THE WEST BLOCK
Episode 26, Season 12
Sunday, March 19, 2023
Host: Mercedes Stephenson
Kirsten Hillman, Canadian Ambassador to the United States
Kevin Page, Former Parliamentary Budget Officer and Institute of Fiscal Studies and Democracy
Lisa Raitt, Global Investment Banking, CIBC and Former Conservative Cabinet Minister
Mercedes Stephenson: Just how strong is Canada’s relationship with the United States? This week, we’ll have a firsthand look.
I’m Mercedes Stephenson. Welcome to The West Block.
U.S. President Joe Biden heads to Ottawa for an official visit. What’s on the agenda for the White House and can the Prime Minister deliver? A candid conversation with Canada’s ambassador to the United States.
And can the U.S. avert another banking crisis? Should Canadians be concerned?
U.S. President Joe Biden begins an official visit to Canada this week. The President and First Lady Jill Biden arrive in Ottawa on Thursday. On Friday, he’ll be the first president since Barack Obama, to address Parliament.
The relationship between presidents and Canadian prime ministers is always much scrutinized, especially it seems on this side of the border how much face time you get with the U.S. leader actually matters.
President Biden and Prime Minister Trudeau have met many times before but there is an urgency to this meeting. With increasing military demands, tensions with China and Russia on the rise, and with our two economies so closely linked, there’s a lot at stake.
To talk about this visit and Canada’s priorities, I’m joined by Canadian ambassador to the United States, Kirsten Hillman. Thank you so much for joining us today, it’s so nice to see you here in Ottawa.
Kirsten Hillman, Canadian Ambassador to the United States: It’s great to be here, Mercedes, so thanks so much for having me.
Mercedes Stephenson: Canada and the United States have the closest relationship for Canada’s perspective that matters and certainly the Biden presidency has been more predictable than the Trump presidency, but it also hasn’t always been great for Canada, from deciding not to build the Keystone XL pipeline but approving one from Alaska, to some of the buy American provisions that we’ve seen passed, to the pressure for more defence spending and it seems like sometimes an unwillingness to act on illegal border crossings. What are the goals and the strategy for Canada heading into this meeting?
Kirsten Hillman, Canadian Ambassador to the United States: Thanks for that. You know, I think that having been in Washington under the previous administration and now in Washington under this administration, I would have to say that the relationship—this is to your first point—is actually very, very strong in a relationship of this magnitude, right? Two billion dollars a day—over $2 billion a day in trade, a 6 thousand kilometre border. It’s inevitable that we’re going to have things that are challenging between us. But the vast, vast majority of what we do together is deeply aligned, especially between the Trudeau government and the Biden administration. They have a deep policy alignment. So, I guess at the highest level what this trip will be about and what I certainly hope we come away with is very clear discussions and concrete plans about how to make each other stronger. About how both of our countries in this time, which you said in your intro, you know very challenging. What we do together to make both of our domestic economies and societies stronger and safer, and more secure and better, but what we also do together on the international stage.
Mercedes Stephenson: One of the big concerns for a lot of folks is the Roxham Road crossing in Quebec, in this illegal border crossing that people have been walking across. I looked up the numbers just before we did this interview: 40 thousand people came from the U.S. into Canada across those irregular border crossings. The Canadian government is aware that this is a problem, but they would need the U.S. onboard to change the Safe Third Country Agreement that regulates this. Is your sense from being in Washington that that’s something that President Biden will be open to?
Kirsten Hillman, Canadian Ambassador to the United States: So I think the first thing to say is that migration in our hemisphere is a huge priority for the Biden administration but for our hemisphere. I mean it’s—it is a tragic situation that is happening south of the American border. They had 2 million irregular migrants hit their southern border last year. These are people that are fleeing desperate and very, very difficult circumstances. So it is clear that our leaders will talk about hemispheric migration. They will talk about the root causes of the migration. They will talk about these people that are in danger and whose lives are at risk and then they will talk about the implications of that for our borders, for the U.S. southern border, and of course, for the Canada-U.S. border and the Roxham Road situation, as well as other crossings where people come. So, it will be definitely part of the discussion between the Prime Minister and the President.
