE GOVERNOR OF THE CENTRAL BANK SAID.

HE SAID WE ARE FACING A NEW CRISIS, AND HE SAID THE TARIFFS ON CANADA COULD BE SEVERE.

TELL ME THE STATE OF PLAY AND WHAT YOU THINK IT MIGHT DO TO THE CANADIAN ECONOMY.

>> TARIFFS ARE AN ENORMOUS PROBLEM FOR THE CANADIAN ECONOMY.

THIS LONG FRIENDSHIP AND PARTNERSHIP IN NORTH AMERICAN RELATIONSHIP HAS REALLY INTEGRATED THESE ECONOMIES.

AND AS IT STANDS RIGHT NOW, ABOUT 20% OF EVERYTHING THAT CANADA MAKES IS ULTIMATELY DIRECTLY CONSUMED BY AMERICANS.

SO YOU CAN IMAGINE, AS THESE TARIFFS ARE PUT ON, AND BEGIN TO IMPEDE THOSE FLOWS, IT REALLY IS QUITE A CONCERNING DEVELOPMENT FOR THE CANADIAN ECONOMY.

IT IS CERTAINLY NOT PLAYED FOR THE U.S.

EITHER, BUT IT IS PROFOUNDLY WORSE FOR CANADA.

SO IT IS HARD TO SAY WITH GREAT CONFIDENCE EXACTLY WHAT THE ECONOMIC DAMAGE WILL BE IN TERMS OF MAGNITUDE, JUST BECAUSE THERE ARE SO MANY SWIRLING TARIFFS AND ON-AGAIN OFF-AGAIN TYPE OF ARRANGEMENTS.

BUT IF SIGNIFICANT TARIFFS ARE APPLIED AND THEY STICK, IT IS NOT AN EXAGGERATION AT ALL TO SUGGEST THAT IT COULD BE A FAIRLY PROFOUND RECESSION FOR CANADA.

SO HERE WE NOW SEE POLICYMAKERS RESPONDING TO THAT, AND THE BANK OF CANADA HAS CUT INTEREST RATES.

IT MIGHT'VE DONE THAT ANYHOW, BUT CERTAINLY IT IS ON A PATH TOWARDS ADDITIONAL RATE CUTS RELATIVE TO WHAT MIGHT'VE OTHERWISE BEEN APPROPRIATE.

AND I WOULD CERTAINLY THINK THAT AS WE GET SOME ADDITIONAL CLARITY ON JUST WHAT TARIFFS ARE IN PLACE, HOW LONG THEY STICK AROUND, I WOULD THINK THE FISCAL POLICY WILL COME INTO PLAY, AS WELL.

>> WE'VE SEEN THIS GO BACK AND FORTH ALL THE TIME.

DO YOU THINK CANADA WILL END UP SORT OF ACCOMMODATING WHATEVER TRUMP WANTS, OR DO YOU THINK IT IS POSSIBLE THAT CANADA COULD FIGHT, AND CONTINUE THE TRADE WAR?

>> WE'VE CERTAINLY SEEN CANADA, I WOULD SAY MAYBE THE MORE PROACTIVE OF THE TWO MAIN NORTH AMERICAN PARTNERS IN THE SENSE THAT MEXICO HAS BEEN NOTABLY RATHER QUIET.

CANADA, A BIT MORE PUGNACIOUS IN THE VIEW THAT IT IS NECESSARY TO RECIPROCATE AND HUNCHBACK TO SOME EXTENT, AND RECOGNIZING THAT PRESUMABLY A LARGE FRACTION OF THIS WILL COME DOWN TO NEGOTIATIONS.

SO THERE MAY BE SOME ADVANTAGE TO HAVING TARIFFS TO LIFT ON BOTH SIDES OF THE BOARD, IF THOSE COULD BE LIFTED.

IT IS CLEAR THAT THE WHITE HOUSE SEEKS ANY NUMBER OF CONCESSIONS FROM ANY OF ITS TRADING PARTNERS, AND I THINK SOME OF THOSE ARE PERHAPS NOT ENTIRELY UNREASONABLE, AND IN PARTICULAR, THE THOUGHT THAT MILITARY SPENDING MIGHT INCREASE.

CANADA HAS BEEN VERY LIGHT ON THE FUND FOR QUITE SOME TIME.

