Q&A with Canada’s former chief trade negotiator Steve Verheul

John Terry (00:09): Good afternoon, everyone. Welcome to Torys’ trade and tariffs webinar. I'm John Terry. I'm head of our international trading disputes group here at Torys and I'm absolutely delighted, it's a privilege and honor to be able to introduce our guest for today, Steve Verheul, who's one of the most in-demand speakers right now, assessing—helping us all analyze and assess, you know, exactly where these trade and tariffs issues are going.

He is the Principal of GT and Company Executive Advisors. But most importantly for our purposes, he was a chief negotiator the last time that President Trump was in power, and he was a chief negotiator for the renegotiation of the Canada-U.S.-Mexico Agreement, which was the agreement that followed the NAFTA. He also has been—he retired from, as a civil servant of the federal government a couple of years ago.

But he had a long career working in the, on the trade side, helping negotiate some of the earliest WTO agreements—the Uruguay Round, the Doha Round—and was also very involved in negotiating the Canada-European Trade Agreement. So, great for us to have Steve with us today. We've got a number of questions we’ll be covering the next hour. But please everyone, feel free to submit your questions in the Q&A. So hi, Steve.

Steve Verheul (01:33): Hi John.

John Terry (01:34): If we could start, I want to start out with some questions on President Trump and his administration and then follow up with questions on, sort of, international treaties, trade law, the situation Canada finds itself in. And then, of course, you know, the rest of the world and some of the recent announcements on that. But let's start with President Trump.

I mean, I've heard perhaps an apocryphal story that back in the 1980s, he, he wanted to buy the piano used in Casablanca and lost out in a bidding war to a Japanese investor. And after that, he started, as we know, saying that there should be tariffs applied to the Japanese. And he's been pretty consistent over the years with this theme about tariffs.

Where do you see, you know… how important is this to President Trump and what really is his ultimate goal here?

Steve Verheul (02:30): Well, yeah, I think he sees tariffs as a mechanism to achieve a whole series of objectives. And I think, not getting into all of those, I think the main objectives that he sees tariffs as being useful for is to bring back production and investment into the U.S. So, he wants to reshore a lot of production that has moved elsewhere, bring it back into the U.S., and use tariffs as a means to get companies to move production and investment to the U.S.

So that's his fundamental objective, I think. And he, he feels most strongly about that with respect to certain strategic sectors that he sees as essential. And that kind of takes us to his—probably his second biggest objective with tariffs is to try to rebalance the relationship that the U.S. has with the rest of the world. And not just on trade, but also he, he brings in security issues to that conversation as well.

He feels that the U.S., as we've heard him say, has been ripped off for many years. But he also feels the U.S. hasn't been adequately compensated for the security that they provide to other countries.

John Terry (03:46): So, does this mean, I mean, in terms of what we've heard over the past week and the sort of announcements that have caused stock market turmoil, you know, the, the extremely high percentages on a number of countries, are these, are these out there for negotiating purposes to try to extract various concessions? Or, or does he—because we've heard, of course, about his goal of trying to raise money, revenue through tariffs—

Steve Verheul (04:14): Mhm.

John Terry (04:14): —do we see these as things that might come off in the relatively short term? Or, or should we be prepared for the long haul?

Steve Verheul (04:23): Well, given the chaotic nature of how all of the trade policy in this Trump administration has been rolled out, very difficult to say, but I would say that the ones, the tariffs that are most likely to remain in place at the initial base 10% tariff that just went into effect. The higher than 10% tariffs that he has on many countries around the world, I think are really the areas that will be subject to negotiation.

And I think there's kind of a third tier beyond that, which is where I think his real interests are, which is the tariffs that he's also imposing on key—as he sees it—strategic sectors. We're talking about steel, aluminum, autos, lumber, semiconductors and pharmaceuticals, primarily. So, I think that's the real play. I think the, the broader reciprocal tariffs that he's imposed are more open for negotiation.