Mercedes Stephenson: Speaking of our hemisphere, the U.S. has made it very clear they would like Canada to lead a mission to try to help stabilize Haiti. Our Chief of the Defence Staff General Wayne Eyre has said that that would be very difficult in an interview given the challenges that we are facing in terms of staffing. But we’re hearing the Americans say out of the White House that Canada’s signalling interest in this. Is that accurate? Are we signalling interest in leading this Haiti mission, and as your understanding as ambassador that we have capacity to do so?
Kirsten Hillman, Canadian Ambassador to the United States: So we talk with the Americans about the situation in Haiti, if not every day, several times a week. And not just the Americans, you know, our partners in the hemisphere and other international organizations and actors that are deeply concerned and mobilized to try and help the people of Haiti. And I think that the important thing to say here is that there are many different actions that we are taking in conjunction with the U.S. and others. So we are looking at what are all the things that we can do. We’ve—Canada’s been very aggressive in imposing sanctions on those that are funding the gang activity. We have brought a lot of humanitarian aid. The U.S. is doing so now. And we talk to the Haitians people about what they think are the solutions that are going to work for them. And so at this point what we’re focusing on is, and this is because of what the Haitians are telling us, is that what they really need is for their police services to be properly trained to deal with the security situation. That’s where we’re focusing. That’s what we’re talking to the U.S. about and other partners in the region who would help us in that.
Mercedes Stephenson: So maybe the RCMP is a possibility there?
Kirsten Hillman, Canadian Ambassador to the United States: It might be. I—you know—I’m Canada’s ambassador to the United States. I can’t speak to the
Mercedes Stephenson: You don’t get to…
Kirsten Hillman, Canadian Ambassador to the United States: …RCMPs capacity or goodness gracious certainly not the military’s capacity or other people who are the experts in that. But what I can say is that we are very—we have—we talked to the Americans all the time about—like as I said, several times a week about what is happening in Haiti. What we’re seeing on the ground. What we’re hearing from the people on the ground. What they think is working. Where they think they need additional support so that we take the steps that make a difference in that country and that we don’t try to, you know, impose on them something that they’re saying this isn’t something that is going to be manageable for us to—to deal with.
Mercedes Stephenson: There’s a concern about how the U.S. perceives Canada when it comes to defence spending and the Armed Forces, and we’ve heard it from, as we’ve just said, our own top general. But there are some very serious issues and concerns there. We saw the Chinese spy balloons. We’ve heard concerns about the Arctic. We’re hearing concerns about our ability to deploy and lead missions around the world. When I talked to a lot of American sources, they tell me they’re not very happy with Canada’s defence spending. Are you concerned about that? And how much pressure do you get from the American side about how much money we’re putting into defence and security?
Kirsten Hillman, Canadian Ambassador to the United States: So I would say that I have a different impression than maybe what you’re hearing. I—as I say—I’ve been in D.C. since the last administration and into this one, and there is no doubt that the U.S. will always be looking to Canada and other allies to do as much as they can. And that they are, you know, wanting to make sure that we contribute in a way that is as effective as possible. But I do—I have noticed that as we have made our announcements with respect to the investments in NORAD modernization, the purchase of the F-35s. The fact that we are now under a, you know, starting—or in the middle of another defence policy review and seeking their, you know, seeking to consult with them and talk to them about that review. I—it’s changed the tone from where I sit in Washington to a pretty important degree. I think Minister Anand has a very good relationship with Secretary Austin, a very open relationship. So I find that there is a real sense of collaboration. Do they want us to do more? Always. Always. But not just us, right? But they also really respect that we are going to make the choices that make sense for us. I think that the Arctic is a really important contribution that we can make to the continental defence, you know, that other partners are less able to make. So I think focusing in on that as we’re doing makes a lot of sense and is deeply appreciated by the Americans.
Mercedes Stephenson: Right, and mostly ours and obviously a lot of concern about who’s up there after we saw the balloons and stories . We just have time for one last question, but I want to talk about the economy to you because you mentioned $2 billion trade. I mean this is a huge, huge connection for Canada and the Biden administration, while they’re very friendly and public with Canada and in private, they’re making choices that are best for the U.S. and some of that has included things like the Inflation Reduction Act and incentives on electric vehicles an all kinds of green technology that really deprioritizes Canadian companies and they’re saying we just can’t compete. At the same time, we see the Prime Minister out doing tours of electric battery facilities saying we’re going to become a global leader. Is your sense that there are inroads that can be made to reassure Canadian businesses of their access or to get some kind of an exemption from the America only stuff for Canada?
