Finally, A Chance to Talk About Something Other Than Tariffs

FRANK MCKENNA: One of the key appointments, in my view, is Tim Hodgson, who is the minister of energy. He is the spokesperson for the government of Canada on energy as well the prime minister. And I think they're going to give very strong messages about the importance of the energy sector in Canada.
PETER HAYNES: Welcome to episode 65 of Geopolitics with the Honorable Frank McKenna. My name is Peter Haynes. I'm the host of this podcast series. Frank, it's May 2025, and we're gearing up for the summer. What are your plans? Are you going to be back and forth to Cap-Pelé? Or do you have any other travel plans in your next few months?
FRANK MCKENNA: No. I'll be back and forth. When the flowers start to bloom and the lobster starts to boil, I tend to spend more time in New Brunswick. We love where we live. We're right on the ocean. And we love the maritimers who are around us. So I find it much more productive for me to work out of New Brunswick in the summer and then come back here in the fall.
PETER HAYNES: Well, you mentioned lobster. I told my son that I was going to visit my colleague in Dartmouth, Nova Scotia. And he asked me if I'd bring him back a lobster, which I did. I bought some from Clearwater in the Halifax airport. I didn't have it in me to bring back live lobster, though. I had to have it steamed. But it was a great experience, and he was very happy for the East Coast experience.
But look, Canada relations with the United States call it a holding pattern right now. And now with the Canadian election in the rearview mirror this month, we're going to spend a little bit more time on other geopolitical hot spots, but we'll still check in on some of the issues that are impacting North America.
So before we circle the globe, let's start with Prime Minister Mark Carney's cabinet decisions. Critics will argue that the inclusion of 13 Trudeau-era cabinet ministers in Carney's cabinet, including former environment minister Steven Guilbeault, who is not that well-liked by Western provinces, means more of the same with the Carney-led Liberals.
On the other hand, there seem to be a positive response from those same critics in the West to the appointment of Tim Hodgson as minister of natural resources. What do you make of this criticism? Is it justified? And what is your overall take on Carney's go-forward cabinet?
FRANK MCKENNA: Every cabinet that's ever been made will be criticized because it's a balance of competing interests. People like to see their community represented. They like to see their province represented. They'd like to see their region represented. They'd like to see their face represented. They'd like-- people like the recognition of gender. They like ethnicity. They would say, look, if the country has a large percentage of particular population, that population should be represented.
So it makes it very, very difficult. I personally find Guilbeault objectionable, some of his language. I thought that his statement shortly after the cabinet was sworn in was a grievous error, quite frankly, because it subtracted from the overall weight of the news of the cabinet. It was particularly unhelpful. And I suspect that he felt the wrath of the prime minister and some of his colleagues for it. But he is in the cabinet.
And again, one has to think about this rationally. Quebec ended up producing massively for the Liberals, 44 seats. They had 34 before. They ended up getting 44 seats. They ended up with 47% of the vote. So it would not be unnatural for Quebec to be represented in the cabinet and represented well. So they have the minister of finance. They have the minister of industry, for example.
But people should note that Steven Guilbeault was really not put in a prominent cabinet position. He's minister of heritage. He is not the minister of energy. He's not the minister of the environment. And so he doesn't get to speak on those issues.
And in terms of-- some of them are Trudeau holdovers, but some of these are really strong people, experienced people. Dominic LeBlanc, for example, is probably the best interlocutor we have with the United States. He's got great friendships. They're great relationships, a highly educated guy, another one of these guys with a master's degree from Harvard.
You've got Francois-Philippe Champagne, who is from the private sector. He's very pro-business, very strong minister. And so he's back in cabinet, as you'd expect. Mélanie Joly is the minister of industry. She comes from a family of entrepreneurs. She is an entrepreneur, a master's degree from Oxford, very, very bright.
And I think most people would say she was a very good spokesperson for Canada on the US-Canada file. Need or not, she's got multiple degrees and a proven ability in everything she starts. So you would need those people. Those are the-- that would be the centerpiece of the cabinet. But then you need other people and perhaps more junior portfolios representing regions, ethnicities, et cetera, et cetera.
And, Peter, we can't help but mentioning that there's a lot of pain in the decision-making that goes into a cabinet. A lot of people were dropped from cabinet. Some people say, well, there shouldn't be Trudeau ministers, but, in fact, a number of them were dropped. And I'm thinking of Jonathan Wilkinson, a Rhodes scholar, highly respected member from British Columbia.
You've got Ahmed Hussen, who brought in the national child care program that we have, a very formidable cabinet minister. He's gone. Ginette Petitpas Taylor is gone. Kody Blois did a fabulous job at agriculture, Duclos, former minister of health.
My view, Peter, is that this cabinet was built for purpose. The prime minister made it clear to the ministers that we are going to be laser focused on the economy, diversifying the Canadian economy, and catalyzing the Canadian economy. And those are the marching orders. And I think that he's put the best people in the best places in order to achieve that objective.