John Terry (05:29): So, so, so you see a potential where, where ultimately, once the negotiations have sort of gone wherever they're going to go, we might have across-the-board 10% and then certain sectors—auto, steel and aluminum—where those, those are maintained at 25% or whatever the ultimate level is?

Steve Verheul (05:49): Yeah, I think he does have that kind of focus on those key sectors that he feels are most important, that the U.S. needs to have production capacity in. And I think that negotiation issue, given that the, you know, the randomness with which this was imposed against all countries, the reciprocal tariffs, I think those are more flexible.

There's more room to negotiate. But I think really that, that—I'll just flag that that raises a very important issue because if countries start to negotiate with the U.S. on these issues, what kind of treatment are they going to provide to other trading partners as they do that? And that gets us to a point where there's going to be a lot of questions raised about what happens to the trading system as it exists now, if the U.S. goes down this track.

John Terry (06:41): Yeah. And, and maybe we'll get to those, those sort of questions in that discussion a little bit later on.

Steve Verheul (06:47): Yeah.

John Terry (06:47): Just, just wondering when you, when you mentioned the 10%, you know, it sort of rings a bell for people who follow this for a long time that Nixon, I gather, imposed a 10% tariff—

Steve Verheul (06:57): Mhm.

John Terry (06:57): —during the oil shock for some time. Did he?

Steve Verheul (07:01): He did. Yes. And that was a somewhat different purpose. And a different context, clearly. But, even with those that President Nixon imposed, there was a lot of negative reaction to that, particularly from economic indicators, and those tariffs were removed within the space of, I think, about six months.

John Terry (07:24): And, and what about the, the market reaction? I mean, there’d been, as we all know, there’d been a lot of talk in, in previous months that whatever happened, President Trump was quite concerned about the stock market, and it would act as a bit of constraint on him. I think perhaps people have been a little bit surprised by how much market turmoil he's been,

he's been comfortable, it would appear, allowing to occur. Any thoughts, perspectives on—is there sort of a market pain threshold that, that would cause him to, you know, change course here?

Steve Verheul (08:03): Well, I think there is. And I think that the kinds of reactions we've seen so far, and particularly with respect to the stock market, I think, have led President Trump to abandon that as a measurement of success because he thinks what he's doing now on reciprocal tariffs is going to be a short period of pain, and then there's going to be benefits and the stock market will rebound.

I think the more important impact of the stock market developments is with respect to the pressure he's getting from, from outside the administration, particularly from some Republicans who are beginning to, to express some concern about this and some corporate leaders in the U.S. that are also expressing concern about the implications of these tariffs.

John Terry (08:53): So, let's talk, talk for a second about these sort of potential constraints on President Trump in his decision-making here.

Steve Verheul (09:00): Mhm.

John Terry (09:01): I guess, first of all, within the administration, you were around for the Trump Administration 1.0.

Steve Verheul (09:08): Mhm.

John Terry (09:08): And dealt with, with USTR representative and other officials then.

Steve Verheul (09:13): Yep.

John Terry (09:13): I mean, if you compare and contrast the situation, the administration now, a number of commentators have noted that you don't have necessarily the, the pushback. I mean, how much pushback or how many different perspectives are you seeing within the administration that, that could influence what, you know, what ultimately happens here?

Steve Verheul (09:32): Well, I—yeah, I know, I think it's a very different situation than we had when we negotiated the, the USMCA back in the last Trump administration. And in particular, we had the USTR, the U.S. Trade Representative, who is Robert Lighthizer who, even though no one would characterize him as a free trader, had a lot of experience in trade. A lot of understanding of how markets work, and how trade policy functions around the world.

We don't see that now. The president is listening primarily to Peter Navarro, in the White House, and he's listening, to some extent, to Howard Lutnick, the Commerce Secretary. Those two are viewed as, as kind of the, the hardline perspective on these tariff issues and, to a great extent, are reinforcing what the president would like to do in any event.

