The Missing Middle Podcast
Welcome to the Missing Middle, a podcast about why the middle class in Canada is disappearing. We hope to help you understand why life is becoming unaffordable for so many in this country, and what can be done to reverse course.
The Missing Middle Podcast
Trump, Tariffs and Canada’s Next Move
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Canada’s trade relationship with the United States is facing major challenges. In this replay of a live episode recorded on Friday August 28, Mike Moffatt and Cara Stern break down Canada’s trade war with the U.S., the impact of tariffs, and what it all means for the Canadian economy.
They explore how tariffs and trade tensions could affect Canadian jobs, businesses, inflation, housing, taxation, financial markets, and economic stability while answering questions directly from the live audience.
Whether you’re a policymaker, investor, business owner, or simply trying to understand what’s happening to Canada’s economy, this conversation offers context and analysis on some of the biggest economic issues facing Canadians today.
In this episode:
- Canada’s trade war and economic relationship with the U.S.
- The impact of tariffs on the Canadian economy
- How trade uncertainty could affect housing and affordability
- Taxation and government policy
- Financial markets and economic stability
- What tariffs could mean for Canadian businesses and consumers
- Live audience questions and answers
- What Canadians should be watching as trade tensions evolve
Watch the full conversation for an in-depth discussion of Canada’s economic outlook and the challenges ahead.
#Canada #CanadianEconomy #Tariffs #TradeWar #USCanada #CanadianPolitics #Housing #Economy #Inflation #MikeMoffatt #CaraStern
Chapters:
00:00 Introduction to the Trade Dispute
02:12 Tariffs and the New NAFTA
04:23 Labeling, Language, and Trade Strategy
06:40 Canada's Trade Diversification Challenges
08:36 Taxing the Wealthy and Intergenerational Equity
12:30 Interprovincial Trade Barriers and Alcohol
16:38 Impacts on Housing and Construction
23:57 US Bonds and Canadian Investment
36:12 Bank of Canada and Interest Rate Policy
42:17 Government Support for Small Housing
44:37 Development Charges and Urban Planning
46:21 Closing Remarks and Next Steps
Hosted by Mike Moffatt & Cara Stern & Sabrina Maddeaux
Produced by Meredith Martin
Funded by the Neptis Foundation https://neptis.org/
Hello, missing middle listeners. What you're about to hear is a live stream that was recorded on August 28th, 2026. Kara and Mike dive into your questions regarding the US-Canada trade war. Oh boy, on with the show. Hey everyone. Today is Friday, August the 28th, and welcome to Answer Period, where Mike Moffitt and I, Kara Stern, will take your questions. So today we're focusing on the trade war that Mark Carney, well, Trump kind of started it earlier this week, and Mark Carney responded, being like, yes, we are in fact in a war with them at this point, an economic trade war. Um, and we've got a few questions to kick things off, but then we want to turn it to whatever questions are coming in from the audience. So please post your questions into the chat and we'll get to as many of them as we can. So let's start with Mike. Do you want to give just like a brief overview of what happened in the last week?
SPEAKER_01Americans weren't negotiating with good things in the faith that uh they made a number of last-minute demands and so on, but we've uh backed off. In in response, uh the Americans uh have imposed a bunch of new tariffs at about 50% on about uh twenty-seven billion dollars or so of uh Canadian exports. Uh that's not a massive amount given um you know, given the size of Canada-US trade, uh, but it's still significant. And it includes, you know, a lot of things that historically have been at the center of these trade disputes, you know, steel, dairy, uh, agriculture, you know, pulp and paper, electronics, uh, and so on.
SPEAKER_00Now can just to clarify, like that these kinds of tariffs are different from what was talked about before, because before my understanding was that they would exclude a lot of the things that are in the Cuzma agreement. This the Canadian, basically the new the uh Cusma, Kusma, how do you pronounce that? Um but now that it is included in all the some things from this are part of that as well. They're no longer being excluded, right? Right?
SPEAKER_01Yeah, so it does uh touch on things that uh you know should be tariff exempt uh in Kuzma. So it's not just things that already had an existing uh existing tariff. So uh yeah, so that's then going on, and there's been some some tweaks on on both sides. Uh, you know, Canada wasn't just gonna sit there and take it. Uh, so we've kind of decided to match mostly dollar for dollar, uh, rate for rate, uh on uh you know similar level uh of imports. So there's been some tweaks already on I think it's fish and a few other things. Uh Canadian tariffs are, you know, some are 15%, 25%, 50%, depending on the product. Those don't kick in until about a week and a half from now. So there's still time. Like, like uh if it feels like this is constantly, uh constantly moving. And you know, we could do this uh QA on on Monday, and we we might find ourselves in a completely uh different spot uh than than we are today.
