Never a Dull Moment in Washington

CHRIS KRUEGER: If the IEEPA tariffs are thrown out by the Supreme Court at the end of the year, that's going to punch a hole of about $200 billion in the US Treasury.
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PETER HAYNES: Welcome to episode 69 of Geopolitics with the Honorable Frank McKenna. My name is Peter Haynes, and I'm the host of this podcast series where we're going to discuss important geopolitical issues that impact investors and traders, and for that matter, interested citizens from around the world. This month, we welcome back our good friend and colleague Chris Krueger, strategist with TD Cowen's Washington Research Group, to help us navigate some of the fast moving developments in Washington, where it seems like there are no days off. Chris, welcome back to the pod.
CHRIS KRUEGER: Great to be with you guys.
PETER HAYNES: Is it true there's no days off down there?
CHRIS KRUEGER: Never.
PETER HAYNES: All right. Well, we're going to get you busy here in just a moment. But Frank, I need to check in. And spoiler alert, I certainly know what you've been up to lately. How are you doing, Frank?
FRANK MCKENNA: Really good.
PETER HAYNES: And you might be better after tonight, depending on how the Jays do in game seven.
FRANK MCKENNA: [LAUGHS] Well, if something doesn't end soon here, I'm going to have a heart attack, so I just want it to be over and get on with my usual daily boring life.
PETER HAYNES: Yep, yep. There's a lot of people that are feeling this has been a great run for the Jays. We'll get to that at the end here. My plan of attack this month is to bounce back and forth between Canada and the US, and also, to spend a little bit of time on the peace deal in the Middle East and follow up plans for an upcoming Trump-Putin summit in Hungary. But first, Frank, I want to start with the topic of Canada-US relations.
Last week, I attended a conference in Washington, and one of the speakers was Republican Representative Bill Huizenga from Michigan. And he had just come from a meeting with the ambassador to Canada, Pete Hoekstra, who I guess he worked for previously. The message that Hoekstra conveyed from the recent White House meeting between Trump and Carney was quite bullish, and that the two countries can arrive at a trade and security deal that works for both parties. I'm curious, Frank, is that the same message that you're hearing from your sources? And where do we go from here on Canada-US relations?
FRANK MCKENNA: Well, actually, we have a trade and security relationship, presently, NORAD, of course, and many other ways in which we're cooperating on the security side, sending most of our oil to the United States, and almost all of our natural resources. And we have CUSMA, which is a binding trade deal that we have. So we have all of that in place. And the president's the one who negotiated CUSMA.
What they're really talking about is passing CUSMA up and taking pieces of it out, making exceptions for them. And we're scrambling to try to find a deal with respect to them. And I would say that the talks are constructive. I spoke with our negotiator even today. And I think it's safe to say that we're constructively engaged. I wouldn't probably use the term bullish, but I'm certainly not pessimistic about where we are.
PETER HAYNES: How do we as Canadians-- I guess I'm going to put my team Canada hat on here for a second. What are we looking for in a deal? Obviously, we know that we already have the best trade deal with the United States when it comes to average tariff rates. How does Carney have to sell this to Canada in terms of what's the best deal for this country?
FRANK MCKENNA: I think the proof of the pudding will be in the eating. We have four or five pain points that need to be worked on that are extraordinarily discombobulating for Canada, and in fact, for the United States. They're well known to Canadians, and I think maybe Americans, as well. Aluminum. Americans are now paying 50% more for their aluminum because it's coming from Canada, and they don't have any other real sources for aluminum, certainly not domestically.
I'm told that it would take about 20 or 30 Hoover dams full of water to try to produce the kind of electricity in the United States that they would need. So bottom line, that's a known net goal. And the United States is looking to us, I believe, to find some relief from that. Steel is a very difficult and painful one for us. Our steel producers are in a lot of trouble, and we're doing a number of things on that front. But we do need to find an accommodation on steel.
Autos. One of the most integrated and effectively operating agreements between three countries in the world, has been totally torn apart, and is creating havoc for the auto producers. And so we're trying to find relief on that, and of course, on softwood lumber, where the price of a house in the United States has increased by as much as $11,000 per house because of the huge tariff that's been put on Canadian lumber. And now, they've extended it to furniture and to other items like kitchen cabinets. That is very personal for our family.
So a lot of pain points. They're grinding their way through them one by one. But the United States is very addicted to tariffs under this president, and they've also got a very narrow bandwidth because they're dealing with so many other parties around the world that are trying to get trade deals. And every one of these has to be signed off personally by the president. So I'd say it's just slow, grinding progress. But progress is being made.