WE'VE SEEN ALREADY ADDITIONAL RESOURCES DIRECTED TOWARDS BORDER SECURITY, EVEN THOUGH I WOULD ARGUE THAT IT IS MUCH MORE OF A MEXICAN ISSUE THAN A CANADIAN ONE, BUT CANADA HAS PUT SEVERAL BILLION DOLLARS IN THAT DIRECTION.

AND I THINK IT'S A REALITY NOW THAT THIS U.S.

IN A TRADE DEAL WILL BE RENEGOTIATED, AS WELL.

CANADA LIKELY IN A POSITION TO OBLIGE FOR THAT.

I THINK MAYBE THE BIGGER QUESTIONS THAT EXIST, AND THIS IS RELEVANT TO ALL OF THE AMERICAN TRADING PARTNERS, THE EXTENT TO WHICH THE THOUGHT OF RECIPROCAL TARIFFS SEEM TO HAVE GROWN BEYOND THE IDEA OF IF YOU HAVE TARIFFS, WE WILL HAVE TARIFFS ON YOU.

SO IT SEEMS NOW TO EXPRESS SOME MEASURE OF OBJECTION TO FOREIGN COUNTRIES, ANCHORING CANADA, THAT HAVE SALES TAXES.

THE HAVE EXCHANGE RATES THAT PERHAPS ARE NOT PRECISELY AT THEIR LONG-TERM FAIR VALUE.

AND THAT HAVE SECTORS THAT PERHAPS HAVE SOME MEASURE OF PROTECTIONISM, BE IT TRANSPORTATION, BROADCASTING, AND OTHERS.

WHICH THE U.S. HAS, AS WELL, SO I SAY ALL THAT JUST TO MAKE THE POINT THAT I THINK SOME OF THE U.S. ASKS ARE GOING TO BE DIFFICULT TO OBLIGE TO.

SO AS A RESULT, THERE IS A REAL CHANCE THAT THESE TARIFFS OR AT LEAST SOME FRACTION OF THEM STICK AROUND.

BECAUSE I'M NOT SURE THAT NEGOTIATIONS WILL BE ENTIRELY FRUITFUL.

>> ONE UNDERLYING THING IS THAT CANADA HAS A PRETTY LARGE TRADE SURPLUS.

WITH THE UNITED STATES.

DO YOU THINK THAT IS THE REASON TRUMP IS TRYING TO NEGOTIATE THIS?

OR DO YOU THINK HE BELIEVES TARIFFS ARE KIND OF A GOOD IN, AND WE SHOULD START MAKING ALUMINUM AND STEEL AND OTHER THINGS IN THE UNITED STATES, AND DECOUPLE A BIT FROM THE CANADIAN ECONOMY?

>> I THINK THERE ARE A LOT OF SWIRLING MOTIVATIONS.

I WOULD BE SKEPTICAL THAT IT REALLY IS ABOUT CANADIAN BORDER SECURITIES, FIRST OF ALL, SO I THINK THAT IS A BIT OF A RED HERRING.

IT DOES SEEM TO ME THAT THE WHITE HOUSE HAS SOME PROTECTIONIST INSTINCTS, AND THE IDEA THAT IT WOULD BE BETTER FOR THE U.S. TO BE SELF- SUFFICIENT.

AND I SHOULD SAY, THERE ARE ECONOMIC LOSSES WHEN ONE TRIES TO DO THAT.

FOR A COUNTRY WITH AN UNEMPLOYMENT RATE THAT IS ALREADY FAIRLY LOW, IT IS NOT CLEAR IF THERE IS ROOM FOR ADDITIONAL INDUSTRIES TO COME IN.

AND THERE ALWAYS IS A LOSS OF SELECTION AND VARIETY, AND QUALITY AND SO ON, WHEN COUNTRIES TRY TO GO THIS ALONE.

BUT I THINK THERE IS AN ATTITUDE SHIFT THAT HAS TAKEN PLACE, YOU ARE RIGHT THAT CANADA DOES HAVE A TRADE SURPLUS WITH U.S.

I WOULD NOTE THAT IT IS NOT QUITE AS LARGE, IT HAS SOMETIMES BEEN ARTICULATED, AND SOMEWHERE IN THE REALM OF ABOUT A $62 BILLION ANNUAL SURPLUS.

A LOT OF THAT GOES AWAY IF YOU INCLUDE THE SERVICE SECTOR, WHICH THE U.S. IS EXPORTING ALL SORTS OF CULTURAL SERVICES, ENTERTAINMENT, AND MANY OTHER PRODUCTS AS WELL.