SPEAKER_00It's true. Like when you talk about how, like when we were saying what happened, and you're like, it changes all the time. And I'm thinking about how the Canadian government said, well, part of the problem was that the US government really wanted to impact French language things. And then Trump was like, What's that? That's so dumb. I would never care about Canadians speaking French. And then later you there's a news story that comes out saying US withdraws its request to get rid of French language work regulation. So I'm like, okay, well, I mean, probably there's some truth to what to it being in there. Maybe Trump personally doesn't care, but it just seems like there's so much. I don't know if it's disorganization, if it's intentional, like what's happening, why there's so many different stories going out there.
SPEAKER_01Well, it could it could be a bit of both. I think partly you do have a lot of different, you've got Trump, uh, you've got Lutnick, and a bunch of other people who are all kind of have their hands in this. So you get you get different stories. Uh, and I think some of it is is strategic that uh, you know, it's uh it's kind of a game poker, right? So you don't necessarily want to, you know, tell the person on the other side of the table what what exactly is in your hand. So, you know, I think all countries uh do this to a certain extent. They don't often go around, you know, renaming the Great Lakes, but you know, they there are some ambiguity there. But this this labeling issue, though, uh, you know, the Americans are claiming, oh, you know, we don't really care. Well, they've cared for a while, and it actually predates Trump, right? Because they see um differences in labeling regulations as a form of uh restraint of trade, right? That if you can't just take an American product and ship it over the border uh and sell it, you know, sell what you're selling in a U.S. Walmart and a Canadian Walmart, then you know that that creates uh a trade barrier. And that's not just French on labels, that's differences in um uh labeling standards, uh, you know, hazard warnings and things like that. So, you know, when I when I heard the Americans going, oh, you know, oh we we don't really care about that stuff. I'm like, really? Yeah, you have for like 40 years. So why would that change today?
SPEAKER_00There's one you mentioned Lake Ontario, and it just making me think about how like I spent 10 years of my career at the Ontario Public Broadcaster. And something that I remember doing some thinking about at that time was like, there's no like Ontario identity the same way there's a Quebec identity, or people talk about being an Albertan. I've never heard anyone be like, I'm an Ontarian. And I'm like, is this Trump what's gonna create this identity as an Ontarian at this point? I mean, Lake Ontario has just become such a flashpoint in this conversation. It's it's a weird thing to be thinking about, eh?
SPEAKER_01Well, yeah, uh absolutely is. Uh, or a lake Ontarian. I I I don't know. But yeah, we we tend to be, you know, every every other province, you know, you're you're Manitoban or whatever, but you know, in Ontario, you're Canadian. Who knows? Like a lot of people.
SPEAKER_00We all know now, we all now know that the province of Ontario was named after the lake. That is something I did not know before, but thanks to this week, uh, is something we've all learned a lot about the history of the word Ontario. So that's interesting. But anyways, Canada sends 70% of its exports right now to the US. And I can tell you, like, as long as I've been alive and probably more, Canada has been talking about needing to diversify its trade because like the next big biggest export market is China, and that's only at 4%. So it seems like it's this like giant challenge, and I don't know what it would take to actually make it happen. Why is it so difficult to diversify?
SPEAKER_01The answer is gravity. It's physics. Uh and I and I mean that seriously. It is gravity. Um, economists have something that we call the gravity model of trade, and it predicts the volume of trade between two countries as largely a function of two factors. You know, the first being the economic size of a country, and the second being the geographic proximity to that country, right? The same way that, you know, uh Jupiter's gravitational pull on someone is, you know, a function of the size of Jupiter and how close you are to that planet. It's kind of the same idea. Well, if we look at, you know, the United States is massive, has a massive economy, and we're right next door to it. So, you know, we really can't escape that gravity. We can't get some kind of escape velocity. But you know, obviously we can operate somewhat on the margins through, you know, we can make trade deals with other countries. Uh, we could build port infrastructure, allow us to get uh products to Europe, uh, Asia, and so on. Uh, we look can look at harmonizing regulations with other countries. Um, so you know, that that issue I talked about around Canada US labeling, we could adopt EU labeling standards, right? And then that way it would be easier for Canadian companies to sell their products into the EU and and and vice versa. So we can look to those kinds of things, you know, regulatory harmonization with the countries that we actually want to trade with who aren't renaming our uh lakes and rivers. Those things help, but you know, at a certain extent, you are just kind of playing on the margin. You really can't escape gravity.
SPEAKER_00We do have an audience question that's just come in. Um, so you're I'm just gonna read it out. I've considered for a while now the idea that a sizable block of countries need to work together to take the tax wealth back from the 1% with the decline of free trade. Is this an opportunity for Canada?