Now, one of the key appointments, in my view, is Tim Hodgson, who's the minister of energy. He is a very experienced in energy, a former chair of Ontario Hydro, former executive with MEG, an M&A lawyer involved in a lot of the energy deals. He was in Alberta the first week after he was appointed.
He's headed out in two days time to speak to the Chamber of Commerce in Alberta. I know he's been on the phone with people in Alberta. And he's being well received in Alberta. So he is the spokesperson for the government of Canada on energy, as will the prime minister. And I think they're going to give very strong messages about the importance of the energy sector in Canada.
PETER HAYNES: Well, speaking of Alberta, Alberta Premier Danielle Smith's been all over the map lately on her messaging after the election to Ottawa regarding her personal position on separation. There's been a lot of chatter about that topic in the Western provinces. On the one hand, Smith has claimed to support, quote, "a strong Alberta within a united Canada." And also she's claiming to be a federalist.
But on the other hand, critics will suggest that she's not showing it, interactions, including not taking a more public stance in her province against separation and also by introducing legislation that made it easier for citizens of Alberta to seek a vote on separation. How much of a groundswell toward separation do you think there actually is at the grassroots level in the West? I know you travel to Calgary on a regular basis. And how would you describe Smith's approach to dealing with Ottawa?
FRANK MCKENNA: One of your question describes the situation very well. Premier Smith reminds me now of the Irish politician who's running down the street, sees a policeman. He said, where did that mob go? I've got to find them because I'm their leader.
In the case of an issue like this, you've got to find where people are going and get ahead of them if you're going to be their leader and not be following them. And I'm afraid that Premier Smith is being led by the loud minority in Alberta and not providing the kind of leadership that she should be providing as a national leader.
It's one thing to say that you personally support Canada, but then you turn around and lower the threshold for a referendum so that it's going to be easier to actually provoke a referendum on separation. I think that it's highly unconstructive. I think she is not aware of what it's going to be like when she lets this genie out of the bottle.
I've been through two referendum debates and watched the third very closely, and that's the Brexit one. And you may have noticed in the last week that the UK has been engaged with the EU, basically trying to put the toothpaste back in the tube again and renegotiating, retracing a lot of the measures that were destroyed during that acrimonious debate.
But I was intimately involved in the Quebec referendum, was there for the so-called victory rally the last night and campaigned door-to-door in Quebec. And I can tell you it is absolutely debilitating and destructive to go through this. It's corrosive. You end up with family against family. You end up community against community. You end up having situations where you'll tear your province apart.
We had an active debate on the Quebec referendum as to whether Montreal should be able to divide itself from Quebec if Quebec could divide itself from Canada. And I would argue in Alberta, Calgary and Edmonton should be able to make the case. Look, we don't want to be part of an Alberta movement on this. We want to divide from Alberta if Alberta is going out on its own. First Nations are already trying to say we want a referendum on separating from Alberta if Alberta is going to do this.
So you get acrimonious debate. You get all kinds of hugely difficult feelings to manage. And you get an investment climate that is the exact opposite of supportive for people to make investment decisions or consumer decisions. So you end up introducing an element of volatility and an element of anger in your population that I don't think is healthy at all.
So I hope there's a way to get this back under control again. This should be the prerogative of the premier. And I hope there's a way of getting it back under control. At the end of the day, if people are so angry at the country and can't stand it anymore, I would want them to be happy. I would want the people of Alberta to be happy and make a decision that makes them happy.
And I just feel terrible that anybody, including the people of Alberta, would be looking at taking apart a country which is the envy of the rest of the world. Look, we may not be perfect. And government of Canada obviously should be showing more tangible love and attention to Alberta. But my God, this country is worth fighting for. And I just hope and pray that this divisive debate does not tear us apart.
PETER HAYNES: I have read some headlines on Starmer pushing back towards the EU, but I admit I have not been close to that file. What I did see, though, was the critics suggesting that's not what he was elected to do, because Brexit is in the rearview mirror. Does he have a legal grounds to be doing what he's doing? Is he coming close to a red line there in terms of separating from the EU but now wanting to go back? And that would arguably be against the will of the people.
FRANK MCKENNA: I think what he wants is a divorce with conjugal rights. That's what probably Alberta would want too. Nice if you can get it. Yeah, are there critics? Yes. These are the same critics that made the ridiculous decision to pull the UK out of Europe, Nigel Farage and his gang. They keep saying, well, look, if we go further from Europe, we'll start to see some tangible results.
Well, in five years, all we've seen is a reduction in GDP and increase in unemployment and an increasing deficit. It has been a negative experience. Most polling shows that at least 60% of people polled would now vote to be back in the European Union. So no government wants to turn around and reignite the total firestorm of that debate and talk about getting back in the EU and putting Humpty Dumpty back together again.
So what they're trying to do is practically find ways where they can agree on fisheries, where they can agree on trade, where they can agree even on fast lanes at airports, and so on. You get some of the benefit of the EU without going all the way back. So are there critics? Sure. These are the same people that tore the country apart taking the UK out.