I think outside of that, the somewhat more moderate voices are Howard Bessent and—sorry, Scott Bessent—and Jamieson Greer at USTR and I think that we've seen, over the last couple of weeks, that the hardliners have been the voices that have been listened to rather than the more moderate voices.

John Terry (10:52): And, and when we see the public debates between Peter Navarro and Elon Musk that we see in the media, should we, should we take anything from that, or is that just entering into a total realm of speculation?

Steve Verheul (11:06): Yeah, I don't know that we can read too much into it. I think it's understandable that Elon Musk would have a different perspective on these issues than, than Peter Navarro would have. And I think there's a, obviously a very different view that the two of them bring to this issue. But I don't know that it's much more than theatre, to be honest.

John Terry (11:27): And then, then within the U.S., you know, governmental structure itself, we've seen some inklings of bipartisan initiatives in Congress trying to potentially constrain the president's tariff-making discretion. We've seen, you know, some discussion about going to court and challenging the basis under which he's gone about putting in place some of these tariffs. Wondering if you have any thoughts as to the likelihood of those sort of constraints, I guess, whether they come to fruition or not, starting to have some impact on, on what President Trump is doing.

Steve Verheul (12:09): Well, I think the, the voices within, within Congress from Republicans are, are starting to be a little more [inaudible] than they have been in the past. But I think it's still quite modest and certainly not something that's going to stop the president from continuing at this stage. But I think if the tariffs remain in place for a longer period of time, those voices will start to become more vocal.

So, I think there's, there's certainly that challenge, and I don't think that President Trump is inclined to, to make changes without a lot more pressure than he's gotten now up to date. He's very committed to the direction he's, he's wanting to go and, and hasn't had enough pushback yet to turn that around.

John Terry (12:59): So—tough question, and you can duck it if you want—but do you have a sense in terms of, you know, for this thing to settle out? If it's going to settle out at 10% tariffs, you know, plus some higher ones for select sectors, and, and, and, you know, some of these reciprocal tariffs at different levels are going to be negotiated out,

I mean do you see this as, uh, something that would occur over a couple of months, you know, six months, a year? What, what's your best guess?

Steve Verheul (13:32): Well, I think that, I think we kind of have the possibility of two different tracks. One is that President Trump maintains the tariff, at a reasonably high level, with very few exceptions, in order to keep pushing that part of his agenda. Or they start to move away fairly quickly from those additional tariffs beyond the 10% by extracting concessions from other countries.

So, I think that that is still up in the air. And I think a lot of this—and this is surprising—but a lot of this under this Trump administration is being decided and, and views are changing day to day. Leading up to the imposition of the reciprocal tariffs, they went through five or six different other approaches that they could take and ended up with an approach that was really found on the back of the envelope.

It was just a very crude calculation based on trade deficits, not on reciprocal trade at all. So, so a lot of, a lot of the policy-making in this Trump administration is not backed up by a lot of careful analysis and, and a lot of rigorous discussions about exactly what would be applied in such a very important policy initiative.

John Terry (14:55): And are we seeing any signs? I haven't picked up any yet, but, but, but wondering whether you, as a close observer—are we seeing any signs that the Trump Administration is actually taking steps to try to calibrate the amount of revenue they are getting from, from tariffs? I mean, has there been anything set up to do that?

Because I understand that that's part of the, the selling job here for doing tax cuts is that the revenue would come in from the, from tariffs.

Steve Verheul (15:23): Well, I don't think there has been a lot so far. It's certainly not that I've, I've seen any signs of that. And I think that President Trump's agenda on this issue is kind of stuck with a fundamental contradiction. If the tariffs are going to be used to incentivize businesses to move to the U.S., invest in the U.S., produce in the U.S., then you have to keep the tariffs in place.

And you're not going to get any revenue because countries aren't going to be paying the tariffs. They're going to be looking elsewhere to, to sell their products. But if you do just start to collect the tariffs, then that's not going to have a very effective impact on his reshoring objectives to bring production into the U.S.

So, so he's a bit caught there. He can't achieve both of those objectives very effectively. And, and I think that that's going to be an increasing issue going forward. And I think there's going to be a bit of tug and pull on both sides of that issue.

