The Puck Drops on Federal Election in Canada

FRANK MCKENNA: On election day, why would the President of the United States say, vote for the person who's going to deliver Canada to me in the United states? That is such gratuitous interference.
[MUSIC PLAYING]
PETER HAYNES: Welcome to episode 64 of Geopolitics with the Honorable Frank McKenna. My name is Peter Haynes with TD Securities, and this month, we're going to be focusing primarily on the Canadian election. But we'll sprinkle in some discussion on some other hot topics, namely tariffs and the Russian-Ukraine war.
Well, Frank, I know you must be tired right now as you were back and forth across the ocean to London on a day-trip yesterday, and I know you're telling me before we get on here, you're up at 4:00 in the morning having conversations with various members of the Liberal Party. I'm assuming that means you've had a good chance to lock in on the election results. And at this point, what is your high-level take?
FRANK MCKENNA: Yeah, well, I guess it is what we see, a dramatic reversal from three months ago. I mean, just dramatic. Liberals went from 20 points behind to securing a very strong minority government. I think two weeks ago, they would have had a majority. You could see momentum shifting a little in the last couple of days.
So I think that's what we have. We've got a hard-fought election. And I think Canadians were extraordinarily engaged. This was maybe one of the most meaningful elections in everybody's lifetime, and they ended up producing a result. I would have liked to have seen a majority government, liberal or conservative, but it wasn't to be. And we ended up getting the second best thing, which is a strong minority government.
PETER HAYNES: And there are four or five seats where-- we'll get the formal results this afternoon, I believe; there are four seats which the liberals are trailing by a total of 750 votes. As we see those final results come in and we-- say we stay at 168, what happens next? That's pretty close to a majority. Is there any shenanigans that might go on behind the scenes with respect to any of the members that have been elected in other ridings that weren't liberals? Are you expecting us to go into the next government with 168 for the liberals?
FRANK MCKENNA: Well, that would be my expectation. What happened, of course, the incumbent government gets asked by the governor general to form a government. In this case, that invitation will be accepted and a government will be formed.
The reason why I say it's a strong majority, it's very close to majority territory. But there are three avenues through to get support on any particular measures. The conservatives may support it, the NDP could support, or the Bloc Québécois. So it gives the government lots of leverage in order to secure partners.
And the other thing is, Peter, there is a strong congruence of election platforms. Surprisingly enough, both agreed that we should have tax cuts-- differences in details, but they both agree with that. Both agree to get rid of the consumer carbon tax, both agree to change the capital gains inclusion rate, both agree that we should have a national energy corridor.
Both agree that we need to get our resources to market. Egress issues should be resolved. Both agree in inter-provincial trade barriers coming down. And both agree that we have to negotiate with the United States around security and trade. So I think the government can have a very vigorous agenda in areas where there's a lot of congruence with the other political parties.
Other thing I would say is that the public of Canada have spoken. They were really engaged in this election. They do not want us to play jiggery pokery with the results. They expect the government to function. They expect the government of the day to work with provinces and regions of Canada. The expectation level is very high. And if any opposition party threatens to pull support or play games, I think they'll be punished accordingly. So I think this government is going to be in place for some years.
PETER HAYNES: Interestingly enough, only two of the four major party leaders won their own riding. We know now that Jagmeet Singh, the leader of the NDPs, has already announced his resignation. But surprisingly, Pierre Poilievre lost his competitive riding in Ottawa. What happens next to Pierre Poilievre, leader of the Conservative party?
FRANK MCKENNA: So let's start with Jagmeet Singh. He was caught in a squeeze. This was a squeeze play and he got caught in the rundown. I thought he was very classy in the way in which he exited. I thought it was an appropriate thing to do and he did it in a very classy way.
The Poilievre situation was a surprise, and so I've spent the night thinking about that, because he's won that riding five times-- at least five times, maybe more-- and was, I thought, well-regarded. I think he got caught in a different squeeze play. And it wasn't Trump, per se. It was Elon Musk.
Remember, he represents a seat in the Capitol region. Elon Musk has basically taken a bulldozer to Washington and destroyed that city, destroyed the economy in that city, and literally put hundreds of thousands of people on the street. And I think that there was a suspicion that Poilievre might be perhaps less draconian and less aggressive, but that he would introduce some of that kind of thinking in Ottawa. And so it could very well have been a rebellion from the public sector. I don't know. At any rate, he did lose his seat.
Here's the way I would weigh that. On the one hand, he can claim he increased the number of seats, he increased the popular vote, and he energized a whole cohort of the population, mainly young-- young men. And he had very electric rallies and had a lot of people supporting him. And I think he could make the case that he should continue.
On the other hand, he did not make an inroad in Quebec. Even though the bloc lost a lot of seats, they lost them all to the liberals. So it's very difficult for you to form a government country if you're skunked-- virtually skunked in Quebec. He didn't make inroads in Atlantic Canada. Several of their seats were lost in Nova Scotia with members that we thought were quite popular, so that didn't turn out very well.
He had a gender problem with women that shows up in all of the polling, and he seemed to have some type of antipathy, or at least a hostile relationship, with progressive conservative governments. And I'm talking mainly about Ontario with Premier Ford and with Premier Houston in the province of Nova Scotia. And so that turned out not to be healthy, either.
So he's got positives and negatives. I think that it'll be a knife edge as to whether the party will try to force him out. It may depend on whether there's anybody else who wants the job badly enough. It may depend on whether support coalesces around him. He'll need another riding to run in order to secure a seat.
So all of those things are in play. I throw out a new idea completely, and that is that he do both. He exit and actually take a job, go into the private sector, burnish his credentials, build up his resume with those things which he doesn't have. He has no experience outside politics.
I think he's a very smart guy. I think he would do very well. Could start his own business. He could be a vice president of a company. But he would then be able to go to the public and say, look, I've got a pretty substantial resume here.