But you'll notice as well the majority of Brits and the majority of business, in fact, almost universally, business is saying this is the right decision and this direction we should go in. The EU is the UK's major trading-- They're neighbors. You can't change that the same as we can't change where we live. And so you have to expedite that trade and make it seamless so that you can end up growing your economy and creating more jobs.
PETER HAYNES: So I guess, on a slightly more positive note with Premier Smith, she did seem quite bullish on some of the recent comments from Quebec's premier, Francois Legault, about renewed interest in building a pipeline to the East. Prime Minister Carney has said he will support energy infrastructure spending in Canada if the provinces agree.
How can Canada move from concept to action on new pipelines? And how much of a factor in the economics of new infrastructure is dependent on the price of WTI, which seems to be oscillating in a range between $55 and $65 per barrel?
FRANK MCKENNA: I think that Canada can move. I think there's a lot of latitude to move. And so what we should do, in my humble view, is give new prime minister and government a chance. And Alberta, in my humble view, should constructively engage with them and try to see if we can end up achieving the results that everybody wants. I think that we can move more oil through pipes very quickly and very easily.
There are at least three projects that can accommodate more oil. One of them is the Trans Mountain Pipeline. And again, that means diluting more of the heavy oil so you can put more through debottlenecking. Similarly, Enbridge believes they can add hundreds of thousands of more barrels by doing things with their existing line in South Paw. You may be able to get as much as a million barrels a day just through existing pipelines in terms of egress.
And I think the government of Canada would be totally supportive and expedite all of those decisions. Larger de novo pipeline bills, I think, should be looked at. And I think there'll be support provincially and federally. But the economics have to work. The private sector has got to look at that, look at the long-term future of oil and look at the cost of moving oil, let's say, from Alberta to Atlantic waters or some other route and find out whether the economics of that work.
It shouldn't be left to the government to decide, should be the private sector that should largely drive that with government support and say, is there a way for pipelines to be built? I think the best way to do it is to look at a utility corridor from coast to coast. That would be available almost as a right of way for everything from fiber optics to oil to gas, as the case might be. I would like to see that take place as a national project.
And by the way, in the meantime, the country's not sitting idle. We've got a massive LNG terminal about to come online in Western Canada, heavily supported by the province of BC and the federal government, with gas coming through the Colonial Pipeline from Alberta and British Columbia. You've got at least four other LNG projects coming online or getting into the queue. And all of those will help take a lot of gas out of the basin and improve the netbacks for the other gas producers.
And all of these are positive developments. So we can look at the glass half empty, or we can look at it half full. If you look at it half full, differentials have gone in from $20, let's say, on oil down to less than $10 a barrel at present because of Trans Mountain Pipeline. So I think we should be building on the successes and assume that the prime minister and his government are going to be true to their word, and that they are going to expedite the production of energy in this country.
PETER HAYNES: You mentioned TMX. I want to dig in a little bit on that because I want to understand this topic a little bit better. It's something that we've discussed briefly along the way. And you also mentioned the controversial former environment minister, Steven Guilbeault, some of the comments that were made recently.
And he certainly stirred some feathers with his suggestion that with peak oil demand only a couple of years away, that there was no need to actually build new pipelines in Canada until at least, or at the very least, the country maximizes use of existing pipelines. These are some of the comments you referred to earlier that stirred up some of the backlash, I think, in Carney's cabinet.
Now, to back up his view, Guilbeault points out the fact that in his calculation, less than half of the Trans Mountain Pipeline, or TMX as it's known-- half of the capacity is being utilized. This TMX utilization rate is contested. I've heard other suggesting around 75%. But regardless, the number is dramatically lower than 100%.
Now, we have discussed TMX and its capacity in previous podcasts, but I want to really dig in a little bit more on this. What is the actual usage of TMX? And can you explain to our listeners why this percentage is so far below 100%?
FRANK MCKENNA: So let's get the facts. First of all, Guilbeault shouldn't be talking about something that's not his portfolio. And secondly, he's wrong on the facts, both of those things. And it's quite understandable that people in Western Canada are irate. The fact of the matter is that TMX has been an extraordinary boon to Canada.
Let's start by lining up what the problem was. The problem was because we sent all of our oil to the United States of America, we have no bargaining power. And the end result is that we suffer a huge discount for our heavy oil, and that's cost between $60 and $80 billion in the last 10 years. Imagine what this country could do with another, say, $70 or $80 billion.
So that differential is now narrowed in considerably. The result of that is that there's more money to the tune of billions of dollars going into the government of Alberta and to the government of Canada, as well as to producers who are enjoying better netbacks. So it's been a very, very good thing for Canada to get TMX bill.
And the myth of it not being fully utilized is just that it's a myth. It is not below 50%. This year, it's projected that there will be about 84% utilization of that pipeline, that that's how much oil will be flowing. And understand why it's not 100%. We need to understand that 20% of that pipeline was reserved for the spot market. That attracts a higher price for the carrier and helps make the economics of the project work.