Kirsten Hillman, Canadian Ambassador to the United States: Right. So the Inflation Reduction Act is a huge spending bill designed to incentivize, as you say, electrification, electric vehicles, battery production. They also have a bill on critical mineral exploitation that will incentivize that. And many of those features of those pieces of legislation actually recognized the Canada-U.S. partnership. So, in relationship to the IRA, the Inflation Reduction Act, the North American auto ecosystem is specifically carved into that bill, so Canadian batteries that are produced in Canada are eligible for the incentives under that bill. Canadian critical minerals, batteries produced with Canadian critical minerals are eligible for the tax incentives under that bill. Vehicles that are manufactured in Canada are eligible for American tax credits under that bill. So that is a massive competitive advantage for us, frankly. And I think it’s a recognition of sort of the Canada-U.S.-Mexico auto ecosystem that’s been so effective for our three countries as it projects itself into the future, right, with the electrification of vehicles. And it’s going to be a North American electrification priority. There are other areas where they are also seeking to attract investment, but as are we and we have been for a long time. We’ve been actually operating in this space of incentivizing these transitions in Canada through different government policies for six or seven years. So at some—in some level, the U.S. is just entering this field. We will compete. We will compete well. I see it in the U.S., our value proposition is strong. People, resources, experience, policies, policy stability, all of these things really matter and some of these announcements, you know, the Volkswagen announcement would show. So is there competition? Yes, but it’s kind of competition, I think, that’s going to make us both better. It’s going to incentivize maybe as much production as fast as possible, because for all these technologies, demand is going to outstrip supply for a long time to come. So, I think one of our big messages to the Americans next week is going to be this is good, but let’s make sure we’re doing it in a way that moves us both forward as much as possible, as fast as possible and is in an effort of sort of a zero sum game where we try and outcompete each other.
Mercedes Stephenson: Ambassador Hillman, thank you so much for being here and of course, we’ll see you in just a few days at your first visit.
Kirsten Hillman, Canadian Ambassador to the United States: We’ll see you in a few days. Thanks.
Mercedes Stephenson: Thanks so much.
Up next, are we headed for another financial crisis after a turbulent week in global banking?
Mercedes Stephenson: You’re not alone if you’ve had flashbacks to the 2008 financial crisis last week, after it looked like the collapse of Silicon Valley Bank was spreading, until Washington stepped in.
Janet Yellen, U.S. Treasury Secretary: “I wanted to make sure that the problems at Silicon Valley Bank and Signature Bank didn’t undermine confidence in the soundness of banks around the country.”
Mercedes Stephenson: The banking turmoil only adds to the economic uncertainty caused by inflation, rising food and gas prices, and high rates of interest. It’s against this backdrop that Finance Minister Chrystia Freeland is set to introduce her federal budget on March 28th.
Here now to discuss this is Kevin Page, former parliamentary budget officer and head of the Institute for Fiscal Studies and Democracy; and Lisa Raitt, former Conservative cabinet minister and vice-chair of Global Investment Banking at CIBC.
I have had so many questions on this that I’m curious to put to both of you. Canadians were really concerned. People remember when big American financial institutions went down before. They’re curious. Could this spread to Canadian banks? Let’s start with you, Kevin.
Kevin Page, Former Parliamentary Budget Officer and Institute of Fiscal Studies and Democracy: Yes, I think it’s right for people to be concerned. I think it’s—some people—some person described it as a slow moving crisis and so we definitely—it’s not just one bank, it’s more than. It’s a few banks in the United States. It’s a relatively large bank in Europe. So I think when, you know, as people that use banks that put their money there, you know they make investments through banks, it is nervous. Like there’s no science right now that there’s any real financial stress that—in the Canadian banking system, but I think this is a global issue and one way or another, I think we will, you know, we’ll feel it.
Mercedes Stephenson: Lisa, what’s your sense of the broader economic situation we’re in because I know that Canadian banks are regulated differently than American banks, but obviously, what happens in the United States still has an effect here and there’s a lot of financial stressors for people right now.