So he could do that and then return to public life. He's still a young man. He's got the whole world ahead of him. And so that's another option as well, is that he say, thank you very much. It's been a wonderful experience. I'm going to go elsewhere for a while, but I do expect to return to public life. So I think that's another option worth consideration.
PETER HAYNES: If they want to support him within the party, are they going to nudge an existing member of the caucus out--
FRANK MCKENNA: Yes.
PETER HAYNES: --and then allow-- in Edmonton or something like that, and allow a by-election where Poilievre would run in a safe riding? Is that what will happen?
FRANK MCKENNA: Yes, it's happened. Chrétien ended up running in Beausejour, ended up having Brian Mulroney running in Central Nova. There are always ways of opening up ridings. I've already had one discussion this morning about a riding that might be available to him for him to run, and I think there'll be lots of offers.
PETER HAYNES: OK, so just before we get into some of the topics around the country and our next steps going forward, I want to ask you about endorsements. There was a significant number of executives in Canada, business executives, that signed on to a letter that was supporting Poilievre. I'm just curious, were any of the endorsements that you heard, or perhaps didn't hear, surprising to you?
FRANK MCKENNA: The business executives, not. I know the names on that list. They're mostly well-known members of the Conservative Party, people I respect. But nobody would say, wow, that's really interesting. I didn't see that. I would have some surprise at the number of union endorsements received by Poilievre. I thought he did a good job of hoovering up.
PETER HAYNES: And why is that, do you think?
FRANK MCKENNA: Well, I think that, again, one of the criticisms people have of him is that he's a populist, that he doesn't represent a conventional conservative orthodoxy like the traditional Republican orthodoxy. He's much more of a populist. And so he was making the argument to working men and women, I'm your person. I'm your guy. And he was successful at that. And he was able to get quite a number of unions supporting him.
It's kind of the new-- it's what Trump has done quite successfully as well, is rotate the traditional Republican base away from highbrow, traditional Republicans, people making good money and executives, et cetera, et cetera, et cetera, towards a working-class base. So he was quite successful at doing that. I found that quite fascinating, actually.
PETER HAYNES: OK, so just this campaign, we heard some regional interests in Canada that have gained attention, and really because of some rather blunt assessments about Canada as a nation.
I'm going to start with some comments from Yves Blanchet, leader of the Bloc Québécois, who referred to Canada as, quote, "An artificial country with no meaning." And then, of course, Danielle Smith, Premier of Alberta, had written a letter to Quebec suggesting they push together for more provincial autonomy.
Meanwhile, Canada faces existential threats from outside its borders that are very well-known. What do you make of these regional interests percolating to the top of the dialogue at this time? Is this simply political rhetoric?
FRANK MCKENNA: Yeah, and in the case of Blanchet, it may well have just been an error in speaking. I did not like it at all, and it was repudiated by all of the national leaders, as well it should be. I thought it was totally gratuitous, unnecessary, and repugnant, quite frankly.
I can't think of the country in the world that is more of a country than Canada. It just so happens that we don't pulverize individual thinking. So we do have two languages, and we do respect our third nations, and we do respect multicultural institutions. That's the nature of our country, but that's part of our culture and our fabric. And to suggest that we're not a real country, I thought that was pretty disgusting, actually.
Danielle Smith is another case, and there's no doubt that she's on a knife edge in Alberta. It's interesting that she and the Premier of Quebec are the two most unpopular premiers in the country. So they need an external enemy. And you'll often find, as John F. Kennedy once said, sometimes, where there's smoke, there's a smoke maker. And in the case of Quebec, they're always trying to put the knife to Canada in order to build up their own provincial support.
And in the case of Alberta, there's no doubt that it's good politically for the Premier there to have external enemies. And so I think there's some of that going on. I don't like it. I think it's a natural part of politics, unfortunately, in a federation like ours.
And quite frankly, I think that Prime Minister Carney, as he now is, needs to deal with that, not by capitulation, being the headwaiter to the provinces, but being respectful of the legitimate role of the provinces and by spending time, as he said during his speech, being a prime minister for all of the country, for everybody, those who voted for him and those who didn't.
And I think that he's the kind of person who would do that and just show through his actions that I respect who you are, where you come from, and your individual differences, your needs. And to the extent I can, I'm going to accommodate them.
PETER HAYNES: Now, to Blanchet's credit, he did come out today and say he wants a truce on sovereignty discussions. Not for long, but he said he thinks it's more important that Canada stay together during this time of external forces--
FRANK MCKENNA: I don't know why. He could always be hoovered up by the United States and enjoy the monochrome culture that he would have there, where they want to extinguish all languages except English. So good luck.
PETER HAYNES: Yeah, the-- I still thought it was kind of funny, actually, that there was that bus in Quebec that had the sign that said "Go Habs, Go." And the sign cops came along and said, you need to change that. But then the government said, no, no, no, that one stays, OK. And we're cheering for Montreal--
FRANK MCKENNA: Quebec. So what's the name of the team? I gave that speech in the referendum debate one time, because I had a campaign on it, and people looked at me like I was crazy. I said, do you realize if you separate from Canada, we're going to have to change the name of the team? The Montreal Canadiens will be something else. And people said, you can't do that.
PETER HAYNES: I know. It's too good. So back on the-- Western Canada, during the election, Premier Smith said she would give Mark Carney-- give a Mark Carney-led Liberal Party six months to, quote, "smarten up" before addressing the possibility of a vote on separation.
She's not alone in pushing the western separation theme. And I know this has come up in a couple of our calls previously, and our colleague Rona Ambrose certainly talked a lot about that on the CTV broadcast last evening. There is definitely a groundswell of separation talk in western Canada.
And in fact, former leader of the opposition, Preston Manning, suggested in a Globe op ed that should Mark Carney win, he would come to be known as, quote, "The last prime minister of a United Canada." These are very strong words. What advice do you have for Mark Carney, our new prime minister, to address this separatist sentiment?