That's the part that has not been utilized by the producers, because the cost is such that it doesn't make it competitive with competing pipelines such as the Enbridge pipeline. So 140,000 approximately of barrels are reserved for the spot market. As of the last time I looked, there was only less than 20,000 of those barrels were being used.
One of two things will happen. Either that will gradually be used up in that spot market, or it will be moved to a capacity part of the pipeline and told accordingly. And if that were to happen-- and I know there are a lot of people who would like to see that happen-- then you'd be up to 100% utilization rate of that pipeline quite quickly. So the pipeline, I think, is serving its purpose.
There are two things about that pipeline that I note that could make it even more positive. One is you can get 253,000 barrels or more just by doing some measures which don't require new routing or anything, simply debottlenecking diluent, et cetera, et cetera. That would be significant. And I think all parties should agree on that and do agree on that. And that should be fast-tracked. So instead take five years to do it, we should do it in a couple of years.
Secondly, I think producers have some responsibility to make sure more of that oil going through that pipeline goes out of the North American basin and to the international market to further improve our leverage with the United States. A month or two ago, the last time I looked, 60% of the oil in that pipeline was still going to the United States of America. It reaches tidewater in the Pacific and then goes by tankers down into Washington, or down into California, or up to Alaska.
And so that, unfortunately, contributes to the American deficit and trade with us and also takes some of the pressure off of our bargaining position with the United States. So producers are doing what is easy for them, and it's easy for them to just ship to existing customers along the Western Seaboard. But I would very much like to see more of that oil going into Asia.
And by the way, that is happening increasingly. More of that is going to Asia, getting better netbacks for our producers and taking a little bit of that oil out of the US market. We need to get oil to world markets, not because we don't want to service the United States of America, but like any customer relationship, we want to keep them honest. We want to get the best price for our product.
PETER HAYNES: And this is not my area of expertise, Frank, but is there any reason why the heavy oil that comes out of the oil sands that has to be refined in the United States-- and that's one of the reasons why oil that would be coming through TMX would have to go southbound rather than to Asia?
FRANK MCKENNA: No, we also produce synthetic crude, which attracts good premium prices both in Canada and the United States.
PETER HAYNES: OK, so getting to the election here, the dust has settled. We can certainly say that. And interestingly enough, most of the people that I speak to on Bay Street are talking quite bullish right now about the future of investing in this country. And we have not said that in a long time. And it's really a result of the fact that the federal government is focusing on economy first.
So I would put into this category some of the global asset allocators that I speak to that have become more bullish on the fundamentals of Canada. And also, there's fund managers out there and hedge funds in particular to believe there may be a buy Canada mantra playing out with domestic funds in the next few months.
Is this a message, Frank, that's consistent with what you're hearing from conversations with business executives? And if so, what advice do you have for Carney and his caucus to take advantage of this momentum and interest in investing in Canada?
FRANK MCKENNA: Yeah, it's very much the sentiment I get. First of all, all the tariff terror has receded a little bit into the background. And the election of the prime minister I think has brought with it a bit of a sense in the country that our Canadian politics are behind us now, which is good. People just needed some clarity.
And thirdly, quite frankly, the prime minister I think has impressed Canadians, whether they support him or not. I had a note from somebody today, great Canadian business leader, saying I didn't vote for the prime minister, but now he's 100% my prime minister. I think a lot of Canadians are of that view. We may or may not have voted for this prime minister, but he is our prime minister. And let's make him successful, and let's hope that he is successful.
And I think he's also-- the business-like way he's approaching things has reassured people. He's also talking to people in the business community, as are his ministers. I'm hosting an event here tomorrow with a dozen business people, some flying in from all over the country or North America, because they're so anxious to contribute and participate to the government's approach on the economy.
So the mood is improving. I think there have to be some tangible wins for business. I think everybody's from Missouri. So they're saying, what can you do to prove it to me? I think the selection of Tim Hodgson as minister of energy is a net positive with business. I think Francois-Philippe Champagne-- I think that's been a net positive with business.
Something that's gone a little unremarked are pension funds, $3 trillion I think altogether in that range. Stephen Poloz has produced a report that didn't get enough attention that was filed in the Fall Economic Statement, not talking about forcing pension funds to invest in Canada, but pointing to a number of ways in which it could be made more efficient for pension funds to invest in Canada. So it's worth reading through those pages.
And one of the specifics there that I think people should attack immediately is opening up airports to investments by our pension funds. It may not be the outright purchase of an airport. Although that hasn't been excluded, but it could include investing in baggage handling, or investing in the reservation systems, or some other part of the airports operation. That is now open for business. It's been announced, and I think that's ready to go. I think there should be some other quick wins out there.
Interprovincial trade being serious and deliberate about knocking down interprovincial trade barriers-- that is going to happen. I think the legislation will be filed on that. The reduction in taxes, retail taxes-- that is going to be legislated very soon.
And then I think the government is going to need to deal with the Canada postal strike, and that could be a chance for a signal from the government. I think the time has come when we no longer put up with what's taking place at Canada Post. It is not something that we can afford to continue to subsidize through the rate of a billion dollars a crack.