PETER HAYNES: That's good to hear. Just a couple other things that came up during Huizenga's presentation, where there were several Canadians in the audience. A bit of a source of frustration for Canadians that he mentioned, again, the need for our politicians to, quote, "tone down the rhetoric" towards the United States and President Trump. And the other comment that he made was a point around the need for Canada to work on reducing inter-provincial trade barriers, which is a topic that we've discussed on this podcast before.
That got a lot of attention early on in the trade war, but has gone quiet of late. Frank, can you update us on any efforts by the Canadian government led by Carney to reduce interprovincial trade barriers? And do you think that the tone of the rhetoric from Canada still needs to be toned down?
FRANK MCKENNA: Well, I'd say the representative is just tone deaf to say that. The president is talking about the 51st state repeatedly. If we were to use language like that with respect to the United States, they would be horrified. They would be extraordinarily angry about it. The president, I think, has gone further than that. He's made it clear Canada brings nothing to the relationship. There is nothing that we have the United States wants.
That hurts. It's like being in a marriage and telling your partner that your partner's been a worthless contributor to the marriage over 40 or 50 years. That is very painful for us. And then there's just one of the most insulting things imaginable, and that's putting a 35% tariff on us, which is what we have because of the threat of so-called fentanyl from Canada. That's just a barefaced falsehood.
There are 10,000 American troops down in the Caribbean as we speak, blowing up boats, purportedly because they're running drugs. There are zero, not even a Boy Scout on the Canadian-US border with respect to fentanyl, because there is no fentanyl. If anything, it's de minimis. So there is nothing here, and yet we're paying 35% tariffs for this fiction that we're a source of fentanyl.
And the final thing I'd have to say is, Canadian governments don't have much to say about the reaction of Canadians. Canadians are reacting spontaneously. They're angry. They're hurt. They feel betrayed by their best friend, neighbor, partner, and they're taking it out on their consumer choices. So it's pretty hard to turn around as a government and say, you go back to buying all American goods now because the Americans don't like it.
So it's just part of the results of the inflamed rhetoric. Quickly, with respect to interprovincial trade, the government of Canada has done what they said they would do, introduce legislation blasting away any provincial trade barriers as a result of federal statutes. The provinces have made aid numerous side deals between themselves in order to reduce barriers. My view, they haven't gone nearly far enough.
I think that they're giving lip service to it, but not going as far as they could. They're going to need a lot more pressure, and that could be from Canadian voters saying, get out there and do more. It could be from the government of Canada just saying, look.
We transfer tens of billions of dollars every year, and it's going to become quite conditional upon you breaking down interprovincial trade barriers. So we have a long way to go. We don't even share health data across the country on a seamless basis. We still have a long way to go on interprovincial trade barriers, no matter what the rhetoric is from the premiers.
PETER HAYNES: It sounds like we need to keep this as a front burner item and not let it go quiet until we have some progress there. Chris, coming out of the meeting that Prime Minister Carney had with Trump last week, the prime minister signaled that not all of the specifics of trade with the US will be governed going forward by the CUSMA trilateral arrangement that Frank was referring to. Do you think this reveals an expectation that the CUSMA arrangement will be thrown out next year in favor of bilateral arrangements negotiated separately between the three countries?
CHRIS KRUEGER: I think jury's still out. US-Canada trade talks are clearly on two separate paths. The big question will be if they intersect next June, July, when you do have the deadlines for the mandatory six-year review of the USMCA. We were expecting, candidly, on the sidelines of those IMF World Bank meetings last week, the potential for a US-Canada bilateral trade term sheet. There have been seven of them thus far. And I think Frank did a good job of hammering out a lot of the issues that are still to be resolved.
I think in our minds, they're basically three core inputs. The first would be what the new baseline tariff is. As Frank said, it is 35%, the so-called IEEPA tariffs. We had heard those could drop to as low as 10%, which would match the lowest current baseline rate from nations like the United Kingdom and Australia. USMCA compliant goods exemption is critical here.
There's also the 10% IEEPA tariff on energy. That could go to zero. All Canadian tariff retaliation would have to end per the other bilateral frameworks. But that first core input is, I think, not as complicated as the others. So the second one is basically foreign direct investment. This is likely focused on the energy and defense sectors, things like the F-35 purchases, golden dome, potential for Keystone XL pipeline to return, maybe even another pipeline from Alberta to the West Coast.
And then that third core input is the 232 relief that Frank mentioned, probably led by autos, then steel and aluminum, just because those are the ones that have been in place the longest. Autos really, probably, the main issue. Some type of perhaps auto quota framework that the British have.