FRANK MCKENNA: I read the comments in the newspapers after those comments by Smith and by Manning. It was hostile-- I mean, like, extraordinary. Usually, letters to the editor are somewhat balanced. This was not. People just thoroughly repudiated--
PETER HAYNES: Across the country or from places outside of the western Canada?
FRANK MCKENNA: No, across the country, including strongly in Alberta. I don't think that is the sentiment across the country, and I don't think it's the sentiment in Alberta.
Having said that, when people express frustration, we need to deal with it. When I was a premier, we had the Premier of British Columbia-- as I recall it, Glen Clark at the time-- had a problem with salmon licensing off of the Coast of British Columbia. We came together as a national group of premiers and supported them and called the federal government to address this issue.
So it's a country. We need to look after each other. And if the west feels like they're aggrieved, then we need to deal with that. And so I think Carney needs to address that. My advice to him had been to run an Edmonton. I thought it would have been symbolically important.
PETER HAYNES: Would he have won? It was a landslide for the Conservatives in that province.
FRANK MCKENNA: Not in Edmonton and Calgary.
PETER HAYNES: Right.
FRANK MCKENNA: There were competitive seats there. And so the liberals ended up winning a seat in Calgary and Edmonton. I think he would have-- as a leader, I think he would have won there. But I think that doesn't mean that he doesn't need to address issues that arise out of-- but remember, western Canada is a large place. He won half the seats in Manitoba. That's part of western Canada. Won half the seats in British Columbia. That's part of western Canada.
And by the way, it's a strong resource province as well. So I'm not going to minimize the legitimate complaints there. As you know, I'm on the board of a big oil and gas company there, spent a lot of time there, and understand the concerns. So I think they have to be dealt with.
PETER HAYNES: So let's dig in a little bit about some of the criticisms coming from western Canada, with 10 years of liberal leadership behind us and at least a couple more years ahead of us. Western Canadians believe that the interests of the region are not being heard in Ottawa, particularly when it comes to energy and natural resources.
So Premier Smith outlined five issues that she wants the liberals to address. And she claims at this stage that Prime Minister Carney has rejected all of these asks. I want to dig in, and I've been wanting to do this over the last couple of months, specifically on these asks and the energy sector in general. So I want your thoughts on each of these issues and how Mark Carney should best tackle each one.
Number one, this is, again, the 10-piece platform from the Conservative Party. And there's five main issues that we're going to address here. Number one is repeal Bill C-69. This is the so-called "no new pipelines" law. Why does it exist and why can't Mark Carney get rid of it?
FRANK MCKENNA: So it was a longer list that included plastic straws. That was one of the other conditions for staying in the country, and--
PETER HAYNES: I shortened it down. I'm focusing on energy.
FRANK MCKENNA: So I would not be a fan of Bill C-69, but we have to understand that this is a country of diverse interests too. There are large constituencies in this country who are environmentalists and who want respect for the environment in every decision that we make.
I think what would be more important than repealing Bill C-69 is building new pipelines, right? I mean, at the end of the day-- as we say in law, what is the evil that we are trying to deal with? Well, it's the fact that pipelines can't get built?
So if we can build pipelines, then it seems to me that solves the problem. And right now, the problem with building pipelines is, as much as anything, is getting private sector interest and having a business case. As you know, I was the pilot of the Energy East pipeline and thought it was a great idea, but it involved taking a lot of underutilized pipe all the way to the Quebec border.
Now, you'd have to do all new build all the way in. So that stretches the business case pretty far. So when I say, why don't we just do stuff-- Trans Mountain? What if we just fixed that? Trans Mountain, now, 60% of the oil in that pipeline is going back to the United States of America. So before you even build new pipelines, let's fix that.
PETER HAYNES: How do we fix that?
FRANK MCKENNA: I think you could fix that one really easy. You could say, look, Alberta, why don't you just put a little bit of an export tax on there so that every barrel that goes to the US has an export tax which Alberta collects, but if it goes to Asia, it doesn't? Everybody would send it to Asia.
Or you could say, why don't I give you royalty relief if your barrels go to Asia? There are ways to fix that. Or you could just tell them to do it. So you could do that. You could debottleneck that pipeline, which would add about 250,000 to 300,000 barrels a day. That's the easiest project in Canada. And what--
PETER HAYNES: What causes the bottlenecks?
FRANK MCKENNA: Well, they have-- it takes pressurization and looping and all sorts of things. That can be done. And you've got an existing right of way and you've got a lot of the environmental clearances. The process, I'm told by the president of TMX, would take normally up to five years, but if you fast track it and get everybody to agree to just get it done, it could be done much more quickly than that. So why don't we put our shoulder behind that and do it?
And then thirdly, we've got 140,000 barrels a day on that pipeline that's reserved for spot. If we were to turn that to a capacity rather than spot, we would add another 140,000 barrels a day going through that pipeline. You'd very quickly get another half a million barrels of oil a day going to that pipeline coming out of the US basin, going to an Asian basin, improving the netbacks for all of the other barrels, and crushing that price differential. That's doable.
So I'd like to see them roll up their sleeves and do what's doable. Just reversing a bill, yeah, it'd be nice. I would be supportive of that. But that may be hard to get through. Maybe it is, maybe it isn't. But--
PETER HAYNES: Would that be a parliamentary issue on its own? It would run as a single bill. It wouldn't be part of an omnibus. How would that work?
FRANK MCKENNA: Well, it could be part of an omnibus too, but I would be more inclined to just fix the problem rather than go to war over the law.
PETER HAYNES: OK, second one here is this one application and duplication, one-stop shop notion of, shorten the red-tape approvals on resource projects from a maximum of a year, but hopefully down to six months.
FRANK MCKENNA: Totally agree with that. But the Prime Minister already has a deal with the provinces-- one project, one approval process. So we're eliminating part of that obstacle right away.