And I think that we've got to do something with that asset, should have been privatized 10 or 12 years ago. I don't know what you do with it, but you can't continue to let it run the way it is. So seeing how decisively the government of Canada deals with a strike if it takes place, I think, would give some confidence to the business community as well in the country.
PETER HAYNES: Let's just dig in on Canada Post for a second. Is that the type of asset that someone like Amazon would want to purchase just because they're in the same business of delivering things to people's houses? I'm just curious if there are actual buyers of-- and I'm not saying Amazon specifically.
But is that the type of a potential purchaser of that asset? And how much of the flag do we suffer from in selling that asset and people just having a difficult time coming to grips with the fact that there is no longer a postal organization owned by Canadians?
FRANK MCKENNA: There are postal services around the world that have been privatized, and they've ended up expanding their business lines and been quite successful. The better time to have done that would have been a dozen years ago, probably when it was a lot more valuable.
I bet there's been a 50%, maybe 100% decline in white mail in the last number of years. So the two things that have hit have been the dramatic decline in white mail. I suspect you get most of your information digitally, or billing, or your accounts, and so on. Well, that's true for everybody on this call. So all of that has been bled out.
Secondly, in terms of parcel delivery, Canada Post at one stage was doing quite a lot of parcel delivery. Well, during the pandemic, you had people on scooters and vans driving up to you at 10 o'clock at night delivering parcels. And that's just all come from Canada Post. Their workers don't want to work on weekends. They don't want to have part-time workers. They're in a business they shouldn't be in.
When I was on the board of UPS some years ago, we tried to buy Purolator, and we couldn't end up making the deal. But the argument was, why should you be in the parcel delivery service? That's not essential to a country's health. There are lots of people who can do it. Amazon could do it through their network, or Federal Express, or UPS, whatever.
So that's an asset that would have a lot of value. We're doing things that just don't make economic sense, delivering door-to-door in Toronto, for example, every day. When I'm home in New Brunswick, I don't get door-to-door delivery. We got a community mailbox. In the weekends, somebody comes around. It's not a Canada Post person. It's somebody in a cube there that services us.
So those are all decisions that Canada Post want to make and will save them dramatic amounts of money, but they're not being allowed to by their union contracts. So the union members are flirting with a very, very dangerous situation with this potential strike coming up because every time they do a strike, they threat a large part of their business that doesn't come back, and it makes them more and more redundant. At some point-- it's an issue that's been kicked down the road, but at some point, it's going to have to be dealt with.
PETER HAYNES: Yeah, they clearly don't have leverage in this situation. So let's look back on a couple of weeks ago to the first interactions that President Trump had with Prime Minister Carney at the White House. Arguably, Prime Minister Carney, as you mentioned earlier, has gotten pretty good marks so far overall.
But in particular, when he was at the White House, he got good marks for being strong in his message about Canada's sovereignty, but also respectful of where he was sitting at the time of the meeting. It feels like this meeting, in my opinion, helped lower the temperature a few degrees and stop the rhetoric about annexation at least temporarily. What do you think is next in the Canada-US relations?
FRANK MCKENNA: I think your take is dead right, and I think that would be the universal view of Canadians. There's a tough, tough challenge going in. He didn't want to be Zelenskyy beaten up in the Oval Office. And by the way, that's happening again today, with South African got totally beaten up in the presence of the media. So he didn't want that to happen.
On the other hand, he didn't want to grovel or be a supplicant, which some people would have said Starmer. He did what he had to do, I guess. But Canadians did not want to see their prime minister prostrating himself before the president either. So I think he accomplished what he wanted to accomplish. He let the president ramble on as he does, but he got the important lines in that Canada wasn't for sale.
So I thought that was fine. I thought he did it in a respectful way, in a way that seems to have really lowered the temperature. And we're out of the headlines now. And I think that that's been a good thing for everybody to step back and take a deep breath, and then gradually roll up sleeves and start working on some an intelligent, mutually beneficial relationship.
PETER HAYNES: And do you think that's going to be focused on the trade deal to start with, a three-way trade deal or even bilateral?
FRANK MCKENNA: Right now, it looks as if that'll be a bilateral conversation. It could end up morphing into a tripartite conversation, which would be really the renewal of CUSMA, which was scheduled to be discussed in 2026. All of the traditional understandings we have are out the window. What was agreed to when we negotiated CUSMA was that in 2026, there would be a reopener and then every two years after that until 2036. And when I say reopener, a reopener for discussion. The deal would not be dead.
Now, it's just up in the air as to whether the United States continues to agree to what they agreed to or whether they want a wholesale set of negotiations without an entirely new agreement. We will have the same problem as other countries around the world. How do you trust your counterparty? How do you enforce this? What if somebody tears it up again?
Will people build plants, make investment decisions with a partner that has shown itself, that it's demonstrated, that it's not been trustworthy? So the United States may have the power to do whatever they want, but every time they do it, they introduce volatility into relationships. That is not to the benefit of either side.