IT HAS BEEN WIDELY NOTED IF YOU WERE TO REMOVE THE 4 MILLION BARRELS A DAY OF OIL THAT CANADA EXPORTS TO THE U.S., WHICH IS DONE IN QUITE A DISCOUNT AND IS GENERALLY CONSIDERED TO BE A POSITIVE THING, THAT SURPLUS SHIFTS TO A DEFICIT.

SO YEAH, THERE IS A SURPLUS.

I THINK THAT'S PART OF IT.

BUT I THINK YOU WOULD STRUGGLE TO ARTICULATE WHY CANADA IS BEING SO FOCUSED IN TERMS OF THE TERRORIST ATTACK SO FAR.

SIMPLY BECAUSE THEIR COUNTRIES WITH FAR GREATER TRADE SURPLUSES WITH THE U.S., AND I AM THINKING MEXICO AND TAIWAN, VIETNAM AND GERMANY, AND OTHERS.

AND YET THEY AT LEAST, SO FAR, HAVE NOT BEEN HAD THE SAME EXTENT.

I DO THINK THERE IS SOME MEASURE OF ANIMOSITY, THAT FOR WHATEVER REASON EXISTS, AS WELL.

>> WAIT, LET ME PIN THAT DOWN.

ANIMOSITY MEETING PERSONAL BY TRUMP, TOWARDS MAYBE PERSONALLY TOWARDS TRUDEAU.

IS THIS AN EMOTIONAL THING?

>> I THINK POSSIBLY.

I WOULD STRUGGLE TO ARTICULATE THE REASONS ENTIRELY BEHIND IT, BUT YES, IT DID SEEM AS THOUGH THAT PARTICULAR RELATIONSHIP WAS NOT ENTIRELY CONSTRUCTIVE.

OF COURSE, AS YOU KNOW, CANADA IS GOING THROUGH POLITICAL CHANGE NOW THAT COULD PERHAPS LESSEN SOME OF THAT IMPACT, BUT THAT IS QUITE SPECULATIVE.

>> LET'S TALK ABOUT THAT CHANGE.

MARK CARNEY IS THE NEW LEADER OF THE LIBERAL PARTY.

HE IS ABOUT AS STABLE, AS KNOWLEDGEABLE, AS DOWN TO EARTH, AND AS CALM AS YOU COULD FIND ANYBODY.

DO YOU THINK, IF HE EVENTUALLY IS ELECTED IN THIS NEW ELECTION THAT WILL COME IN A FEW MONTHS OR SO, THAT HE IS THE RIGHT PERSON FOR THIS TIME?

>> CERTAINLY HAS THE POLICY CHOPS, AND THE ECONOMIC CHOPS.

SO YOU COULD ARGUE HE IS THE RIGHT PERSON FOR THE TIME IN THE SENSE THAT THIS IS, FOR CANADA, A TIME OF REALLY HAVING TO PRIORITIZE THE ECONOMY AND FIND A WAY FORWARD FROM A TRAIT PERSPECTIVE AND SORT OUT JUST WHAT THE RIGHT LEVEL OF SUPPORT IS FOR AN ECONOMY THAT COULD BE SIGNIFICANTLY DIMINISHED.

I MIGHT BROUGHT IT OUT A LITTLE BIT, MAYBE COPOUT A LITTLE BIT, AS WELL, AND SAY HE IS THE PRIME MINISTER, AT LEAST SHORTLY WILL BE.

THERE IS AN ELECTION THAT WILL HAVE TO BE HELD AT SOME POINT IN 2025, FOR CANADA.

LET THE RECORD SHOW UNTIL QUITE RECENTLY IT WAS THE OPPOSITION CONSERVATIVE PARTY WITH A VERY LARGE LEAD IN THE POLLS.

THAT HAS NARROWED QUITE A BIT, I SUSPECT, IN PART IS THERE IS BEEN A REAL SENSE OF PATRIOTISM AND NATIONALISM EXPRESSED IN CANADA.

GIVEN RECENT THREATS TOWARDS THE COUNTRY.

THAT HAS FAVORED THE INCUMBENT LIBERALS, SO NOW IT IS A REALLY CLOSE RACE.