PETER HAYNES: So why does Premier Smith say that that's been shot down? All of these asks apparently have been shot down.
FRANK MCKENNA: Well, I think the Prime Minister didn't like the idea of going into a meeting with the Premier with her publishing a list before he goes in saying, unless you agree to these, we're going to have a national unity problem.
PETER HAYNES: So let's have a negotiation privately and then come out with a joint--
FRANK MCKENNA: Well, I think--
PETER HAYNES: --solution somehow.
FRANK MCKENNA: I think there are solutions. I like the idea of a fast-track approval process, but that's in both of the election platforms to do that. And the idea of a one-stop approval process, where you don't have to go through two, has already been committed to. So I think we should get to this, but I think we're on track to get to this.
PETER HAYNES: OK. Scrap the energy cap.
FRANK MCKENNA: Well, there-- theoretically, there isn't an energy cap. It's--
PETER HAYNES: Where does that--
FRANK MCKENNA: There's an emissions cap.
PETER HAYNES: OK.
FRANK MCKENNA: Well, so the government would say there is no cap on energy. It's a cap on emissions. And if you reduce emissions, you can produce as much energy as you want. So I think we get caught in a war of semantics there. Maybe we can finesse that. For example, the current government is highly committed to the Pathways project, and that is a carbon capture and sequestration project that would take a lot of the carbon out of the barrels produced in that Western Sedimentary Basin.
And my board, Canadian Natural, we've been waiting for that to pass because we feel that gives us social license to go ahead and produce more barrels. The hold up, to some extent, is the government of Alberta. Government of Canada has put in the window two different packages that come to, I think, $20 billion. And it's the government of Alberta that's got to figure out whether they want this or not.
I met with the Premier of Alberta about it. She said, well, we're not sure that that's the right technology. There might be other technology that comes along and everything. At some point, we've got to straighten that out. But if we can figure out how to decarbonize the energy we produce, theoretically, the cap wouldn't be an issue and we would have social license to produce all the barrels we could in the west.
PETER HAYNES: And you're comfortable Pathways is going to continue. I know there was some concern, if conservatives had a majority, that they would kill Pathways. You're confident it will remain?
FRANK MCKENNA: Yes. It will remain-- the liberal government will support it. It's in their platform. The question now is whether or not Alberta would rather fight or win.
PETER HAYNES: Right. OK. Well, again, let's get to negotiations there. And a very, very high-profile one, axe the industrial carbon tax. We know they've axed the retail carbon tax. How do we deal with this issue?
FRANK MCKENNA: Well, maybe we don't have to deal with it. I think the political irritant was the consumer carbon tax. Even though there was a rebate given of as much money as being taken out, didn't matter. It became a political issue. It's been fixed.
But the industrial carbon tax has largely worked, and largely, it's administered by the provinces. I think it's worth a negotiation as to whether more can be done, but it has helped shape, Peter, the response of industries. Every industry is doing things, really progressive things, making Canada world-leading in reducing its carbon footprint because that money accrues right back to the industry. Right?
So it's an incentive for industry to try and decarbonize as much as they can. And that's a good thing. Is it so big that it's onerous? Well, I think that one could discuss that. But we have a carbon-- industrial carbon tax in place right now that I think has been quite transformational in terms of taking carbon out of the oil patch.
PETER HAYNES: Just going to the pump and seeing it being $0.15 cheaper, in my own mind, I forget about the check that I get every quarter.
FRANK MCKENNA: Yeah.
PETER HAYNES: So and then finally the fifth one here-- not really sure I fully appreciate and understand the difference between the platform of the liberals and the conservatives on providing indigenous loan guarantees.
FRANK MCKENNA: I don't, either. The government of Canada does indigenous loan guarantees now. Province of Alberta would do them.
PETER HAYNES: But wasn't it something to do with that Alberta wanted to control it and the government of Canada wanted to control it? Wasn't that the issue, at the end of the day?
FRANK MCKENNA: Well, it would depend. I mean, each of them have programs where they do loan guarantees. So look, if people talk, these things are fixable. Some of these are more difficult than others, but these are fixable problems.
PETER HAYNES: Well, let's-- again, you've indicated that you expect Prime Minister Carney to talk and to make sure he's aggressive in approaching these issues and not sitting back.
FRANK MCKENNA: Well, I looked at the rhetoric very carefully, because I'm a pipeline guy and I want to see more egress for our resources because we get better netbacks, more money to spend on social programs, and so on. But all of his rhetoric is that he's committed to building pipeline. Have to remember that he was the chairman of Brookfield Asset Management, which was the biggest pipeline company in the world. It's not as if pipelines are foreign to him.
PETER HAYNES: No, he understands the process. And I understand that-- Tom Mulcair was talking a little bit last night on the broadcast about how there seems to be a bit of an olive branch in the province of Quebec at the Premier's level--
FRANK MCKENNA: Yes.
PETER HAYNES: Can you explain how the dynamic between the Premier and the Bloc Québécois leader would be with respect to the potential to build pipelines through the province of Quebec to get to the east coast?
FRANK MCKENNA: The province-- I think Legault has indicated that Quebec is more receptive, and particularly a project that we worked on, the Saguenay LNG, bringing natural gas to the Saint Laurence River. Quebec actually supported that. They put $25 million in the window to help make it happen. We couldn't get Alberta to commit $25 million to help make it happen. But now--
PETER HAYNES: Is this under Carney, just so I understand--
FRANK MCKENNA: Yes, it was. Yes. And he did not want the private sector to be subsidized by government. Then they turn around and put over $1 billion into keystone XML. But regardless of that, he was a good guy. He had his own reasons. So it didn't get done. And then public opinion turned against it in Quebec.
Now, they're saying-- Minister Joly gave a speech to the Montreal Chamber of Commerce saying that we are open to that idea. So we should take advantage of any of these openings. Now, Blanchet has said he's against pipelines going through Quebec, but that's political rhetoric on his part. He's trying to make a case as to why people should vote for the bloc.