SPEAKER_01No, I I I would see those as it's an interesting question, but I would see those as kind of completely uh parallel. It's it's not really the United States that's kind of preventing us uh from doing that. Um, you know, the the EU, you've had countries in the EU uh try that, and the EU itself has never been able to um get that all across uh all across their members. I I think the bigger issue we have in Canada with any kind of either wealth tax or, you know, god forbid, uh a uh you know clawback on something like OAS based on on wealth is that security. Uh yeah, old-age security based on wealth, is that the federal government really doesn't have a way, a good way of tracking wealth. Particularly when um a lot of our our wealth in Canada is tied up in real estate. Uh, you know, we've got every province uh kind of determines how valuable a piece of real estate is. There's no common methodology between them. And you know, here in Ontario, uh we haven't updated uh, you know, MPAC has an updated assessments since 2017, right? So there's a lot of sort of functional um problems uh to to doing that, that have nothing to do with the with the US. And um, and I I really like this question because it it also kind of identifies one of my concerns about all of this is that I think Canada, what one of big the biggest risks for Canada, I think, is that we start to blame all of our dysfunctions on the United States, right? We don't kind of clean up kind of our our our own messes. Um so I do worry about that a little bit, that if this dispute goes on and our economy doesn't perform well, or you know, you know, we uh young people have trouble uh finding jobs that we go, oh well that's that's the Americas' fault rather than structural problems we have here at home.
SPEAKER_00There's a follow-up to that, which is should we explore aligning ourselves with the EU to impose an access fee of sorts to multinational corps who typically pay little tax, but their products and services compete with local small business?
SPEAKER_01Uh no. Like I I see those as being I I don't I don't know what what problem, or at least I don't see how that has anything to do with uh with with Canada US uh trade. Uh, you know, I I certainly think we need to look at uh a tax reform uh for sure. Uh, you know, and that we did, you know, that we did kind of have a start to have a you know multinational agreement on uh corporate tax that uh former minister uh Friedland uh was was pushing on. Um and and that's kind of died. But you know, I don't uh this goes back to again what I said earlier. I I I think all of our dis, you know, I think the Americans are an easy scapegoat there for all of our kind of dysfunctions. I I I don't I honestly don't think that the reason why we don't have any of those things has has anything to do with the US.
SPEAKER_00Okay, well, speaking of Canadian dysfunction, I'm jumping in with my own question about it, which is that when tariffs were first announced as a possibility last year, like there was so much noise about how we don't need them. We can replace so much of that trade with just removing interprovincial trade barriers and boost GDP, replace some of the US exports. But I still can't buy BC wine in Ontario. And I do not understand why, at the very least, that because I thought alcohol would be like it seems to be the thing people think of when we talk about interprovincial trade barriers, and it's like kind of the symbol we've seen alcohol being used as a symbol of this trade war a lot. So I expected at least that would happen. But we like, where are we on not only alcohol, but on reducing interprovincial trade barriers in general?
SPEAKER_01Well, well, thank you for the the question, because uh I I got to quote one of my favorite uh Canadian philosophers, and that's uh Ricky from Trailer Park Boys. And when he said, I totally so, because I remember you saying that this is gonna happen and we're gonna tear down all of these international trade barriers or these interprovincial trade barriers. And I have the benefit of being old. Uh being old sucks, but one of the big benefits of it is that um you get to see history repeating itself. And you know, I I remember there was this massive push in 1995, and we signed this agreement on international trade, and that was supposed to end all the trade barriers. And it didn't, right? So, you know, would would I love these things to happen? Sure, but I'm skeptical. And you know, I I think you're always skeptical.
SPEAKER_00You're a Gen X, you're a jaded Gen X, and I'm an optimistic millennial who's like, we can still change things, we can still make it better.
SPEAKER_01Yeah, I mean that's a long-winded way of saying that I'm right and you're wrong, but um but anyhow, but I just don't know why they haven't, though.
SPEAKER_00Like what I what's the holdup here?
SPEAKER_01Well, you know, I I I think why we haven't made much of a dent in this uh was I'm gonna quote another philosopher, uh, but this one's from over 1600 years ago, uh St. Augustine of Hippo, uh, who said, Lord give me chastity and self-control, but not yet. Uh, and that's where where we basically are on um interprovincial trade barriers. Like we all want it, you know, you know, everyone's like, yeah, we gotta, we gotta knock these things down. But then when you go and do it uh on kind of any individual basis, that the downsides start to appear, that there are winners and losers to this. The alcohol one's a good example, that the the provinces are like, oh, geez, okay, this might reduce uh our tax revenue from alcohol. Well, while we can't have that, right? So, and in any political dispute, um the losers to change tend to be louder and more political than the winners, just like we see at uh a neighborhood consultation for a new apartment building or something like that. So they get really, really upset and you don't get much in change. So, yeah, I do think um I'm I'm skeptical of this. I actually think that's to to go to an earlier point. I actually think that might be one of the benefits of Canada looking to harmonize our regular some of our regulations with with the EU or other countries, uh, is that that would it actually kind of force uh interprovincial uh trade barrier removals, right? Because it's like, okay, if we all have to have the same labeling standards as France, then uh you know all of this kind of uh kind of goes away on the interprovincial side.