Unclear if steel, aluminum, copper would go the quota route or at some type of lower cap tariff, and then wrapping all of it with trans shipment rules with probably specific Chinese rules of origin content levels. It does seem like some type of framework is a question of when, not if. But I guess that might be the topic for our next podcast.
PETER HAYNES: Yeah, well, we'll be definitely wanting to break down whatever kind of arrangement beyond the term sheet that you say is coming here at some point. Frank, Meanwhile, back in Canada, conservative opposition leader Pierre Poilievre accused Prime Minister Carney of selling out to the Americans when he suggested that a trade deal that works for Canada would be followed up by up to a $1 trillion investment in the US over the next five years. What is the prime minister referring to with this amount? Does it include normal course private sector investments by Canadian asset owners?
FRANK MCKENNA: Yeah, it includes all of the above. Politics is politics, so everybody is going to take their whack. But we will be able to meet that trillion in investment. I'm involved in some things now that will make a very good down payment on it just in the coming days. So that will be very reachable, I would say, by us, and won't involve the Treasury of Canada opening up its books and writing a check for $1 trillion to the United States.
This is probably one of the easier things. It's a good time to recall that we have the biggest and most complex relationship with the United States. Theoretically, Mexico's a little bit bigger, but they just transship a lot of Asian goods through Mexico into the United States. Our relationship is huge. It's complex. We have the largest number of tourists from Canada, 34% or 35%. We have the largest incoming foreign investment in the world. We just have a relationship of huge magnitude.
So it's not surprising that it will be more difficult to end up creating a framework. The United Kingdom would be a thimble full of trades that they would have compared to Canada-US. So it shouldn't be a surprise that there's so much grinding taking place and trying to get to the final trade agreement between Canada and the United States. But I'm not at all worried about the trillion dollar investment. I think organically, that will take place.
PETER HAYNES: So Frank, when we think about how the prime minister is dealing with constituents across the country, it seems he's done a good job of gaining the support of Alberta Premier Danielle Smith in his efforts to build what is being described as a personal relationship with the president. And additionally, Carney has decided to avoid adding tariffs in response to the US. But if you think about what's happening in Ontario here, where we sit right now and is being hard hit by tariffs, Premier Ford of Ontario has wanted Canada to fight back with countermeasures.
Which approach do you prefer? And to Ford's point, how can Canada provide financial support to hard-hit industries like steel and lumber without revenue from the counter-tariffs?
FRANK MCKENNA: Well, the two of them have different constituencies, which they're appealing to. I think the prime minister is handling it as well as one can be. And one of the arguments for doing Keystone XL, which we've committed to provide fast track support for and even funding, is that hopefully, that takes care of the pipeline issue. That seems to be the litmus test for the Premier's commitment to Canada. So good on us for looking at all of the options there.
With respect to Ontario, it's actually quite useful to have Premier Ford playing really hard nosed in this debate. It provides, I think, some backing for the prime minister. He can always say to the president, look, I've got these guys in Ontario all over me. I need help. But we do have to understand what Ford wants. He's got consequences. Counter-tariffs means you're just gambling with somebody else's money.
And I found that when I was in Washington. We had softwood lumber issues, and the softwood lumber industry wanted us to basically curtail oil so that it would bring the United States to its knees in softwood lumber. And of course, the oil people said, look, why don't you gamble with their money and curtail softwood lumber? Everybody wants to basically use pressure tactics with somebody else's commodity.
But I think this is being played well by the government of Canada, and I think Ontario and Ottawa understand each other extremely well. They're doing a lot of consultation back and forth. And the government of Canada, to get to the heart of your question, is working on other measures to try and support lumber and steel, creating a national housing framework that could increase housing construction from 250,000 homes to 500,000 more modular, et cetera.
If that were to happen, we'll use a lot of that lumber domestically, and the United States will actually be short on lumber. And similarly with steel, government of Canada is working very hard. The minister's already been able to get the surface combatant vessels program in Halifax to switch a large part of their order to Canadian-made steel. And some of the other projects that Canada is working on would use Canadian steel, so there would be an effort there to move some of that steel away from the US market, as well.
There's a lot of efforts. It's very hard to turn the Queen Mary on a dime. The best effort I've ever seen in my life in Canada being made to divert ourselves away from the United States of America and increase our leverage, actually, by creating shortage in a number of commodity groups.
PETER HAYNES: So that's very encouraging to hear, because you've had so much exposure to this for so long. Chris, there are a lot of questions about just how much revenue the US is earning from tariffs. Can you shed some light on the materiality of tariff revenues? And do you fit into that camp of strategists that fear that the drug of tariff revenues will be hard to wean off of by future US administrations?