I WOULD NOT WANT TO PREJUDGE EXACTLY WHO IS THE PREMISE ARE COMING OUT OF THIS, BUT I WOULD SAY THAT BETWEEN PERHAPS CARNEY BEING SOMEWHAT MORE OF AN ECONOMICS INTEREST VERSUS A MORE LEFT-LEANING CENTER POLICIES THAT PREDATED EVEN UNDER THE SAME LIBERAL PARTY, OR CONSERVATIVE WIN, WHICH IS ALSO POSSIBLE AND ALSO ENVISIONS SOME SIGNIFICANT ECONOMIC CHANGES.

I THINK EITHER WAY IT IS PROBABLY ONE THE PUTS CANADA IN A BETTER POSITION FOR GROWTH AND FOR PRODUCTIVITY GAINS, AND SO ON.

AND PERHAPS IN A SLIGHTLY BETTER POSITION IN TERMS OF NEGOTIATING WITH THE U.S., BUT THERE MAY, AS YOU SAY, BE SOME PERSONAL ANIMOSITY AT STAKE RIGHT NOW.

>> LET ME READ YOU SOMETHING THAT PRESIDENT TRUMP POSTED ON SOCIAL MEDIA, WHICH IS ABOUT CANADA.

WE DON'T NEED YOUR CARS.

WE DON'T NEED YOUR LUMBER.

WE DON'T NEED YOUR ENERGY.

AND VERY SOON YOU WILL FIND THAT OUT.

IS HE RIGHT?

>> WELL, GOSH, IT PROBABLY DEPENDS ON TIME FRAME.

I THINK WE CAN FAST FORWARD 10 YEARS OR EVEN A FEW YEARS, I DON'T DOUBT THAT THE U.S. COULD FIND OTHER FOREIGN PROVIDERS FOR SOME OF THOSE PRODUCTS.

AND COULD BE IN A POSITION TO INCREASE ITS PRODUCTION OF SOME OF THOSE PRODUCTS DOMESTICALLY, AS WELL.

AT A COST, I SHOULD SAY, BECAUSE IT WOULD REQUIRE THAT THE PRIORITIZING OF OTHER THINGS THE U.S. HAS ALREADY BEEN VERY GOOD AT, AND OF COURSE, THAT IS ONE OF THE CENTRAL CHARMS OF INTERNATIONAL TRADE, YOU LET COUNTRIES SPECIALIZE THAT EVERYONE IS BETTER OFF AS A RESULT.

OF COURSE, EVERY DOLLAR OF TRADE THAT IS EXCHANGED IS ENTIRELY VOLUNTARY, SO THEREFORE TO THE BENEFIT OF ALL PARTIES.

BUT I DO THINK IN THE SHORT RUN THAT PROBABLY IS NOT CORRECT.

IN THE SENSE THAT IT WOULD BE VERY HARD FOR THE U.S. TO SUBSTITUTE A WAY FOR MANY OF THE THINGS THAT CANADA MAKES.

MAYBE IT IS STYLIZED, BUT CANADA PROVIDES LOT OF RAW MATERIALS TO THE U.S.

WHEN I THINK ABOUT THE OIL SECTOR, AS AN EXAMPLE, 4 MILLION BARRELS OF OIL A DAY ARE PROVIDED TO THE U.S.

THE U.S. CONSUMES ABOUT 18 MILLION.

THIS IS MORE THAN 20% OF THE OIL SUPPLY.

THAT IS NOT LIKELY AMERICANS ARE GOING TO DRIVE A WALLACE.

IT'S NOT LIKELY YOU CAN SUDDENLY GET OIL FROM ANOTHER PLACE IN THAT MAGNITUDE.

IT'S NOT LIKELY AMERICAN REFINERS COULD REFINE ANY OTHER OIL IF THEY WERE ABLE TO FIND IT.

THAT OIL REFINERY IS VERY SPECIFICALLY FOCUSED ON CANADIAN HEAVY OIL.

FOR POTASH, CANADA PROVIDES THE GREAT BULK OF THE IMPORTED POTASH, WHILE RUSSIA AND BELARUS PRODUCE SOME, AND ONE MIGHT THEORETICALLY THINK OF A WAY IN WHICH THAT COULD BE SECURED.

THEY JUST DON'T MAKE ENOUGH FOR U.S.

NEEDS, EVEN IF YOU ARE ABLE TO SWAP ALL OF THE PRODUCTION OVER TO THE U.S. AND THE AUTO SECTOR, THIS IS A HIGHLY INTEGRATED NORTH AMERICAN AUTO SECTOR, SO OF COURSE, THERE IS PRESSURE NOW FOR COMPANIES TO SHIFT SOME MEASURE OF PRODUCTION TOWARDS THE U.S., BUT YOU CAN'T BUILD FACTORIES IN A DAY.