Lisa Raitt, Global Investment Banking, CIBC and Former Conservative Cabinet Minister: Yeah, for sure Canadian banks have a different regulatory regime. But more importantly, the big banks are really diverse in their holdings. So the kind of thing that happened at Silicon Valley Bank was that you had a very strong concentration of a certain type of investment or investor in the bank. So when there were difficulties in the tech sector, for example, that was felt, obviously, very much.
In the case of Canadian banks, there’s great diversification in terms of investments and in terms of what deposits are. So I would say that the Canadian bank holder can be very confident and it can be very calm in terms of how our banks are going to go. But I will tell you that one thing that surprised me the most about what went down with respect to Silicon Valley Bank, is how quick it happened. I mean people were emailing each other. There were tweets that were flying all around. People were on TikTok, talking about what was happening and that literally caused a run on the bank. And social media as a means to communicate in a very quick manner, definitely had an impact here, whereas, you know, in the past a bank run could possibly take a number of hours, couple of days, maybe some weeks. In this case, it was almost instantaneous. That is something that we have to watch in terms of regulation and in terms of what happens in our banking sector.
Mercedes Stephenson: That’s a really interesting point, Lisa and it feels like everything has just been on hyper cycle, almost nowadays for news, for the economy, for everything. And a lot of folks are really feeling that pressure, Kevin. You know, you’ve got increasing food prices, increasing gas prices. A lot of folks, who are on a variable mortgage instead of a fixed mortgage, could be paying hundreds more a month that they just don’t have the money for. Do you think there’s a possibility that we are heading towards significant mortgage defaults or a recession in Canada?
Kevin Page, Former Parliamentary Budget Officer and Institute of Fiscal Studies and Democracy: Yeah. I think we are headed for a significant economic slowdown. I think it remains to be seen whether it will be a soft landing, something that, you know, that looks growth is relatively flat. Some upward tick in the unemployment rate or something that’s a hard landing that we experienced in, say, 2008-09. So, I think that’s an open question and I think there’s no data right now if you were look at either credit or mortgage, you know, credit delinquencies or mortgages in arrears. That data looks fine right now. The labour market looks strong, but I think there’s just a sense that we’re getting close to this precipice, where something’s going to break.
Mercedes Stephenson: Yeah, I think that’s that sensitivity, especially after COVID, of like when is the next thing going to happen? Where is the next cliff? Lisa, the government is obviously going to try to find ways to make this better. That’s what governments do. I know you’re Conservative. They’re Liberal. Different perspectives on how to do that. But you’ve been in the budget planning process, in terms of meetings—you know what happens in cabinet. What will the government be looking at as they consider what needs to be in this budget?
Lisa Raitt, Global Investment Banking, CIBC and Former Conservative Cabinet Minister: Well, first and foremost, any government looking at a budget is also considering it in the greater context of when is the next election? And what do they need to do to ensure that they still have the support of the voters? And I know it seems crass, Mercedes, but it is a relevant calculation that happens during budget time. Is this something that our base will like? Is this something that Canadians will like? There’s no question Canadians are hurting. They’re very concerned about what’s happening in the cost of everyday things, and certainly they’re concerned about their mortgages. So there may be some relief, but I don’t know what the government is going to do. The difficulty with sending more cheques out and increasing the amount of money in people’s pockets, of course, is that they’re able to spend more. They’re able to buy more. And that actually does add to the possibility of inflation sticking around for a while.
In the United States, despite what’s going on, the big debate is happening whether or not they’re going to increase interest rates again because their inflation is too high and they think high inflation in the long term is a bad thing. Equally, the government putting more money into the system, could be seen as a negative thing with respect to inflation and it’s not going to solve the long term issue that we have with respect to the economy being still very hot.
Mercedes Stephenson: Kevin, you, for many years, gave us the real cost of things. That’s why we have the parliamentary budget officer versus what governments tell us they’re going to cost. What are your concerns about the budget coming up and what would you like to see the government do or what advice would you give them?