SPEAKER_00We have to align with France in order to align with each other, though. Like we can't just be like, let's just work together as a country. It's like, no, we need this outsize this outside influence in order for us to want to actually do something as a country. And that seems weird to me.
SPEAKER_01Yeah, it I it is, but uh again, it's just the kind of winners and winners and losers, right? It's you know, why it seems weird to me that you we have a country this massive and we have a housing crisis, right? Uh you know, it it all it just all comes down to um this kind of it's a dysfunction that that occurs everywhere, but it it seems to be particularly problematic in in Canada, where it's this kind of status quo bias, a risk aversion that okay, we can't we can't change anything uh or else you know bad, you know, bad things happen. So so that's that's where we are. You know, I'm I'm hopeful uh that we can start to knock down more of these trade barriers with what happened last week.
SPEAKER_00But again, I'm cynical Gen I had this amazing uh beer in BC one time from Tefino Brewing Company called it was a Kelp Stout, and it was one of the most interesting beers I've ever had. And I've just thought about how I can't wait for these trade barriers to come down because I want to experience that again and buy it here. I'm still waiting. Hopefully I can get that sometime soon. Uh, but anyways, next question from the audience. What is the ideal tax reforms you would suggest to shift the tax burden from young to old people? Uh, given the reductions and working age populations, should we move to a prop from should we move to a property tax base from an income one?
SPEAKER_01Well, I guess, you know, I'm gonna go all Bill Clinton here and go, okay, well, what do we mean by by should? Um, that the the challenge, the challenge we have on this is, you know, one of the reasons why, you know, property taxes have been one of the the slowest increasing uh taxes in the last 25 years is because the people who pay them have the most political clout, right? So it so it's those are hard to to uh increase. So, you know, we could say, okay, yeah, let's increase uh property taxes. And heck, you want to go LVT on it, you know, increase just the land. Land value tax on it. Uh you could increase just the land portion and then use that money to lower development charges or or something like that. I mean that politically that's a great thing, but you know, it's there's there's this kind of core of issues where um we we the solution to a problem pre presupposes that we've actually solved that problem, right? That the tax system tends to favor old people because they they you know vote more often and there's a lot of them. So then we go, okay, let's propose changing that. But it but it doesn't change, you know, but the the underlying math hasn't changed, right? There's still a lot of old people and they're more likely to vote, right? So if you want to change the tax system or you you want to have a system that works better for young people, you need more younger voters. Uh, you know, so if you want to change any of it, allow kids to vote. Proxy voting for parents, add seven million young voters to the roles, then you might get some changes.
SPEAKER_00But people are you want to know more about this next week. We were doing we were doing this in our in our podcast next Friday to talk about it because Mike, Mike loves this idea of babies getting the right to vote. He just like he just really wants that to be where we increase it. I'm like, we already have young people who don't vote. Can we start with those people and make sure their votes count for anything?
SPEAKER_01Well, we certainly could. I mean, we could show up, and you know, I'm I'm I'm all for tasering young people and making them do things, but you know, that's a little bit uh harder. Uh but but sure, I but I see those as is kind of parallel, but we could certainly add seven million voters, but but that's all the ultimate challenge, right? Like, like a lot of this is just uh it's a political challenge, not not not an economic uh one. So it and it's really hard uh to you know, people aren't gonna vote outside of their self-interest, right? So going, okay, like let's let's make a a regulatory or a tax change that that harms those who um have the most political power is difficult. Um, but that said, you know, if we political uh issues uh aside, I think the obvious thing to do would be to uh have cutoffs on old age security, which resembles the ones on Canada Child Benefits. Um that would save tens of billions of dollars a year. You could use some of that money to make Canada Child Benefits uh more um more generous, and then use the rest to do things like lower development charges, uh yeah, you know, uh student loan amnesty, all kinds of things for young people. So if we get the political stuff aside, I think the low-hanging fruit is is changing, um changing the tax and transfer programs that go to older people uh and then you know reallocate that money to um priorities of younger people.