He lost a third of his seats last night, so it's obvious people didn't particularly listen to what he had to say. I think right now, the mood of the country, with Trump being as gratuitously oppressive as he is towards Canada, I think the mood of the country is, get stuff done.
PETER HAYNES: Yeah, we got to take advantage of that-- the crisis, as we like to call it, never let one go by.
FRANK MCKENNA: But I prefer the idea-- although I was trying to get an oil pipeline built all the way to the east coast, I prefer the idea of a utility corridor. That could be oil, could be gas, it might be fiber optics, but that it would essentially be like the Trans-Canada Highway. It would be like the national railroad system. It would be a great nation building project.
PETER HAYNES: We haven't heard about Line 5 and Gretchen Whitmer in the state of Michigan in a while. Is there any news on that?
FRANK MCKENNA: Right now, everything seems to be OK, but I'm glad you mentioned that, because one of the reasons why the idea of a national pipeline has some currency now is because Quebec has woken up to the fact, hey, that pipeline that feeds two refineries in Quebec, in Montreal and in Quebec City, goes through the United States.
And there have been some threats made that maybe we can't get that pipeline through the United States. So I think they're waking up to the fact that if we don't get a pipeline through Canada, we're at the mercy of the United States of America.
PETER HAYNES: And we've heard the president many times use that as leverage, and we have to take him at his word and be careful about that. One other issue that frustrates Albertans, and for that matter, all of western Canada, is equalization payments. I recall you once said a project when you were premier was to understand equalization payments inside out. I think you might be Canada's resident expert. Can you please remind our listeners who might not be familiar with this thorny topic?
There's $22-- $26.2 billion that's gone from BC, Alberta, and Saskatchewan to the rest of Canada in the year of 2025. Is it time to revisit these equalization payments? What are they and what would you do with them?
FRANK MCKENNA: OK, to start with, there has been no money go--
PETER HAYNES: Right.
FRANK MCKENNA: --from Alberta to Saskatchewan.
PETER HAYNES: Goes from the federal government.
FRANK MCKENNA: It goes from the federal government. It's notionally based on a formula that redistributes wealth from some provinces to other provinces. But there's no check written in Alberta, I guarantee you, or the other provinces in the west. And it waxes and wanes. It's a complicated formula that is based on your need and your taxing capacity, so that if you've reached the high range of taxing your people, then that weighs in your favor in the formula.
Alberta, because they have no sales tax, are always at the very low end of taxing effort. And it's based on resources and whether you are extracting your resources. There are whole number of factors that go into that formula. But it waxes and wanes. Saskatchewan has actually been an equalization-receiving provinces for much of its recent history.
Newfoundland is currently an equalization-paying province, but it has been, for most of its existence, an equalization-receiving province. Ontario is currently an equalization-receiving province, but used--
PETER HAYNES: Small.
FRANK MCKENNA: Small. But it used to be a paying province, so it waxes and wanes. It's an effort made to try to provide a very rough standard of living of some comparability across the country.
PETER HAYNES: Is it worth the effort, though? I recognize the provinces that are receiving the payments from the federal government wouldn't want to lose them. But when we think about all these issues that are bothering western Canada, is this just an unnecessary evil?
FRANK MCKENNA: Well, the formula was last put in place by Stephen Harper, so he must have felt that it was worth the effort. Yeah, look, this is Canada. It's not the law of the jungle. And I think that we, generally speaking, want citizens to be comfortable wherever they are in Canada. And somebody falls on hard times-- and you could. You could have the collapse of an industry in a province.
PETER HAYNES: What would happen in New Brunswick? What would be an industry that would collapse in New Brunswick where this would cause a-- would be very important?
FRANK MCKENNA: Forestry. Tariffs could shut down the entire forestry sector, for example. And you'd have 26,000 people out of work overnight. It could happen in Newfoundland. The entire fishery industry is shut down. Or it could be on the Prairies, in Saskatchewan, where canola or durum wheat all got crushed because of infestation or because of world trade conditions. And you would like to think that that province would be able to talk to the government of Canada-- to all Canadians-- and saying, can you help us during this time of need?
PETER HAYNES: And there's also-- one of the problems is it's so far delayed. It's based on two or three years ago, the information. So--
FRANK MCKENNA: Almost all of them are back-dated. It's-- the formula kicks in and you almost never know what you're going to get. And in the spring, you think you've got a huge surplus and you end up being in deficit, and so on and so on. It's awkward and it's unwieldy, but it's kind of a typical Canadian tool. So--
PETER HAYNES: Yeah.
FRANK MCKENNA: And I can assure you, we're always trying to reform it. If I've got one business that's in trouble that affects the formula, I try to change the formula. There's a lawsuit now that'll head to the Supreme Court of Canada, launched by Newfoundland, to try to change the equalization formula.
PETER HAYNES: Premier Eby from the province of BC, in his comments today, suggested the most important issue for Prime Minister Carney was dealing with the inter-provincial trade barriers, which has been a hot topic. Can you update our audience? I know Anita Anand was heavily involved in that process. Where do we stand? Are we going to be able to grow our GDP internally because of this issue?
FRANK MCKENNA: Yeah, I think we will, but I think we need to keep the hammer down, too. And when I say that-- the government of Canada is going to introduce legislation getting rid of all federal-- federally sponsored trade barriers.
PETER HAYNES: And what percentage of this interprovincial is that?
FRANK MCKENNA: Could be a quarter or a third or something. And then a number of provinces have guaranteed to take down their trade barriers to reciprocal provinces. So it's a bit of a hornet's mess right now, where some people will take down trade barriers with some provinces, but not with all provinces.
PETER HAYNES: Is there any bad actors in that process that you're hearing about?