CHRIS KRUEGER: Look. The tariff revenue is significant. If the IEEPA tariffs are thrown out by the Supreme Court at the end of the year, that's going to be-- that's going to punch a hole of about $200 billion in the US Treasury. That's something that the bond market really enjoys or depends on, given the US's fiscal condition as well as some of the fiscal impacts from the One Big Beautiful act from earlier this summer.
So if the court overturns IEEPA, there are a number of other statutes available. You will have a refunding issue and others. But no, there's really no question that the tariff revenues are significant. And the rating agencies have said as much. That's why the US's credit rating was held where it is. So future administrations, if you want to get rid of the tariffs, you will have to replace them with some type of revenue stream, i.e. a tax. Or there will be real temper tantrums in the bond markets.
PETER HAYNES: I think you would concede that tariffs really are a tax. It's just not the same kind of tax people are used to. And I agree, it will be hard to get rid of. I just have to ask you a selfish question here, because our family owned a kitchen cabinet business, which is now being exposed to up to 50% tariffs under Section 232, which means that kitchen cabinets and furniture have now become a national security threat to the United States.
I do find that comical, but it could mean that even tiddlywinks could be a tariff if the president decreed their national security threat. Is there any limit on that power? I know it seems like it almost has never been challenged. But could anybody ever challenge that and say, look, there's got to be some basis for saying that something is a national security threat?
CHRIS KRUEGER: The IEEPA tariffs are being litigated. Two federal courts have deemed that President Trump overstepped the statute of IEEPA, which is the International Economic Emergency Powers act from the mid '70s. There are dozens of IEEPA instances being utilized, but tariffs have never folded into IEEPA before. The word tariff is not in the IEEPA statute. So we will, the first week of November, hear oral arguments in that case before the nine member court.
That court has said they will make a determination by year end. Section 232 has been litigated. George W. Bush used 232 for steel tariffs in his first term, and then the steel and aluminum tariffs from President Trump's first term were litigated, as well. The Supreme Court upheld Section 232 of the 1962 Trade Act. To your point, though, Frank, steel, aluminum may be not the same as upholstered furniture.
So would someone with legal standing push back on some of these more exotic 232s outside of core national security inputs? Would not surprise me. It may take a little while longer, but the 232 tariffs are not being litigated before the court right now.
PETER HAYNES: If you're in the predictions market right now, Chris, because I'm sure you can make a market on this in one of these new trading platforms, what would the market be on the IEEPA tariffs and the decision by the Supreme Court?
CHRIS KRUEGER: I am not a lawyer. My rigid legal analysis of this is that if you make me, I will say I think the court will probably uphold IEEPA, because ultimately, it's nine people. I think the three liberals will say that President Trump exceeded his authority with IEEPA. I'm pretty confident Justices Thomas, Alito and Gorsuch will say that it's in line with the president's powers as commander in chief.
So ultimately, you're down to Chief Justice Roberts, Justice Amy Coney Barrett, and Justice Kavanaugh. And I tend to think two of the three will side with President Trump. So we'll see. We'll get those first arguments in about two weeks.
PETER HAYNES: Frank, would you have the same conclusion as Chris?
FRANK MCKENNA: My conclusion is that on the law, the IEEPA tariffs are ultra virus. On the practicality of the court and its deep bias towards supporting the president, I suspect that Chris's intuition is right.
PETER HAYNES: All right, well, we're going to stay on top of that topic for the next few months. Both of you have talked about pipelines. They've been back in the news this month. As we discussed last month, the federal government did not include-- the Canadian federal government did not include a pipeline on its initial list of infrastructure projects in the newly created major projects office.
Recently, Premier Smith once again made a plea for a pipeline to Northern BC, to which BC Premier Eby responded in opposition, in part because of the oil tanker ban in Northern BC. Meanwhile, Prime Minister Carney, as you've alluded to earlier, floated a restart of the Keystone Pipeline through the US Midwest, which President Trump might support, given the need to replace heavy oil imports from Venezuela.
I know you said, Frank, that a pipeline last month was not needed until existing pipelines were at capacity. But does any of this recent dialogue that you're hearing, either to the West Coast or down through keystone lead you to believe that a new pipeline or pipelines might be possible?
FRANK MCKENNA: Yeah, I think they might be possible for sure. Pipelines take a long time to build. So just the fact that a new pipeline is not the low hanging fruit compared to the debottlenecking, which can release over a million barrels, doesn't mean that the process shouldn't be started to work on that egress, which would really come online sometime in the early 2030s. So that's legitimate. And so just let's explore that. There are two or three different avenues.