YOU CAN'T EVEN BUILD THE MANY YEAR.

PRETTY SIMILARLY, APROPOS, GIVEN THAT THE STEEL AND ALUMINUM TARIFFS HAVE COME ON, CANADA PRODUCES THE GREAT BULK OF THE ALUMINUM USED IN THE U.S. WE ARE TALKING 10 TIMES MORE THAN ANY OTHER COUNTRY PROVIDES TO THE U.S., FAR MORE THAN THE U.S.

PRODUCES.

AND ALUMINUM IS YOU NEEDED FOR MOTOR VEHICLES, INCLUDING PICKUP TRUCKS.

IT IS NEEDED FOR PLANES, NEEDED FOR CONSTRUCTION, IT IS NEEDED FOR EVERY SODA CAN THAT YOU SEE.

AND THERE REALLY IS NOT ANOTHER WAY TO GET THAT AND ANY KIND OF TIMELY WAY.

SO THE PAIN IS GREATER FOR CANADA, BUT THE PAIN IS SIGNIFICANT FOR THE U.S. AND YOU WOULD EXPECT HIGHER INFLATION, AND YOU WOULD EXPECT PALPABLY WEAKER ECONOMIC GROWTH, AS WELL.

>> THAT IS WHAT YOU DO AT THE ROYAL BANK OF CANADA, RBC, YOU ARE VERY GOOD AT MAKING PREDICTIONS ABOUT THE ECONOMY, DOING ANALYSIS.

LET'S START WITH THE UNITED STATES.

DO YOU THINK A RECESSION IS IN THE WORKS IN THE UNITED STATES?

>> I AM DOUBTFUL ABOUT THAT.

I CAN CERTAINLY SAY WE'VE SEEN EVIDENCE OF AN ECONOMIC DECELERATION.

I COULD SAY THE TARIFFS, IF APPLIED IN A SIGNIFICANT WAY, AND THERE IS SUCH RADICAL UNCERTAINTY AROUND THAT, YOU NEED TO THINK IN A SCENARIO CONTEXT, BUT THERE ARE CERTAINLY WAYS IN WHICH THERE COULD BE SIGNIFICANT DAMAGE EMERGING FROM THAT.

I STILL STRUGGLE TO CONCLUDE THAT THAT IS A RECESSIONARY BLOW.

IT IS ONE THAT COULD SIGNIFICANTLY DIM GROWTH.

IT IS ONE THAT INCREASINGLY POINTS TO AN ECONOMY THAT MIGHT GROW AT ITS LOWEST RATE SINCE 2020, SINCE THE PANDEMIC, TO THE EXTENT THESE TARIFFS COME ON .

TO ME IT IS NOT A FULL ON RECESSIONARY BLOW.

AND I WOULD SAY, AS MUCH AS MARKETS ARE RECOILING, THE SORT OF SCALE OF MARKET RECOIL IS PROBABLY CONSISTENT WITH THAT, AS WELL.

HIGHER UNEMPLOYMENT?

ABSOLUTELY.

WEAKER GROWTH?

ABSOLUTELY.

TO MY EYE, NOT AN OUTRIGHT ECONOMIC CONTRACTION.

>> LET ME ASK ABOUT CANADA.

DO YOU THINK IT WILL BE RECESSIONARY FOR CANADA?

>> LISTEN, IF ANYTHING LIKE A 25% TARIFF COMES ON ON APRIL 2nd, I THINK THE ANSWER IS YES.

I WOULD ASSUME THE CANADIAN ECONOMY IS BEGINNING TO SHRINK ALL MUST IMMEDIATELY AT THAT POINT.

I WOULD LIKE TO THINK THERE WILL BE NEGOTIATIONS.

I WOULD LIKE TO THINK THAT SMALLER TARIFFS WILL ULTIMATELY PREVAIL.

WITHIN A MATTER OF MONTHS, OR PERHAPS QUARTERS.

EITHER WAY, YOU WOULD STILL HAVE AN ECONOMY THAT WAS SHRINKING, INITIALLY, AND QUITE A BIT OF PAIN FELT.

MAYBE THE ONLY DISTINCTION I CAN MAKE BETWEEN THE TWO, AND IS NOT REALLY AN ECONOMIC ONE, THE CANADIANS ARE INCREDIBLY UNITED AROUND THIS.