Kevin Page, Former Parliamentary Budget Officer and Institute of Fiscal Studies and Democracy: Yeah, I think—I mean great advice from Lisa that like inflation remains the number one sort of macro-economic issue. It’s—it creates a lot of instability like overall and I think—so I think it’s important that the budget—like our fiscal policy be consistent with monetary policy that they work—they’re coherent. They’re working together to reduce the rate of inflation, setting a lower inflation expectations. Like I think—like, you know, in addition to that, I think that basically means the government’s got to hold its deficit track, which is basically a downward trajectory in the size of these deficits. And if they could do that, that—I think that would be coherent policy. But I think we know that there—you know we’re going to see numbers on the health care deal. There’s some pressures on various fronts to help vulnerable people, maybe, you know, an extension to the GST credit. I think, you know, the NDP are pretty new democratic parties putting pressure on them to do more stuff on dental are. Yeah, and I think there’s a sense that, you know, after the U.S. Anti-Inflation Protection Act where they’re, you know, you could see the U.S. is making a large move to try to boost their competitiveness of the green industry, like we’re going to have to keep pace on a lot of fronts. I think the key, though, is to do that in a way that doesn’t add a lot of the inflationary pressure that Lisa talked to. So if it’s capital related, that’s fine. But if it’s like a lot of, you know money that’s going to go into the system through transfers that’ll be consumed, that could keep inflationary pressures up. So, yeah, it’s a complicated budget environment.
Mercedes Stephenson: How realistic do you think it is that we’ll see a balanced budget coming up? Because that was one of the things we heard them talk about for the first time in the fall, but now we do have all these unknowns, including Russia, Ukraine, the war, changing global environment. Is that a ship that has sort of sailed on the chance of a balanced budget being a focus here?
Kevin Page, Former Parliamentary Budget Officer and Institute of Fiscal Studies and Democracy: No, I think in terms of like a fiscal planning framework to have a medium to interact that does get us back to balance. Again, if you think about it, you know, the economy, at least, you know, is growing. It’s probably operating close to trim. There’s a lot of what people call excess demand pressures. The labour market seems to be relatively tight. Unemployment rate’s sitting at 5 per cent. So I think, honestly, in this environment, you know, if we get a soft landing, I think achieving a balanced budget over the next three, four years is doable. But will this government—do they have, you know, kind of the political appetite going into an election in a couple of years? Again, Lisa talked about that. I think they’ll want to spend. And so—but I think getting to medium term balance is definitely achievable.
Mercedes Stephenson: Lisa, we just have a few moments, but final words to you.
Lisa Raitt, Global Investment Banking, CIBC and Former Conservative Cabinet Minister: I’m going to say that I think it’s important to deal with what is happening in the now, but it’s equally important to think about what the future looks like. Kevin brings up the Inflation Reduction Act, which is an anti-competitive act for sure, vis-à-vis Canada and the United States. And the government is going to have to take a really good look at things that we can do in Canada that are needed on the world stage that should have support and investment, and including giving encouragement to the business sector to invest. And that’s the way to keep the economy going in the right direction over not just the short-term, but the medium to long. And I’m looking forward to seeing some of those, I hope, in the budget coming up in a couple weeks.
Mercedes Stephenson: Great. We’ll be keeping a close eye on it. Thank you both for sharing your time and expertise with us.
Kevin Page, Former Parliamentary Budget Officer and Institute of Fiscal Studies and Democracy: Thank you.
Mercedes Stephenson: Up next, taking stock of the controversy over Prime Minister Justin Trudeau’s choice for special rapporteur on foreign interference.
Mercedes Stephenson: Now for one last thing. Prime Minister Justin Trudeau appointed former Governor General David Johnston as special rapporteur, to investigate foreign interference. The issue has been a political firestorm for the government. Johnston was appointed GG by Stephen Harper, but he’s also a close friend of the Trudeau family, which has led critics to question whether he’s the right person for the job.
Last week, the Prime Minister criticized the Opposition for raising those questions.
Justin Trudeau: “Ramping up the toxicity and partisanship to the point where it doesn’t matter what the substance is, it just matters what side you’re on.”
Mercedes Stephenson: Perhaps the debate should be less about who is leading the review and more about what the actual mandate will be. Will it be to investigate what Mr. Trudeau and his government knew? Will it be limited to only China? What about only federal elections? And then of course, there’s the key decision Mr. Johnston has to make about whether to recommend a public inquiry.
We’ll be keeping a close eye on all of it. But that’s our show for today. I’ll see you back here next Sunday. Thanks for hanging out with us.
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