Now, the Venezuela thing you mentioned is kind of interesting. Chris could correct me, but the government of the United States looks to me like they're blowing up boats all around Venezuela, allegedly having gunrunners on board. But they reversed the decision to prevent Chevron from running its refinery in Venezuela. So it just goes back to that adage that money talks. But generally speaking, Venezuela's not been a big supplier of heavy oil, even though they do have heavy oil fields.
So bottom line is we've got two points of egress. We could try to go to the Pacific Ocean. And the problem with that is, of course, the tanker ban and British Columbia's antipathy towards oil pipelines, even though they're very, very strongly supportive of gas, LNG and pipelines. Or we could go to the US. Keystone XL is probably easier. Government of Canada is putting that in the window. It was supported before under Trudeau. It's being supported under Carney.
I believe that we have been asked and are probably sympathetic to doing some concessionary financing there. That would be easy, I think, easier to do. The only problem is we're just doubling down on the United States then. And right now, the differential is narrowed enormously as a result of the fact that we're now moving cargo offshore into world markets. And if we double down on the United States, there's a chance that we could end up widening that differential, which is very costly for Canada. 70 billion over the last 10 years.
So we have to be vigilant about that issue. And also, the United States has proven to be an unreliable trading partner, quite frankly, with NAFTA, and now with CUSMA. And in part, they use the argument that we have an imbalance of trade. So if we send another million barrels of oil a day, we're going to imbalance that trade even more. So we got to figure out how to do that, and we've got to figure out how we can do a deal with the United States, which is actually binding. Otherwise, we've got a bigger problem.
And the only other thing I would mention is that pipelines, while they are attractive, they do require, first of all, producers to want to commit to the tolling revenue. They require carriers. They require financing and an approval process. And all of that is not real simple.
PETER HAYNES: Frank, I don't want to downplay environmental issues whatsoever, but I keep hearing the question of who owns the coast of Canada. Because it does feel like BC is owning its own coast, but it's the coast of our country. So I'm curious, Frank, why does the tanker ban in Northern BC not include LNG? Because you're saying that BC likes gas or jet fuel. Why is it specific to oil? I'm just curious. Is it that much of a concern with respect to the difference in potential environmental issues?
FRANK MCKENNA: Well, I'm a big fan of pipelines and egress to maximize economic rents, but I'll at least express the argument. It's not all that different from Quebec basically saying you can't transit through Quebec, even though they probably don't have a legal right to do it. DC is reflecting the political reality of that province. So the view in British Columbia is that a spill from an oil carrier would be dramatically worse than one involving gas. And I guess there's some science to back that up.
And there's some history to back it up, and I'm thinking of the Exxon Valdez and the extraordinary damage that did on the Alaskan Coast. So I think those wounds, even though it seems distant, are still quite ripe. And the government of BC is making the argument, look. We have agreed to become a conduit for Canadian natural gas, which is improving gas netbacks. And we've got one large LNG terminal built. We got four or five in various stages of progress. All of that's enormously beneficial to the country.
But we have a social contract with First Nations and others, particularly along the Coast of BC, that we will do that, but not add more oil as a potential menace to the coast. So you would have to unwind that so-called social contract, and you certainly would have to do a lot of homework to get social consent to go through BC. Doesn't mean that the government of Canada couldn't push the issue, as they did with Trans Mountain, simply to say that it's not simple.
And it's a lot easier for premier Smith to say that I want a new pipeline than it is for Premier Eby to approve that new pipeline. He's got all the negative politics. She's not only got all the positive politics, but she gets all the revenue from it. So you can see there's a bit of an imbalance in terms of the relationship, but it may be resolved through other means, enough debottlenecking, Keystone XL.
It may be that Churchill represents a solution to this dilemma. But I think we all agree increasingly in Canada, with increasing amounts of enthusiasm, that we need to be able to get all of our commodities to alternative markets if we're going to have maximum leverage with the United States and obtain maximum advantage for Canadians.
PETER HAYNES: And I repeat, how happy I am to hear you say that it's the most aligned you've seen our country in however long in terms of meeting that goal of diversification of trade. So Chris, I'm going to volley it back to you here and talk about where you sit every day, which is Washington, where there is yet another major government work stoppage. Our listeners to this podcast would probably be 80% Canadian.
So this "made in the US" unique process for funding the government is not something we're very clear on. Can you let us know and explain to us why there's a work stoppage? And how long do you expect this current strike to last?
CHRIS KRUEGER: As we record this on October 20th, the United States government has been closed since October 1. October 1 is the new fiscal year for the US government. The Congress is supposed to pass 12 appropriation Bills that fund the various departments of the government. The Pentagon, Health and Human Services, Education Department, et cetera. None of those bills have passed. They're all subject to a 60-vote threshold in the Senate.