SPEAKER_00Now's the time to do it because I mean we we keep talking about how much we need to there's going to be people being hurt by these changes, and we know that this like it's disapportionately gonna impact people who are younger and people well, really the working age people. It's not gonna impact seniors who are collecting old age security for the most part, although some of them are working, but still. Um, and so I think that now makes a lot of sense because it's a way to do it where you can kind of say, let's share the burden. It's it's gonna cost all of us. Let's, we're all in this together. So if if we're gonna have people across the board having to experience a little bit of pain, but in the long run, it'll make a lot more sense for Canada, make our budget much more sustainable. And Mark Garney has like a lot of goodwill from seniors that I know he wants their votes, but at the same time, the next election is like a long time away. I feel like he could spend some of that capital and then he'd probably gain something from the younger people that are would be benefiting from this, who where the their tax burden would be lower, right?
SPEAKER_01Yeah, it's certainly possible. And I could certainly see uh a situation where um Carney tried to do some kind of grand bargain and said, Well, look, you know, we we need to restructure the economy, we need to protect workers, and we've all got to pitch in a little bit. it and then and then you know has a series of reforms and one of them being lowering OAS or you know changing um uh you know income splitting rules for seniors or or or something like that and saying like look you know these these these are these are nice to have but we need the money uh and everybody's got to pitch it and you know I I think that would be a real test to see whether or not the the older elbows up crowd uh really really means it uh now again I'm I'm I apologize I'm going cynical Gen X uh uh again uh you know I like to think so I think I like to think people realize that like they you can't just be like yes we'll experience some pain and it's okay that those people over there can deal can shoulder that pain.
SPEAKER_00I think of Shrek where there's like some of you may die but it's a price I'm willing to pay uh when the little the king does that and it's like yeah you give you 80s movies I can do my 2000s movies. But yeah like I don't know that that's what it seems like sometimes that people are thinking about but I don't know that that's I don't know I like to think that people understand that like it'd be it's easier if we can all shoulder it together.
SPEAKER_01Yeah no I I yeah I would think so as well and you know we'll we'll we'll see and I I do think a lot of it will be dictated by by polling and I think right now you know the liberals are are up about 20 points so you know I I don't they don't look like a a party that's uh you know wanting to to do some um courageous political moves right now because there's no real need to but you know we'll we'll see where we are 12 18 months from now if Canada's like if our economy is so small compared to the US I I wonder how much uh it will actually impact the US like they keep saying we don't need anything from Canada.
SPEAKER_00Canada needs us so much more if we're retaliating there's a part of it okay there's two parts because it's a two-part question. If we're retaliating against them one, it's isn't it causing more pain for Canadians than we otherwise would be experiencing and two are we going to have any impact on the US at all?
SPEAKER_01Well it's certainly going to impact there's there's no um way to do this without kind of causing causing yourself pain right it's like playing hockey and uh flying into the boards and body checking someone it's like yeah it's gonna you know it hurts them but you know it doesn't feel great for for you either uh so yeah we're we're gonna inflict pain and that that's sort of you know part of of the retaliation side now when it comes to the the sort of well their economy's too big and we can't really uh affect their GDP too much uh I I I find that both kind of true and and irrelevant um that you know I hear this you know uh a lot you know it tends to be academic academic economists that make this this point and I think they're completely out to lunch when they say well since Canada can't really affect US GDP there's no point in trying and I just think uh this is I it's I I hate the like you know oh you you guys stuck in your ivory tower slurs when it's put on me and then you know I kind of want to do it to these folks because I think they're completely out to lunch. Because what I I think they fail to grasp is that the goal of a prime minister or president is not to maximize GDP, right? That's not what they're trying to do. So because of that that's not the lens we should be looking at this through and you know I I think economists some economists don't understand that because I think if they were president king of the universe you know that's how they would see their job. But that's just no government in history has acted that way that instead uh you know whether Trump, Biden, Carney, Trudeau doesn't matter all of them have a host of goals and many of them are complex and often contradictory with each other. You know Trump clearly cares more about some industries than than others. He's been very you know despite the fact he's an agent of chaos he's been very clear for the last 40 years that he's very skeptical of international trade. He's very pro-manufacturing and so on. So he cares more about some industries and obviously he cares more about some companies uh particularly ones that have leadership that are aligned with them. And we've seen like Canada do things like you know Ontario pulling the alcohol off the shelves that had an impact on the United States like that clearly got under their skin that clearly had a material impact on a number of companies some of which who are aligned with the administration. So I think that's the lens we have to look at it through is not how do we impact US GDP? I think that's entirely the wrong way to look at it but rather how can we you know what's the kind of weak spot I'm gonna go Gen X here. It's like Star Wars you know what's what's the exhaust port that we can uh shoot the proton torpedo down and make