FRANK MCKENNA: It's hard to say that people are bad actors. Let me give you a couple of examples, just real-world examples. Newfoundland wants to protect fish. They have a huge amount of fish that's caught. And it's processed in Newfoundland. It's required. But if you didn't process it in Newfoundland, there'd be the loss of tens of thousands of jobs. So they would like to agree to everything else, but protect fish.
New Brunswick has 10 pulp and paper mills and countless sawmills. It's one of the largest, most dense forestry industries in Canada. And so they want that wood to stay in New Brunswick and be value-added in New Brunswick. And if you didn't end up having a restriction, it could just be hauled somewhere else, hauled all to Quebec and processed there, and you'd lose tens of thousands of jobs.
So all that to say, the premiers, I think, are trying hard, but there's some real-world issues that make it a little difficult. Newfoundland has got another problem. They've got two breweries. And if you open up interprovincial trade in liquor, they may very well end up losing both of those breweries.
So those are the real-world issues. But I think we need to keep the pressure on premiers. They've got to experience real pain to do it. I think the mood of the country is such that we should do it. I'm dealing with Premier Eby on another issue. We'll be talking this week-- softwood lumber.
I'm convinced that if we have a major trade negotiation with the United States, trade and security, we should throw on top of it the softwood lumber issue. It shouldn't be all just American issues. We should put guns on there. We should put north-bound migration and drugs and softwood lumber. There's $10 billion in escrow now that's been collected around softwood lumber. So why not put that on the negotiation pile as well?
PETER HAYNES: Yeah, it can't be a one-way street here as, certainly, the rhetoric would otherwise tell you. I know you're traveling to London earlier this week, so I'm sure you read the article in The FT on election interference in Canada.
The article studies social media postings and concludes that 80% of posts on X, for instance, were critical of Carney with evidence that AI-generated bots planted by conservatives were bombarding platforms, often, with misinformation, with very few under 50s consuming news from traditional media sources.
The problem of uncontrolled misinformation will continue to pollute election campaigns around the globe. I know you're involved in some cyber-related work with the province-- or, excuse me, with the University of New Brunswick. What do you think can be done to reduce this flow of misinformation?
FRANK MCKENNA: Look, it's really hard to do much if the platforms don't police themselves. And the platforms were policing themselves, and then Trump and his gang of right-wing people said, no, no, no, that's only hurting right-wing views. So get rid of it. And the Silicon Valley people have buckled to that. And now, we don't have that kind of self-policing.
So it's just free rein. So it's very difficult. And if governments try to censor it, it looks like censorship. And everybody says, well, you're only censoring right-wing views, not left-wing views, and so on. So to some extent, I think we have to put the onus back on the platforms to police themselves the way they were before.
PETER HAYNES: That's going to be a challenge. For most of Canada's election cycle, President Trump was quiet, until the day of the election, when he implored Canadians to vote for him or whomever is a leader strong enough to push Canada as the 51st state.
What happens next in the Canada-US relationship? Are we going to go right back to the CUSMA negotiating table? Or instead, will we slow play the president in the same manner it seems Mexico's leadership is doing?
FRANK MCKENNA: On election day, why would the President of the United States say, vote for the person who's going to deliver Canada to me in the United States? That is such gratuitous interference. Who else in the world does that?
And I say that, Peter, with respect, because it leads to disrespect. So not only do we have a trade issue with the United States, we have a respect issue with the United States. People aren't mad at the United States just because they're shafting us on tariffs. It's because of the language, the extraordinarily extreme and vile language. And we're not alone.
I was in Spain last week. I was in England yesterday. Everybody you talked to, as soon as they found out you're Canadian, they just unload on you and say, what is going on? Not with us, with the world. They all feel-- Europeans all feel disrespected. I think we're in a heck of a situation where we need to deal with the tariff issue, which is material, but also, we need to deal with the trust issue.
Because even if we can get a deal at the table, how do we enforce it? We've already had him tear up NAFTA and tear up CUSMA. What's to say that he's not going to say that I just negotiated the greatest deal in the world and a month later, say, I'm tearing this up and I'm putting preferential tariffs on you, or I'm putting on specialty items? I don't like the fact that you are a winner on, I don't know, manufacturing widgets. So there's going to be a widget tax.
So it's going to be a tough negotiation. But I think the country made a conscious decision that the current prime minister is really custom-built for this kind of crisis management. We'll find out if that's the case, but I think we need to try to get security, to get trade, and to try to get all of those issues resolved so that we don't have the 1,000 cuts, that this just doesn't continue.
Because part of the problem we have, Peter, is the lack of stability. It's not just us, the United States and other countries as well, all over the world. You would see it in your business, the M&A activity and people pulling back and from investment decisions.
So we need to let the animal spirits soar again, not only come about when we have some confidence that we have predictability in the relationship. So I think our prime minister has got to take that on right away, strike while the iron is hot, and get us into the queue for those negotiations. And I'm hoping that we'll end up with some form of CUSMA at the end of the day, with or without Mexico, as the case might be.
Also, say, I believe, at the end, of the day, we'll win. I also believe that we negotiate from a position of strength. Trump has been-- and his government, in spite of all of their bellicose rhetoric, they have been systematically doing backflips all over the place on just about every tariff they've introduced. Whenever a pain point is reached, somebody turns around and pulls back. Now, they're doing it on autos, today or tomorrow. They've done it on iPhones.
PETER HAYNES: iPhones in China. Yeah.
FRANK MCKENNA: Yeah. So when there's a pain point, they do pull back. And so I think we've got-- contrary to what Trump says, we have got a very strong bargaining position, probably the largest trading relationship in the world, one of the lowest trade deficits, and a world's largest supplier of primary materials, from oil, to gas, to potash, to uranium, to steel, to aluminum, to nickel. 31% of their tourism market-- Canadians.
PETER HAYNES: It's less than that this year.