The Senate is 53, 47 Republican controlled. The House is Republican controlled, as well, but that's just a simple majority vote. So by definition, this has to be a bipartisan process. The main policy not to cut or to untie is the Obamacare or the Affordable Care Act exchanges. These are basically portals that Americans can go into to purchase their health insurance.
About 24 million Americans get their health insurance through these Obamacare state exchanges. And a subsidy that was expanded during the pandemic expires at the end of the year. About 22 million of the 24 million use that enhanced subsidy. That subsidy expires on November 1st. So that's been the big policy issue with a number of, or most Republicans wanting to reform or reduce that subsidy payment.
So we're basically in a staring match here. When open enrollment begins for Obamacare on November 1, that's going to be a big pressure point. And then I know you all recently had Thanksgiving, but our Thanksgiving is late November, typically the busiest travel of the year. Of the 750,000 federal employees who are working without pay right now, that includes the air traffic controllers. That includes TSA agents.
So once paychecks start to be delayed-- none of these workers are being paid right now-- that typically is where things come to a head. So any time from now to mid-November, we think this will come to a head and reopen.
PETER HAYNES: So because of the 60-vote threshold in the Senate you referred to, both sides can blame each other. The Democrats can blame the Republicans for bringing a bill forward they don't like, and the Republicans can blame the Democrats for shutting down the government because they didn't support their bill. Who's winning in the court of public opinion right now?
CHRIS KRUEGER: They both think they are, which is all that matters. There's a limited bandwidth here for-- both parties listen to their own echo chambers. The administration has creatively figured out ways to delay some of the pain, as well, whether it's military troops being paid, whether it's the inflation report coming out on Friday. Certain nutrition programs for women, and infants and children are being re-upped. So we haven't yet really, as a country, really kind of across the board felt a lot of dislocation or pain yet from the shutdown.
PETER HAYNES: So I'm glad you brought up military, because I know that Trump is finding ways to pay the military, which is highly unlikely to be questioned, just because it's the military. But he's also talking about finding ways to pay people like ICE and others, where there may not be as much support across the country, given some of the recent actions and profile around ICE. President Trump has also suggested that maybe he can somehow use the tariff revenue that he's earning.
But at the end of the day, Congress hasn't approved that spending, that supply of money. So do you expect there will be some litigation here as Trump is essentially paying government workers, even though Congress has not supplied the money to do so?
CHRIS KRUEGER: Yes, but the administration moves a lot faster than the courts. And we've seen that throughout the year. And to your point, who is going to say that the troops shouldn't be paid right now? There will be resolution before this ends up before the Supreme Court, just because the legal process in the US takes time.
PETER HAYNES: OK, Frank, volley back into Canada here, specifically, Ontario. Carmaker Stellantis announced it was moving the planned Jeep production from its plant in Brampton to the US, I think, a couple of weeks ago, as part of a $13 billion investment into the US by the company. This move will cost Canada up to 3,000 jobs, although some of the workers in Brampton may shift to Stellantis' Windsor plant about four hours away. The move was swiftly denounced by auto union leaders, as well as various politicians in Canada.
Prime Minister Carney tried to put a positive spin on the decision, suggesting that the company plans to continue with its refurbishing of the Brampton location in anticipation for another rollout down the road. Regardless, this move is clearly in response to President Trump's demands that global companies operating in the US invest primarily in the US.
Are you surprised, Frank, by how quickly some of these large manufacturers have heeded the president's wishes, especially given that it takes so much longer in the lifespan of large manufacturing operations that that lifespan is much longer than the current administration? And what would you suggest that Canada should do to protect the country from future similar job losses?
FRANK MCKENNA: Well, we thought we were protected, of course. We've had a long standing trade relationship, signed, sealed, delivered. And we've had the entire auto industry spend tens of billions of dollars, probably overall, hundreds of billions of dollars on the basis of that legally binding agreement. Now, of course, it's all being torn up. So what we have here is an issue with a lot of pain points. For Stellantis and the community in Brampton, it is. And we don't know where the pain will all end up.
Our Minister of Industry, Mélanie Joly, has threatened to sue Stellantis with respect to financial commitments that they've made or money received. And I can assure you, if they go ahead and do this without mitigation, they will be sued, and they'll be paying a pretty penny for that. Carney, on the other hand, is being good cop here, saying that he's talked to the CEO of Stellantis, and they have other ideas afoot.
And then we have to have a wee bit of sympathy for the auto companies. They've lost over $10 billion since Trump started this tariff war, and counting. So the dilemma is, how do they react? And I don't think they know how to react. In some cases, they're talking quickly, but probably slow-walking the actual implementation. And I know what Trump wants. He wants his cars in the US to be made in the USA.