the whole thing you know make the whole Death Star explode right that's what we've got to find. We've got to find those kind of pain points and hit those and not kind of focus on lowering uh GDP if you're a young person in Canada and you're trying to think about what the job market looks like it's been not very great in Canada. I wonder if the trade war like are we expected to go into recession and if it goes into recession I expect that would mean job losses usually uh at least companies being hesitant to hire what what do you expect young people should should think about right now as they're hearing these headlines well so and that's always a big question and you can kind of look at it doesn't really matter what kind of economic indicator you're you're thinking about whether you know unemployment, GDP interest rates or so on, you know, a lot of that you can um get an idea of of at least how markets and investors think about these changes through how markets move right so we got this announcement late on Friday you know markets opened on Monday and what was interesting is like how little markets moved on the announcement like the the TSX our stock market actually went up uh you know after after this move so clearly why well I I don't think it was because of this uh move I I just think that uh investors looked at it and just kind of shrugged um you know the bond markets didn't move so not much happened so you know I think the the takeaway is that investors and the market really looked at this thing and just said it doesn't you know this is a nothing burger and I you know I think they're getting it right and and here's why like if you think about it like what changed with this announcement right and the answer is not much right because what what's the alternative okay we got some kind of deal and then at some point Trump's gonna decide he doesn't like the deal or we're not living up to the deal. So let's say we let's say we we get a deal we get a deal and then three months from now you and I and everyone else decide that you know the alcohol goes back on the shelves and you and I and everyone else decides that we don't want it. You know do you think do you think Trump's just going to sit there and go, oh well that's that's a shame no he's gonna accuse us of not living up to the deal because we didn't buy uh Kentucky bourbon and he'd slap tariffs on us anyway right so at some level it didn't really matter how on Friday how this turned out right that we you know we in any universe we had an uncertain future uh with an agent of chaos presidents and that we may or may not have tariffs in the future so I don't think all that much actually changed uh from this and you know that that seemed to be the market reaction speaking of markets you had a thing on Twitter that you got kind of in in trouble for where uh you were talking about whether Canadians should be selling off their US bonds at this point.
SPEAKER_00So I want to ask you oh yeah so I got Canadians sell off their US bonds.
SPEAKER_01Yeah it's it's it's funny because and and this this is actually kind of a uh a I think I've been talking about for a while and you know back about 18 months ago I actually sold off all of my US uh stocks and I keep getting roasted for that but I I'm gonna hold firm and I'll just point out that you know my my retirement portfolio and I'm old enough to have one uh has outperformed uh the SP uh the the US stock market significantly since then so you know I yeah I think Canadians should be looking to reduce their exposure not just to US bonds but US stocks as well and you know I would I'm not a financial planner I'm not qualified to give financial advice but I will anyway.
SPEAKER_00And this is not necessarily saying this is the best financial plan for you although it's worked okay for you but it's not saying it's a best financial plan but you're saying like morally people should right no no I I I I I'm actually saying I'm saying even if you don't buy the moral side of it, I would be looking reevaluating my my own uh portfolio uh on U.S.
SPEAKER_01stocks and bonds because you think like look at the U.S. economy right now, right? You you've got uh an agent of chaos president uh you you've got a completely useless Congress you've got economic policy that's all over the place and a US economy that's held together through a massive fiscal stimulus uh and an AI investment bubble and neither of which seem sustainable to me in the medium term right and you know we we worry in Canada about deaths deficits and debts and and rightfully so but you know in Canada you know our deficit is around uh federal deficits around 2% of GDP you add in the province you get to about provinces you get about 3% of GDP uh US deficits are are twice that in terms of GDP you know they just hit a $40 trillion dollar debt so yeah their economy's grown quite a bit the last few years but it's it's it's through artificial stimulus it's through unsustainable levels of government uh spending and stimulus along with this uh AI construction bubble so I just look at it and go okay why would you why would why would you want to park your money there and you know Canadians have you know collectively whether it's individuals whether it has pension funds we hold about half a trillion dollars in the T trillion in US bonds so you know right now it's like we're we're feeding a machine that you know um is giving crappy returns and it it's also punching us in the nose right so I could get the argument if their economy was doing well and they you know things were really strong down there. But it's like okay the economic conditions down there are terrible plus the country's punching us in the nose. So it's like it doesn't make economic sense and to go to your question doesn't in my mind really make moral sense. So why do it and if we scaled back on our you know if Canadian investors scaled back on our bond holdings that would put uh upward pressure on US interest rates which have already gone up a lot in the last 12 to 18 months or so and that would put additional pressure on the Americans. So I I just think it's one of those times to you know that's the kind of opposite of St. Augustine of hippo where you know what what what what's fun and what's morally correct are actually aligned here, you know, and not at odds with each other.