AND WILLING TO SUFFER AND BROADLY IN LINE WITH THE RECIPROCAL TERRACE BEING APPLIED TO THE U.S..

SO I SUSPECT WE WILL SEE CANADIANS RALLY, AND PERHAPS THAT WILL DAMPEN SOME OF BLOW.

BUT AT A MINIMUM, THE GOVERNMENT AND THE CENTRAL BANK LIKELY TO BE ROLLING IN THE RIGHT DIRECTION.

>> EXPLAIN TO ME SOMETHING ABOUT THE WAY CANADA WORKS.

WE SEE DOUG FORD, ONTARIO'S PREMIER, TALKING ABOUT PUTTING HIS OWN TARIFFS ON THE UNITED STATES AND COMING TO MEET WITH HOWARD LENNOX, THE TREASURY SECRETARY.

DID HE DO THINGS, WHAT YOU EXPECT OF THAT MEETING WITH LATINX, AND COULD HE DO THINGS THAT ARE NOT DONATED WITH THE CENTRAL GOVERNMENT OF CANADA?

>> IS CERTAINLY UNCONVENTIONAL.

I WILL SAY THAT HE HAS BEEN AMONG THE MORE PUGNACIOUS OF THE PROVINCIAL LEADERS, SO THAT IS BEEN UNDENIABLE.

I GUESS TIME WILL TELL WHETHER THAT IS THE RIGHT STRATEGY OR NOT.

IT'S NOT QUITE THERE YET.

PERHAPS NOT THE WORST THING TO BE EXPERIMENTING WITH DIFFERENT RESPONSES, AND ENGAGING WITH THE U.S.

RESPONSE TO THAT IS.

YOU CAN ARGUE, PERHAPS THERE IS BEEN SOME VALUE IN THAT, JUST TO THE EXTENT THAT, AS YOU SAY, THERE IS NO MEETING SCHEDULED.

I WOULD NOTE, PRIOR MEETINGS HAVE NOT BEEN OVERLY FRUITFUL, SO I WILL BELIEVE IT WHEN I SEE IT IN TERMS OF WHETHER THERE IS ACTUAL FORWARD PROGRESS THAT OCCURS.

BUT I WILL SAY THAT IS MUCH AS WE ARE SEEING SLIGHTLY DIFFERENT STRATEGIES OUT OF DIFFERENT PROVINCES, AND IT IS UNCONVENTIONAL FOR A SUB- SOVEREIGN LEVEL OF GOVERNMENT TO BE APPLYING TARIFFS, ULTIMATELY CANADA IS ROWING IN THE SAME DIRECTION, AND THESE PREMIERES AND THE PRIME MINISTER AND OTHERS ARE MEETING REGULARLY AND ARE ON THE SAME PAGE, SO I WOULD NOT SAY THAT IS PARTICULARLY CONCERNING RIGHT NOW.

BUT REALLY, IT DOES REFLECT THE FACT THAT IF STAGE ONE OF THE CANADIAN RETALIATION IS TARIFFS AND A CONVENTIONAL WAY, THERE ARE OTHER OPTIONS THAT EXIST, WHETHER IT BE TARIFFS ON NONTRADITIONAL ITEMS LIKE ELECTRICITY, OR LIMITING THE EXPORT OF CERTAIN RADICAL PRODUCTS.

I'M HOPING THAT BRIDGE DOES NOT GET CROSSED, BUT THAT OPTION DOES EXIST, AND OF COURSE, IT IS SO CRITICAL TO CANADA TO GET BACK TO SOME SORT OF PROPER TRADE FOOTING WITH THE U.S. >> YOU MADE A VERY STRONG POINT ABOUT HOW COUPLED THE CANADIAN ECONOMY IS TO THE AMERICAN ECONOMY, AND VICE VERSA.

THE U.S. ECONOMY.

DO YOU THINK THAT THIS SORT OF UNCERTAINTY IS GOING TO LEAD TO A LONG-TERM DECOUPLING OF THE TWO ECONOMIES?

>> IT'S A GREAT QUESTION.

AND IT IS AWFULLY HARD TO SAY, BECAUSE OF COURSE, IT IS DIFFICULT TO SAY WHAT TRADE POLICY MIGHT LOOK LIKE UNDER A DIFFERENT ADMINISTRATION FOUR YEARS FROM NOW, OR WHAT IT MIGHT LOOK LIKE A DECADE OR TWO FROM NOW.