PETER HAYNES: So, Frank, just before we move on to international affairs, I do want to just talk about one point of contention brought up by the opposition party leaders towards Prime Minister Carney, and that is his decision not to introduce a budget before the summer recess. Why did Prime Minister Carney make this decision? And do you agree with it?
FRANK MCKENNA: I understand the logic of that decision. There's a huge amount of volatility. And a budget would have been inherently carried. You've got the interprovincial trade issue, whether or not that proceeds into the extent to which it proceeds. You've got the issue of tariffs not just here, but globally. Are we going to have a global recession? We got quite close to the edge of a global meltdown just a few weeks ago.
And so what direction is it going in? What the United States does with the rest of the world is very material as well. If the entire world enter into a recession as a result of tariffs, what the dollar is going to do? What treasuries are going to do? There's just a huge amount of volatility.
And the question is whether or not stability between the Canada and United States is sufficient now to allow investment decisions and individual decisions, consumer decisions to take place. So those are all big, moving pieces of a puzzle that would make a budget extremely hard to do at the present time.
PETER HAYNES: Now, critics would argue that there's always been uncertainty in the future when a budget is brought forward by a government. Maybe that Prime Minister Carney is trying to avoid here is any vote of confidence of any sort or running that kind of question to ground right now. Do you buy any of the critics that would suggest that the environment-- yeah, it's up in the air, but it's always up in the air?
FRANK MCKENNA: You can argue either side of this. I do not think for a minute the government's concerned about a confidence motion on this. None of the political parties want an election now. And I think they'd be in a lot of trouble with the electorate if they triggered one. So I don't think that's happening. I don't think that's the reason. I don't think the government just feels like they have all the facts which they need to put a budget together.
And by the way, purists will disagree with me on this as well they should, but I'll just state it. This is an issue more for insiders than it is for the general public. I don't have anybody stop me in the street and say, Frank, I just can't understand why we don't have a budget. Opposition parties, those of us who are political junkies, and the press are interested in the issue.
I think the general public just want good government, quite frankly, and they want prime minister to do what he said he would do. I don't think anybody's lying awake at night saying, look, I can't go to bed because I'm really concerned about the budget not being produced.
PETER HAYNES: That's a very good point. I will definitely concede that you're right. It's a very narrow list of people that actually care about these issues to that level of degree. So President Trump-- as we keep talking about tone, and generally speaking, he too has toned down his rhetoric, notwithstanding what happened with South Africa's president earlier today.
But really, most of the Allies have seen a lowering of the temperature, and that includes Canada. President Trump has started to announce some bilateral trade agreements. And he also seems to have come up with what we'll call a trade truce with China, even if that's just temporary.
Most trade experts, however, will argue that the devils are in the details, and that these simple handshakes that Trump has made with individual countries do not represent the entirety of a trade deal. In your opinion, is the US actually caving in on its trade demands because of market reaction? And on that same note, have you been able to figure out what the Trump endgame was on tariffs?
FRANK MCKENNA: Oh, the United States is absolutely caving in. There's no doubt about that. You would have seen after so-called liberation day the total cratering of treasuries. The end result is that we ended up getting an escalation in 30 years. We ended up this-- well, getting an escalation in the rates for 10%. We ended up getting a dollar, which under every circumstance should be rising as a flight to stability. We saw it crashing.
I think the United States was in great peril, quite frankly, when people around President Trump convinced him that he had to back off. So there's no doubt he's been walking backwards ever since the deal that he made with Britain-- UK that he holds up is a big nothingburger. They have a third of the trade relationship that we do with Canada.
And they actually-- the United States actually enjoyed a trade surplus with the UK. So that just really didn't make much sense to me why the UK ended up agreeing to a 10% tariff when they actually enjoyed a deficit position in the trading relationship.
The China stuff I think was done out of necessity. You will recall that even before the massive rollback by Trump, he rolled back a number of the measures that would affect the price of Apple phones and computer gear, et cetera, et cetera.
So he's been walking backwards pretty vigorously ever since. I hope he continues to do that, because I think if there's one lesson a lot of people would learn out of this is that tariffs are just bad business. And we should be very discriminating when it comes to using tariffs as a weapon.
Where we are in Canada, I think that we still have a lot of uncertainty around tariffs, as does the rest of the world. I think the United States is not through this yet. You saw what Walmart is saying. They've got a massive hit coming from tariffs. And they're not prepared to eat at all, which is what Trump wants them to do. It will be passed on to consumers.
You've got Jamie Dimon out saying that we have not yet seen the full impact of tariffs. And I think that's right. A lot of that hasn't flowed through. A lot of companies were thinking ahead and bought huge amounts of inventory before the tariffs hit. So I think that the full impact hasn't been seen on the US consumer yet.
And on top of that, you've got another mini-crisis swirling. You've got too many crises. One is the kind of budget that the Republicans are going to produce, but secondly-- and the tax package, and then secondly, the credit downgrade of the United States of America by Moody's from AAA. Trump says he doesn't need anything from Canada. Well, one thing he needs right now is our credit rating. And the United States is paying a price for having a lower credit rating. And you saw 30-year spike at 5%, I believe it was.