SPEAKER_00He mentions interest rates I do have a question about that but first I'm gonna go to another audience question. I like their username drinking Ixpresso I do wonder whether that is you Mike given you how much you're fueled by coffee and it's a housing question. But you know um do you see any outcome from this trade roar that could help the housing crisis?
SPEAKER_01Um not particularly uh no uh unless okay like you've kind of forced me to be a millennial here and not a cynical Gen Xer. So I'll put on my my millennial hat. I'll get my hair back to the color of black it was 10 years ago. And I suppose like if I if I wanted to make a Steam and argument about it, you know, maybe this creates the conditions where Canada realizes that we need to start building stuff again. And you know we kind of the Carney talks that way with the the big office pro uh the big what is the big projects office, you know, building pipelines and railroads and what what have you so maybe this causes us to go okay we've got to get out of our own way. We've got to be investing in our own country and so on. You know I I think that's the most positive spin I I could put on it. You know when when it comes to more technical side of it like this dispute you know makes it more difficult for us to you know import um you know appliances and equipment and furnaces and things like that from the US and even even the stuff that's made here in Canada is often uses parts from the US so none of it's really good for construction costs. But yeah I I guess you could force you know at least I could foresee a scenario where you know maybe this this kind of causes us to to reevaluate the sort of self-harm we're doing and and stop it.
SPEAKER_00So going back to the interest rates part of it like we know that like okay a lot of the housing market questions have to come down to interest rates. We see how interest rates do impact uh housing prices and a lot of people you know when they're wondering about housing they're wondering about what they can expect the cost of borrowing for homes or to build either to build new homes or for their own home. How do you expect the Bank of Canada will respond in interest rates? Like do you think we'll see them come down or is the bank more likely to stay on the sidelines or go up like I am wondering which direction at all we if we have any clue at all what they would be doing.
SPEAKER_01Yeah so this is going to be tricky for the Bank of Canada uh to deal with and my uh apologies in advance to to viewers I I'm I'm gonna give a kind of uh academic uh monetary policy answer I I taught monetary policy uh at Ivy business school for about 20 years uh so I yeah you know I'll try and give a a condensed uh explain it like I'm five uh type uh type answer but it still might get a little bit wonky. Now when when it comes to monetary policy and when it comes to what monetary policy is trying to do uh one of the questions that comes up is like monetary policy seems to like sometimes it's about inflation and sometimes it's about stimulating the economy and you know I'll have students go well well which which is it and typically you can accomplish both at the same time right that that the economy you know GDP growth or whatever metric you want to use and inflation they move in the same direction and they move in the same direction for what economists call demand side forces so you know and that's you know demand for goods and services. So you know people let's let's say I don't know Jays win the World Series and we were so close last year. People feel good uh they're out spending money making money they spend it the GDP grows but because you know you have more people out there spending m money and kind of the same amount of goods you're also going to see more inflation right your prices are going to go up faster than they otherwise would have or faster than they were before. So you've got a booming economy and you've got a whole pile of inflation so what the bank does is raise interest rates or if we want to be really pedantic, they uh raise the target for the overnight rate um and then I'm not gonna get into the mechanics of this but that ends up leading to slower spending and that slower spending basically reduces the rate of economic growth but also uh reduces inflation and you know this kind of works in reverse if the economy is doing crappy nobody's spending money you know uh stores are gonna have to start offering big discounts you know you start to get lower rates of inflation or actually deflation falling prices but a lousy economy. So then the Bank of Canada steps in, uh lowers interest rates, gets people to spend and invest more and both of those go back up, right? So those kind of goals are aligned with each other. But this trade dispute on the other hand is what economists call a supply side shock. And the problem with supply side shock is they cause the economy and inflation to move in opposite directions, right? Because we're looking at a bunch of tariffs both what the Americans are putting on us but also what we're putting on the Americans well that's a tax. It's a tax on prices right so that causes uh tax on goods that causes prices to go up faster because now you're embedding all these costs into them. So you're accelerating the rate of inflation but because you're also causing all these trade disruptions uh you're slowing the economy so now inflation and the economy aren't moving together they're they're moving in opposite directions. So that puts the Bank of Canada in a bind right because it's like okay what problem do you want to solve right? You could lower interest rates to try and boost the economy but you're gonna make inflation worse. Or you can say no we need to raise interest rates to deal with that inflation problem but then you're gonna make a weak economy even weaker. So it's a really tough problem for the Bank of Canada. So you know likely it's just kind of going to be a little bit of a wash um and we're kind of seeing that from from markets. Like I mentioned the bond market earlier if you look at uh bond yields on you know one and two year bonds and shorter duration treasuries they really didn't move that much on that this announcement and that's basically uh investors and speculators saying you know what we we don't think the Bank of Canada is going to do anything differently uh than they otherwise would have you know we don't we don't think this changes much. So very long-winded academic you know fourth year undergraduate answer um but I you know I I don't think it's gonna change insurance rights all that much. That's oh yeah okay I guess it could go in any direction we but we don't know for sure it sounds like like there's just so much uncertainty of which way they're gonna do it but you think it'll be fairly stable it sounds like maybe well maybe not but depending on where they yeah well I I don't think yeah so I I I don't think it changes what you know so the Bank of Canada was going to raise before they'll still raise if they're gonna lower before they'll they'll still lower I don't think this is really going to change so it's not that you know I'm not saying that the interest rates will stay stable necessarily I just don't think that this changes that math somewhat now the Bank of Canada four times a year comes out with a monetary policy report uh that you know discusses their thinking goes and says you know okay this is what we're watching and you know this is how our thinking has changed over the last three months and these are the things that might cause us to move in one direction or the other. So that I'm not sure when the next one comes out but that's absolutely going to be uh worth uh watching because it will give some insights to how the BOC views that problem and and how they're likely to uh transition.