FRANK MCKENNA: Exactly. But why wouldn't you want to restore all of that by restoring the relationship? So I think we do have bargaining power. I also think we have a lot of goodwill with Americans-- a lot. Everyone I've talked to-- I think your experience would be similar-- very apologetic. And--
PETER HAYNES: Not that knowledgeable.
FRANK MCKENNA: No, I must say that. But they are apologetic, and they really have no malice towards Canadians. And I think that we need to get back to that relationship. So--
PETER HAYNES: Frank, I think that-- as you know, I've written an op ed that talks about the need to be focused on our capital markets and the concerns of the lack of IPOs and things that we can do to make our capital markets better. We saw, in the conservative platform, some ideas about reinvestments in Canada not facing capital gains tax. I love those ideas, but the--
FRANK MCKENNA: I'm hoping Carney looks at those ideas.
PETER HAYNES: Yeah, why not steal them from the other platform? I couldn't agree more. And I'm hoping, obviously that that's the case. But the more I've been thinking about this lately, I think President Trump is doing an absolute favor to every other country in the world.
This notion of capital flowing to the United States, I think it's coming to a complete stop because of threats like delisting Chinese securities for whatever reason, whether it's tariff-related. I just think that he's created some uncertainty in their market, and companies are going to think twice about whether or not they want to be concentrated in the US capital market, at least for this period of uncertainty that you talk about.
FRANK MCKENNA: Well, we saw, just a week or two ago, where an attack on-- the bond vigilantes and the attack on treasuries. The US dollar, contrary to every conventional belief, ended up cratering, not getting stronger. And I think everybody woke up that morning saying, what the--
PETER HAYNES: Yeah.
FRANK MCKENNA: And people started backing off. And the rest of the world now is realizing they've got real economic strength. China, Japan, even Canada owns $350 billion of treasuries. The EU. We're all major, major consumers of US treasuries. We have influence.
And now, Europe is totally directing their attention to Europe. They're looking at almost $1 trillion in defense expenditure spent in Europe. They're looking at galvanizing their economy. And Canada is doing the same thing. Ultimately, the United States is going to rue the day they decided to take on the world, in my view.
PETER HAYNES: It's going to be very interesting.
FRANK MCKENNA: And we, if we are smart and committed, and I think we are, are going to bless these days as the day where we woke up and became a Major League country.
PETER HAYNES: Well, let's focus a little bit on the America First mandate from President Trump. Canada was one of the first countries to feel the ire of that policy, specifically related to use of IEEPA for tariffs, based on the flawed logic of southbound immigration-- of a southbound immigration and fentanyl crisis.
Now, the rest of the world knows how we feel, as there's baseline tariffs and reciprocal tariffs and VAT tariffs on every other country in the world. What is your expectation for how the bilateral tariff negotiations will end up for the US and the 100 or so countries that are currently in negotiations and will face new tariffs once the latest 90-day negotiating period ends in early July?
FRANK MCKENNA: Well, a lot of countries aren't as well-placed as we are. We've got real bargaining leverage, in my view. And it wouldn't surprise me that we end up with some form of NAFTA, something like that.
I think the problem, Peter, is that we have to try to figure out-- nobody can figure this out-- what is really motivating the United States. And first of all, the United States is not the real third party here. It's Trump. Is it revenue? In which case, they put tariffs up and they extract revenue, which is essentially a tax on Americans. Or do they want factories to be closed, literally, and moved to the United States, in which case they can't get the revenue because the factories have moved to the United states?
So some of these are contrary. I think, to some extent, it's revenue. I think to some extent, this is an extortion play. If you want to open a restaurant in this neighborhood, you're going to have to pay the man. It's 10%, going rate. And I think that you'll find that there's going to be a shakedown take place in every country in the world, and it'll end up with different results. It'd be a lot of bespoke settlements.
In some cases, people will just pay the tariff to move goods into the United States. In other cases, they'll take down their own non-tariff barriers or tariffs. Or in some cases, they'll do major procurement agreements to straighten out any balance in trade, so-called.
So I think there'll be a whole lot of-- and some countries will go quicker than others. India, Japan, countries like that. And there'll be a whole lot of different arrangements. And Trump will claim victory on every one of them and do a victory lap and all. That's fine. But at the end of the day, I think there is a genuine revenue grab taking place here. It's going to be pay to play. I think 10% will probably be the baseline in some way.
PETER HAYNES: It was interesting to read that one of the divisions of Amazon was going to be posting the amount of the tariffs they were charging, and they got a phone call from the president very quickly-- Bezos did. And they distanced themselves from that very quickly. Is he going to call every single country-- or company in the United States to complain if they're actually raising their prices?
FRANK MCKENNA: Well, they're not going to be able to do that. And everybody is raising their prices, especially all the small discounters. They can't absorb it. So they're raising their prices. And the apprehension of inflation is as bad as inflation, as you know.
PETER HAYNES: Expectations, exactly.
FRANK MCKENNA: Yeah. So all of that is playing out. And I think the United States is weeping-- or reaping a whirlwind here. And I think smarter people around Trump are trying to get him off the ledge on some of this.
At some point, if he wants to have any reputation at all-- he's got the lowest approval rating of any president in history for the first 100 days. And at some point, if he wants to salvage some reputation, he's going to have to stabilize the platform, because right now, when you've got people like Ken Griffin calling it out and saying that brand damage may be irreparable that's taking place.
And by the way, call it something else. Some of these manufacturing jobs are never coming to the United States of America. If you think for one minute we're going to be manufacturing Nike sneakers in the United States of America, tell me who's going to do it and how much we're going to pay them. So I think some of the Trump circle are now starting to become more realistic about what's doable here.
PETER HAYNES: I saw an advertisement on social media where they were looking for people to pick berries or something at $11 an hour, and they said, OK, here we go. Who's going to do this? The reality is, the general person in the United States or in Canada wouldn't get out of bed to make $11 an hour picking berries or some crop.