All of these things I think are affecting the fundamentals in the US economy. And I think President Trump and his advisors are hearing advice from a lot of people. Look, start paying more attention to fundamentals, stop creating wars with the rest of the world, and let's get back to basics here in the United States, because we've got a massive deficit coming at us, and we've got to fix some of our problems at home.
PETER HAYNES: So G7 ministers are meeting today, I believe, in Kananaskis ahead of the G7 leadership meeting, which takes place on June 15. I know some of the talk today was in preparation for those meetings but also on tariffs.
I want to know what your expectations are for the G7 meeting. Carney will be the host. Trump will be invited. Are you expecting Trump to leave a day early? Are you expecting the group to sign some sort of agreement on certain aspects of whether it's trade, or security, or other things? What are your expectations for the G7 summit?
FRANK MCKENNA: Well, they're pretty low. I think the elephant in the room is the United States and Trump's and tariffs. And so they're offside with the rest of the world on that. I think also Ukraine is a big issue where the United States has had ambivalent positioning on that.
So at the end of the day, I think it's in everybody's interest to be there and to play nice together. So I don't think there'll be any dustups or spats. I don't think that'll happen. And I think a press communiqué will be released at the end of it, in which they'll fudge over most of the issues. That's what normally happens at these.
What's more important are the other conversations, the bilateral conversations taking place and the consensus developing amongst coalitions of the willing. I suspect Canada and Europe, for example, will be of a single mind on a number of issues. And so that's a good thing. And I think it's a good thing for the United States to hear from the rest of the world how they feel about Ukraine issue or how they feel about tariffs.
It may not change them overnight. It won't result in a change communiqué, but the socialization of those issues is good. I think it's always good. I think it was Churchill who said I'd rather talk, talk, talk than war, war, war. And so I think it's good when people get together and talk. And to the extent they can resolve issues, that's all bonus.
PETER HAYNES: Speaking of the president, at the time of his reelection, President Trump had some pretty high expectations for his ability to earn a Nobel Prize during his second term by, first of all, ending the Russia-Ukraine war in a day after taking office, and secondly, solving for Middle East peace in the first few days of his second administration. Now, we all know by now that neither of these events has come to pass.
Meanwhile, this past weekend, Israel seemed to up the ante in Gaza by intensifying the war with Hamas amid suggestions by Prime Minister Netanyahu that he wants total victory over Hamas. On the Ukraine front, analysts reporting on Trump's call with Russian President Vladimir Putin on Monday of this week suggest that all it showed was peace was further away than thought previously. Do you have any reason to feel positive about either of these tragic world events?
FRANK MCKENNA: Yeah, there was a running joke when President Trump was elected that he was going to make three calls on the first day. One was to Putin to end the war there. Yeah, there was Netanyahu to end the war there. And the third was to the Nobel Prize committee, asking them when they were going to make him the winner of the prize for peace. And by the way, I give them marks for trying. He deserves accolades for interventions in a number of areas of trying to get people at the table.
The Middle East is a very difficult situation. I think that there are legitimate issues involved in dealing in the relationship between Prime Minister Netanyahu and in the Arab world, but there's also domestic considerations, political considerations for Netanyahu and Israel. And sometimes I think that crowds in on the decision-making, makes it more complex, for sure.
And then in the case of Ukraine, you've got Putin, who is totally committed to what he's doing. As President Clinton told me once, he thinks he's Peter the Great and wants to reassemble the Russian Empire. I think he's committed to that project. And I don't think enough pressure is being put on him by the United States specifically to create the deal tension that would end up resulting in a deal. So both of those disputes are still going on.
Having said that, I think we're closer to the end on both of them than the beginning. And in that, I'm encouraged. There's more and more pressure from all over to try to resolve things in Ukraine. And I think in the Middle East, the Arab states are quite allied with Trump in wanting to calm things down and get a peaceful resolution in Gaza, and as well deal with the situation in Iran, and as well deal with the situation in Syria. So I'd say there's a lot of balls in the air, but the general arc or trajectory is towards some resolution of both of those disputes.
PETER HAYNES: Well, that's moderately positive because I don't think you've been very positive on either of those situations in previous months. So I guess that's-- I'm going to take some encouragement away and come back on this topic again next month.
Finally, before we talk about the Blue Jays, I want to discuss the recent flare-up in Kashmir, where a tourist massacre occurred in an India-controlled area of this contested territory between Pakistan and India. Now, India blamed the attack on Pakistani terrorists and responded with attacks on Pakistani terrorist infrastructure. This prompted a few days of back-and-forth escalation before President Trump got involved and told each country to focus on trade and not war and then announced that the hostilities were settled.
Despite Trump's claim that the US ended the conflict through its mediation, Indian officials later said that the US's role in ending the conflict was minimal, and a greater threat to escalation was any role China might have played if the conflict worsened. What are your thoughts on this region and the geopolitical dynamic between Pakistan and India?