SPEAKER_00We got another viewer question which isn't really related to trade but it's a topic you like and so I'm gonna ask it uh which is we know cities need to cut development fees and open zoning bylaws and governments need to support cities in doing that. If building smaller houses is not profitable can governments support that some way and if you want to know more about why building small houses is not profitable you can watch our episode that came out this week uh on with uh on our Wednesday show Classonomics with Sabrina Mado where this was exactly what we covered but I let's let's get to that question and Mike.
SPEAKER_01Yeah so I I love this and normally like we do these kinds of things you might do like fan service now we're doing kind of host service uh where we talk about uh our issues so you know what what I think so short answer is yes but I want to be very clear about this that there there's kind of two pathways here right one is that governments could try to incentive you know incentivize um the the building of of smaller homes and I think for the most part I think that would be a bad idea uh because it doesn't it doesn't it doesn't solve the core economics right it just instead uh you know takes all of these kind of issues that cause this thing you know all these regulations and then you know all these distortions and then adds another layer of distortions on top of that so so I I don't think that would be a great idea but it but I do think governments have a huge role here because the reason you know the reasons why the economics of small housing work a lot of that not all of it but a lot of that has to do with government um it's you know is land has uh gotten scarce um and you know when when I mean scarcity by that like like part of it is you know urban growth boundary you know the uh inability to build out but also part of it is and you know kind of ethos here at the missing middle and something Karen and I talk a lot about is that we've made it hard to build kind of missing middle housing gentle density or so on like we can't efficiently use the land uh that we have uh so if you solve those problems uh that would go a long way um and you know and then I think you you start to have to look at um the tax treatment right because the reason why we can't build small houses like there's a lot of uh reasons to but it really goes down to two it's it's basically land costs and taxes right that's why I could have that's why I was able to buy a new uh you know 1200 foot uh single detached brand new single detached home in 2004 and why you can't do that today and go okay what's changed it wasn't the price of drywall or anything it's the cost of land and tax structure so you got to change those things and on the tax structure side the obvious thing to do um is to tweak development charges um right now like if you build a 1200 square foot single detached home or 12,000 foot mansion the development charges are exactly the same they're exactly the same in in every city in Ontario which makes no sense which makes no sense right it's like saying okay you know it'd be like the federal government saying okay we're gonna you know we'll we'll we'll charge HST on cars but you know a small family sized sedan and uh you know a Maserati you know you you both pay a flat rate of $7,000 or 10,000 or whatever well you know that's gonna bias you towards building bigger cars. So I do think governments should be looking at their tax structure particularly when those smaller homes they use less land the servicing cost is lower right so if um if the whole ethos of development charges is growth should pay for growth and I have an issue with that but but even if I accept their framing well then why is it that a huge house out in the middle of nowhere uh on a huge lot pays the exact same development charges as a you know small uh little little bungalow it makes no sense you know even by municipal municipalities own logic so if they created a schedule like that you know made development charges proportional to the size and the cost of the home then you you you might be able to address some of this issue man sometimes growth pays for growth and sometimes it just pays for free ferry tickets for kids and seniors in in the city in Toronto.
SPEAKER_00Anyways I want to thank everyone for watching and listening and if you are wanting to follow up on what the Bank of Canada is doing their next rate announcement is on September the second and the next monetary report that Mike was talking about is on October 28th. Our producer is Meredith Martin and our editor is Sean Foreman. Bye folks we'll see you later