FRANK MCKENNA: Peter, I think we'll ultimately-- we'll go through this swing of the pendulum and deglobalization and everything else. But ultimately, because it makes so much industrial logic, we are going to go back to the Ricardian theory of comparative economic advantage. You do what you do. If we can do aluminum in Canada 20% or 30% cheaper because we have hydroelectric, do it. And if the United States can produce something-- services--
PETER HAYNES: AI.
FRANK MCKENNA: AI or a service that we buy, because we buy-- that's the other thing. Everybody's woken up to the fact that the United States enjoys a surplus of $250 to $300 billion a year in services. So they're starting to say, let's put that on the tab as well.
So a lot of people around the world are waking up here and saying, hey, there's two sides to this story. So let's-- I'm going to tax your services or put a tariff on them if you put a tariff on my goods.
PETER HAYNES: And it's interesting you hear the people constantly complaining, in the United States, about the digital services taxes that other countries, Europe and Canada and others, are-- that's really just an equalization of this process. Is that correct?
FRANK MCKENNA: Yeah, yeah.
PETER HAYNES: So let's just cover here the war just before we get to the Blue Jays here, as our time's running out. President Trump now admits that his campaign promise to end the war in Ukraine in one day was perhaps a bit overly optimistic. He has gone back and forth playing the two country leaders off against each other, most recently when he met President Zelenskyy one on one at the Pope's funeral, and immediately criticized President Putin of Russia for not wanting to end the war.
On the weekend, Secretary of State Marco Rubio said the next week or so was, quote, "very critical" to the US in determining whether it wants to stay involved in the peace discussions. Frank, are we nearing the end of the war or the end of one phase of the war?
FRANK MCKENNA: Yeah, probably more the latter. Look, I'm hard on President Trump, but I admire the fact that he's trying to fix problems. I do. And if we could fix the war in Iran and in the Middle East, that would be a good thing for humanity. If there's a Nobel Peace Prize in the future for him, more power to him. So good on them for trying.
The only thing I would say is, I don't think it's fair that you'd be so one-sided in the case of the Ukraine. Ukraine did not start the war. Russia was the invader. And I think that the only way you can get real deal tension is for Russia to be paying a price for continuing to prosecute the war. And that will only come about if we continue to arm the Ukrainians and continue to put economic pressure on Russia.
And every time Trump takes his foot off the throttle, Russia ends up having an advantage, a huge advantage. And Europeans know that. The Americans, for a while, didn't even give communications information to the Ukrainians. And it was just a slaughter.
So I think that he may get to a result if he wakes up to the fact that Putin is not a good actor here and that he has to keep the pressure right on Putin in order to get a deal. Ukrainians have lots of pressure on themselves. God love us. They're losing tens of thousands of their finest young men and women, and their economy is in--
PETER HAYNES: Tragedy that people don't talk enough about.
FRANK MCKENNA: Well, and the Russians are losing over 1,000 men a day. It's a slaughterhouse. And President Trump calls that out, to his credit. So I hope that he doesn't keep putting his thumb on the scale on one side and not on both sides.
And similarly, in the Middle East, I'd like to see him resolve that dispute, but I'm not sure it'll be resolved unless he puts some pressure on Netanyahu, who's got a vested interest in keeping that war going forever.
PETER HAYNES: Well, it's been a talking point for us for over three years on this podcast. It's tiring.
FRANK MCKENNA: It's hard to believe.
PETER HAYNES: Yeah, it's tiring, and sad beyond belief. And we can only hope that somehow, we end the war as soon as possible. Frank regular listeners of our podcast know that we always end on-- it's not always a positive note, because we're talking about the Blue Jays. This was not a good week for the Blue Jays. We're not scoring runs. We're not hitting home runs. How do you explain the power outage?
FRANK MCKENNA: I don't. I'm just tearing my hair out. Vladdy hit a couple. Santander has been a bitter disappointment.
PETER HAYNES: He always starts slowly. We'll give him credit.
FRANK MCKENNA: Yeah, but this is beyond--
PETER HAYNES: We're 20% of the season. Exactly.
FRANK MCKENNA: Yeah. He hit a home run the other night, but he's not hitting with men on base. None of them are hitting with people on base. Every now and then, they show flashes. They they'll squeeze a runner along. They'll manufacture a run or somebody will hit a ball out.
But they're really not getting much production all through the lineup. And people who can hit home runs are not hitting home runs, or doubles or triples. So I'm hoping we'll get through it. But right now, it's putting too much pressure on the pitching staff.
PETER HAYNES: Which has been very good.
FRANK MCKENNA: Yeah.
PETER HAYNES: We cannot complain about the pitching staff. They're hanging in there--
FRANK MCKENNA: And Hoffman's been lights out.
PETER HAYNES: He has, yeah.
FRANK MCKENNA: And there's some flashes here and there, feeling some flashes. But man, you've got to score runs in this game.
PETER HAYNES: And we have a match up here tonight while we're taping against the guy who's going to win the Cy Young this year, Garrett Crochet in Boston. So it's not looking-- it seems like every day, they're complaining that we're facing a great pitcher. Well, the reality is, you've got to hit at some point.
FRANK MCKENNA: You do. But Peter, we are not good against good pitching.
PETER HAYNES: No. Yeah, and that worries you when you get to the playoffs, too, if you ever do get there.
FRANK MCKENNA: It sure does. Yeah.
PETER HAYNES: Well, Frank, that's a topic that will continue to be on our agenda every single month. Thank you very much for-- we're glad that we got a couple hundred folks listening in here live. And then we'll have, for the rest of the audience, the podcast will be out within a day or so. Thank you very much for listening. And Frank, thanks for your time.
FRANK MCKENNA: Thank you.
PETER HAYNES: Thank you for listening to Geopolitics. This TD Securities podcast is for informational purposes. The views described in today's podcast are of the individuals and may or may not represent the views of TD Bank or its subsidiaries, and these views should not be relied upon as investment, tax, or other advice.