FRANK MCKENNA: It's terrible when there's any loss of lives, but I think it's a bit of a sideshow to the bigger conflicts that are taking place. Certainly, if Indian and Pakistan, two nuclear powers, were to go at each other, it would be catastrophic.
But I don't think that's what's happening here. Terrorists know that they can inflame populations with terrorist acts, which is why they carry out terrorist acts. So the Kashmir has been a sticking point since the separation decades ago, and it flares up every now and then because of people who want it to flare up.
As John F. Kennedy once said, sometimes where there's smoke, there's smoke makers. And in this case, I don't think there's an overall negative relationship between India and Pakistan. I think there's a terrorist community that would like to see that happen.
That's not dissimilar, by the way, to Gaza, where by just about all accounts, the fact that Saudi Arabia and Israel looked to be on the precipice of rapprochement, very positive development that Hamas felt they had to do something to try to sabotage that feeling of goodwill. So similarly here, obviously, this terrorist group felt they wanted to stir things up and try to create tension between these two great powers.
Unfortunately, in Pakistan, there's sometimes a bit of a narrow line between the terrorist community and the military. And so I think the government of India, with some legitimacy, probably felt that this was close to being state sponsored. At any rate, if you've been following this closely, the intervention of the United States, if it was an intervention, certainly didn't provoke the reaction that one would expect.
In Pakistan, people were absolutely jubilant, declared victory, the army and the politicians in India. It was absolute and utter disgust that the United States ended up putting its finger on the scale. They're extremely angry. They felt that Pakistan needed to be punished for that incursion in Kashmir, and that the United States should not be intervening in the dispute, and that it was to the detriment of India. So I'd say the United States isn't going to get a Peace Prize for that particular piece of work.
PETER HAYNES: Frank, I started to listen to David Frum's new podcast series, Canadian conservative who was in, I think, George Bush's administration. And he had a government official from India on his podcast recently talking about the role of the United States in the reduction in the conflict. And I don't know. Do you know David Frum? Have you crossed paths with him much in your lifetime?
FRANK MCKENNA: Yeah, in fact, he'll be my guest this summer at Fox Harbour. I have a lot of respect for David Frum.
PETER HAYNES: Yes. Well, for those listeners out there that also want to hear from him, he just started a podcast series. I think he's done six or seven episodes now. It's a weekly podcast series. I find it quite interesting from mostly geopolitical perspective, so I'm sure your guests will enjoy listening to him talk about many of these issues that he's covering in his new podcast.
All right. Well, here we go, where it's May 21, Wednesday, May 21. And we're only a couple of days away from Memorial Day weekend, which is typically a demarcation point for most baseball analysts and general managers who suggest that what you have on the Memorial Day weekend with your baseball team is all you're going to have. So the Blue Jays sit one game below .500 currently. We're middle of the pack in the American League East, and we're middle of the pack overall. Is this where we belong?
FRANK MCKENNA: I'm just going to steal one minute of your time before then to say there are two other things in the world going on that are positive. One is that in Romania, they've pulled away from an extremist leader and ended up voting for a centrist this week, which is a good thing, and that the UK and the EU went a long way towards putting Humpty Dumpty back together again by creating a very comprehensive deal. So that's on the good news side.
The Jays-- look, I think they're better than-- I think we're better than our record quite frankly. We've had good production from Bichette and Guerrero-- although there should be more power in those numbers-- Springer, Kirk, Varsho. Barger I think has been a pleasant surprise and Clement.
But we've had absolutely horrible results from Jiménez and Santander, just not pulling their weight. And I think that if we could get even a reasonable amount of production out of that end of the batting lineup, that we would have a better record than what we have.
And the pitching has been spotty. We've had some spectacular starting pitching, Bassitt for one recently. But Berríos and Gausman have been a little inconsistent, and Hoffman has gone from brilliant to bad from time to time. So we haven't had as much there as I'd like to see us have in terms of consistency. So I live in hope, Peter. I live in hope. There are times when the team excites me enormously and other times when they drive me crazy. But I do think we can be better than our record right now.
PETER HAYNES: Well, we're not the only one who's struggling in that division. Baltimore fired their manager, and Tampa is having about as bad a season as we've seen out of the Tampa Bay Rays-- always a pest. And even Boston really hasn't done that much. So it's within reach. We just got to get on a bit of a roll here.
I'm not quite as optimistic as you, and I'm normally the optimistic one about whether we are better than we are. Although my son's back for the summer. He was a baseball player. And I have to listen to him about Vladdy and the contract, which he didn't agree with. So it's getting a little tiring. So hopefully, every time Vladdy hits a homer, I remind him, though, like he did recently-- or last night.
Well, I'll look forward to another chat again next month. We will be able to postmortem the G7. I hope it's a limited drama event, as you discussed earlier. And there'll be lots more to talk about, Frank. So thanks again for your time. And we'll talk again in June.
FRANK MCKENNA: OK, thank you.
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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.