But here's the rub. He's not alone on this continent. There are three countries on this continent. We have 42 million people, very affluent people. We buy 2 million cars a year. We're going to insist that some of those vehicles have made in Canada stickers on them. Mexico has about 140 or 150 million people. They're very consumptive, as well, and they are going to say similarly, if you want to sell autos in Mexico, we want some of the jobs here in Mexico.
So the auto industry is trying to figure that out. There's a lot of pain points now in Detroit, and a very strong lobby on the government of the United States for some relaxation of these rules, to try to figure it out. And it may be just pragmatism. The president wants the final car made in the United States. It may be that 10% of the final car, the final 10% is made in the United States, and 90% of the inputs come from elsewhere.
Maybe he'll be satisfied. Maybe that will give him the bragging rights that he seems to want to get. But it's complicated, and everybody's trying to find a way through this. It's very, very difficult. And by the way, the unions on this-- Canadian unions are angry and they want stuff to be done. But this just gives you a little idea of how complex this is. The American auto workers unions, the same people, unions in the United States are saying, no, we want those jobs. We don't care if we take them away from Canadian unions.
So if it was easy to solve, the unions would be able to resolve it between themselves. So similarly, the two countries are having trouble resolving this as a result of the president's decision to tear apart an auto pact, which has been working extraordinarily efficiently for the benefit of all three countries. And by the way, the real enemy here is not Canada or Mexico. It's foreign-made vehicles from all over the world. We seem to have lost sight of that.
PETER HAYNES: Well, you've done a good job there of explaining how complex this process is. And hopefully, as you say, pragmatism will win out in the end. Chris, we're nearly one year through Trump 2.0. And attention will soon lead to next year's midterm elections in the House and the Senate. With the nonstop news cycle in Washington this past few months, one topic that has not, I don't think, garnered a lot of attention, which may impact control of the House in 2026, is Republican efforts to gerrymander state electoral maps to bunch together democratically controlled districts.
To date, Republican governors in Texas and Missouri have signed new maps in these two states, and several others are considering following suit, including North Carolina, Florida, and Ohio, to name a few. Meanwhile, Governor Newsom in California is trying to reverse legislation, taking away his own power to redraw the electoral map in his state, in order to try to balance the impact of Texas redrawing and some of these other states. How is this gerrymandering expected to impact the midterms? Will it legitimately tilt the balance of power to the hands of the Republicans?
CHRIS KRUEGER: The reason redistricting is so important for the upcoming midterms is because of the margins. Typically, redistricting is done after the census is taken every 10 years. Every state gets one representative, and then it's based on population. And so this is something that happens every 10 years. Now, the off-cycle redistricting is rare, but Republicans are going to have a four-seat majority in the House if it's at full capacity, 435.
If you're talking about maybe swinging 10 seats, that could really matter for majority. I would flag-- you had mentioned-- so California voters this November will decide whether or not they want to redraw, which could balance out the Texas seats. The other thing to watch, though, is back at the Supreme Court. Every state redraws a little bit differently, but the redistricting process is governed by two of the landmark pieces of legislation from the 1960s, the Civil Rights Acts.
One of these is being challenged. It's a Louisiana case that deals with the Voting Rights Act, and that the majority-minority-- the idea of majority-minority districts is unconstitutional, violating the Due Process Clause. Now, if the Supreme Court-- it probably won't be decided in time for these midterms, but if the Supreme Court throws out the Voting Rights Act, that could have real implications for redrawing lines that would really give Republicans a huge advantage with a number of the seats in the South currently held by members of the Congressional Black Caucus. So that's maybe just another thing on the redistricting front to keep an eye on.
PETER HAYNES: But not likely to be in place addressed by the time we are locked in for the midterms?
CHRIS KRUEGER: They heard arguments last week. There's a world in which that decision could come out by year end, maybe. I don't want to give people more things to track, but there really is. There's an awful lot going on.
PETER HAYNES: So just switching over to the upper chamber, Republicans need to defend more seats coming up here in November, 2026. What are your early indications on the race for control of the Senate?
CHRIS KRUEGER: Yeah, look. The Senate's a little bit boring this year. I tend to think that Republicans will hold the Senate, just because it comes down to math and geography. It's a 53-47 Senate with Vice President Vance breaking the tie. So Democrats have to net four Senate seats, which means they have to hold serve everywhere, including places like Georgia and Michigan where President Trump won.
So even if they hold all the seats they're defending, they then have to net four seats. So maybe Maine, maybe North Carolina. But then you're talking states like Texas and states like Iowa, states where President Trump has won pretty comfortably three times in a row.