AND I WOULD NOT WANT TO UNDERESTIMATE, THE LONG, INCREDIBLE, AND ALMOST UNPARALLELED FRINGE OF THE TWO COUNTRIES HAVE HAD.

I WOULD NOT WANT TO WRITE THAT OFF ON THE BASIS OF A COUPLE OF BAD MONTHS.

BUT I WOULD SAY THAT CERTAINLY CANADA IS OF THE MIND THAT IT NEEDS TO WORK HARDER TO DIVERSIFY ITS TRADE.

IT HAS BEEN SUCH A POSITIVE PARTNERSHIP THAT CANADA DOES NOT TRADE THAT MUCH WITH EUROPE OR CHINA, OR SOME OF THE OTHER OBVIOUS MARKETS.

SO THERE IS QUITE A SCRAMBLE UNDERWAY.

I AM A BIT SKEPTICAL OF THE ABILITY OF CANADA TO SIGNIFICANTLY PIVOT IN SHORT ORDER, JUST BECAUSE, AGAIN, THESE OTHER PLACES ARE FAR AWAY.

THEY ARE ALREADY PROVIDED WITH PERHAPS THE POTASH THAT THEY NEED OR THE OIL THAT THEY NEED, AND SO ON.

IT HAS NOT BEEN EASY TO TRANSMIT SOME OF THESE PRODUCTS TO FOREIGN SHORES.

SO I THINK WE WILL SEE A SCRAMBLE TO REDUCE RELIANCE ON THE U.S.

IT IS BEEN A REAL WAKE- UP CALL, I THINK, FOR CANADA.

AND WHEN I SUSPECT WILL NOT BE FORGOTTEN ANYTIME SOON.

ALL THE SAME, EVEN WITH GARGANTUAN TARIFFS, I VERY STRONGLY SUSPECT CANADA'S BIGGEST TRADING PARTNER WILL BE THE U.S., AND I WOULD THINK IT WILL BE PROBABLY AGAIN A FAIRLY CLOSE TRADING RELATIONSHIP.

WITHIN A NUMBER OF YEARS.

>> YOU SAY THERE WILL BE A SCRAMBLE TO REDUCE RELATIONSHIPS WITH THE UNITED STATES, TRADE RELATIONS.

DO YOU THINK THAT WOULD PUT CANADA MORE CLOSELY ALIGNED WITH CHINA?

>> IT IS A GREAT QUESTION, AND I THINK THE NATURAL STRATEGY IS TO FLIRT WITH OTHER COUNTRIES, PERHAPS INDUCED SOME JEALOUSY FROM THE U.S. AND THE OBVIOUS WORDING WOULD BE WITH CHINA, AND EUROPE IN PARTICULAR.

SO I'M SURE THOSE CONVERSATIONS WILL HAPPEN.

DO NOTE THAT CANADA ALREADY HAS A FREE-TRADE DEAL WITH EUROPE, SO I SUPPOSE THE OPPORTUNITY THERE IS TO TRADE MORE, THE NEGATIVE IS THAT THERE IS NOT ROOM FOR AN EXPLOSION OF TRADE BECAUSE THE BARRIERS HAVE ALREADY BEEN FAIRLY LOW.

ONE OF THE CHALLENGES FOR CANADA IS THAT CANADA AND CHINA HAVE OFTEN HAD A CONTENTIOUS RELATIONSHIP.

IRONICALLY, IN PART BECAUSE OF THE U.S.

SO, FOR INSTANCE, CANADA PUT ON A LARGE TARIFF ON CHINESE VEHICLES TO SYNCHRONIZE WITH THE U.S.

TARIFF ON CHINESE VEHICLES.

CHINA HAS JUST PUNCHED BACK IN CANADA IN THE LAST WEEK AND IS NOW APPLYING TARIFFS TO VARIOUS AGRICULTURAL PRODUCTS ON CANADA.

SO I WOULD NOT SAY THE RELATIONSHIP IS ENTIRELY PROCEEDING IN THE RIGHT DIRECTION RIGHT NOW, SO THERE ARE CHALLENGES THERE.

BUT I'M SURE CANADA WILL DO ITS BEST TO DIVERSIFY AGAIN.

>> ERIC LaSALLE, THANK YOU SO MUCH FOR JOINING US.

>> THANK YOU VERY MUCH.