So let's see when you, Frank and I are chatting in the spring. If Texas and Iowa are competitive, then, obviously, the forecast would change. But right now, just looking at the math and the geography, it's an uphill climb for Democrats in the Senate.
PETER HAYNES: OK, yeah. We'll have you back for sure because we're going to want to follow those races closely. As Frank likes to say, the United States is constantly in election mode, and it doesn't take long. We feel like we just came out of an election. And here we are talking about the midterms. Frank, I want to move on to global issues as we finish up. You'll obviously speak your mind with respect to President Trump, but one thing that you've been very complimentary of his efforts at trying to gain peace in various regions of the world.
And of course, he would like to have a Nobel Prize if he is given that award. He's done lots of work in the Middle East. I'm curious from your perspective, Frank, will that Middle East peace deal that he's negotiated be enough for him to get a Nobel Prize, or do you think that he needs to solve the Ukraine war before he'll win the award?
FRANK MCKENNA: Well, so to start with, there are a couple of reasons, a contributing factor in getting the Middle East. The United States has provided weapons and financing for Israel, so they've always had the ability to influence the final result. They just had to make that decision. And Israel made a terrible mistake in bombing Qatar, riled up all of the Arab states, which in turn caused the United States, I think, to really come down hard on Israel.
But President Trump deserves credit for taking advantage of the pressure points that he had. And I think he deserves credit for the Middle East, if it is sustainable. I think a couple of negatives that he's got, of course, is at the same time, he's blowing up people on boats without trial, judge, or jury. He's got armed troops in cities all across the United States. And these are factors which can't help but weigh the decisions of a Nobel committee.
Having said that, he does deserve credit for what he's done in the world. Absolutely no doubt about that. I think the Ukraine will be the litmus test. I think it's possible that he can get to a deal there. I think there's got to be more deal tension, and that means probably arming Ukraine in a way that they can really take the fight to Russia.
If that were to happen, I think you'll see the kind of deal tension that would end up getting to a deal. So President Trump, good on him. If he can get that done, he deserves all the medals he can get.
PETER HAYNES: So Chris, Frank was talking about tension, deal tension necessary in the Ukraine. And it's been interesting to follow Trump's changing moods towards the Russia-Ukraine War. It's been really hard to follow and predict, and that does feel like it remains the case after last Friday's lunch at the White House, which was described by onlookers as, quote unquote, tense.
What is your sense following this meeting in terms of the Ukraine-Russia war situation and the position of President Trump? And what do you make of the recent call with President Putin, and then Putin's outreach for a followup summit that will happen with Trump?
CHRIS KRUEGER: Yeah, look. I think the primary question is, can Ukraine's army outlast Russia's economy right now? Putin keeps asking for Donetsk, which would be past the current Ukraine defense lines and potentially give Russia, a launching pad for perhaps the next phase of this, should a ceasefire break down. So we'll see if President-- so President Trump heads to East Asia at the end of this week, Malaysia, Japan, South Korea, where he will meet with Xi at the APEC Summit.
There's talk of perhaps flying back via Budapest to meet with Putin. But I think it's still very unclear. But Putin definitely keeps asking for Donetsk, which is just a total red line for Zelenskyy and most of the NATO members.
PETER HAYNES: The good news is they're talking. And credit to President Trump for continuing to keep that dialogue open. Well, Frank, as we finish up, I know it's been a fun couple of weeks of baseball with the Blue Jays. What are your thoughts as we head in towards game seven, which will be happening tonight?
FRANK MCKENNA: I don't know what's going to happen in the final game. I was at the game last night. It was just a textbook game of playing on both sides of the plate. I thought defense was spectacular. I just loved the Jays this year.
And I guess what I really want to say to everybody, I've been wrong in some of my criticisms of both management and some of the players on the Jays. Whatever happens, win or lose this final game, and win or lose the World Series, we've had a hell of a year. And it's been thoroughly enjoyable, I think, to entertain this city and this country. And I'm very grateful for the experience.
PETER HAYNES: Well, Frank, at the same conference I was at last week, there was a gentleman who was speaking on the stage from Florida, and he told all the Canadians in the audience that, well, we've got your Stanley Cup, and we're not giving it back. And I felt like saying to him, we're going to take your World Series, pal, and we're not going to give it back. Here's hoping that we can continue to have meaningful October baseball in the years to come for the Blue Jays. So thank you to both you and Chris for joining us here today.
CHRIS KRUEGER: Great being with you both.
FRANK MCKENNA: Well, thank you, Peter. Thank you, Chris.
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