John Terry (16:25): I'd like to turn now to a different topic. I mean, you've spent, you spent most of your career working on the negotiation of international treaties, trade treaties that, that made up, you know, what we've, what we typically refer to as, as the, you know, part of the post-World War II consensus on free and open trade, MFN principles, the WTO, of course the NAFTA, followed by the CUSMA.

And it's interesting because I do—we as lawyers often are asked, particularly by non-lawyers, “Well, what steps, you know, can Canada take? Can’t Canada go and bring a complaint to a tribunal under one of these treaties and have this, have this changed?” And of course, we've seen that those, those filings have taken place. Canada’s brought... taken the appropriate steps. So has China, for example—

Steve Verheul (17:24): Mhm.

John Terry (17:24): —is, is there a point in doing that or are we just talking about for form only at this point in time?

Steve Verheul (17:33): Well, I think at least from the perspective of Canada, it's important to reinforce the, the, the value we attach to rules-based international trade. And in that light, it's important to initiate and pursue those cases. The notion that it might change U.S. policy in some way or constrain U.S. policy in some way, I think is, is not the world we're living in right now.

I think that the U.S. will continue to feel free to, to breach most of the obligations of the trade agreements that they're a party to and will continue to do that going forward for the, for the foreseeable future.

John Terry (18:15): Yeah. And I guess—I suppose that raises, you know, the question that’s on a lot of people's minds: if, if we've seen a U.S. administration doing this so easily and if the U.S. administration is talking about, you know, renegotiating treaties as, as of course was done in the first Trump Administration with the NAFTA—

Steve Verheul (18:40): Mhm.

John Terry (18:40): —what, I guess, for other countries that are party to these, what, what assurances are there, what can be done to, to provide some, some certainty, if there is any, that an agreement that you negotiate with the administration is one that's going to be honoured in the future?

Like if, if we are going to—are we, are we entering a new world here where we don't, can't rely on treaties and we sort of, we negotiate in different ways or, or, you know, have different ways of, of assuring that those negotiations and the results of those are honoured?

Steve Verheul (19:21): Yeah. Well, I think we're certainly in a different world than we used to be, even, you know, a small number of years ago. And I think we can't have a lot of confidence in the U.S. living up to the obligations in their agreement. Now, we negotiated the CUSMA agreement in 2020. The U.S., currently, is breaching the core fundamental obligations under that agreement on a regular basis,

and has indicated that the, you know, they're not going to abide by many of the disciplines there. But I think we're still kind of stuck because Canada, and various other countries, are still going to be looking for this sense of added security to get of concluding some kind of agreement with the U.S. So better to have some kind of agreement than to have no agreement, even if you don't have a lot of confidence in your trading partner living up to the agreement at the end of the day.

So, I don't think it will stop countries from continuing to try to pursue agreements. I think we have to go into that with our eyes wide open, that they may not be respected at the end of the day. But I think we also have to keep in mind that, that this is pretty unique to President Trump. And that will not necessarily be the case with the U.S. in the future under a different leader. And I think there's, there's also a certain element of, “Let's do what we can during this administration and see if we can get back on track for the next administration, whatever that might look like”.

John Terry (21:03): So, so do you have a sense, and let's leave aside Canada for a second, Canada and Mexico, under the, under the USMCA. But, you know—

Steve Verheul (21:11): Mhm.

John Terry (21:11): —for example, if you're Vietnam—

Steve Verheul (21:13): Yep.

John Terry (21:13): —and you're trying to negotiate a different tariff rate, I mean, how, how are these things going to be, going to be reflected in any national treaty? I mean, is it, is it an exchange of notes? Or is it some sort of... What is there that you could do if you're, if you're advising Vietnam right now, maybe you are—

Steve Verheul (21:35): [Laughter]

John Terry (21:36): How would you, how would you go about recommending that they do something that's going to, that's going to stick?

Steve Verheul (21:41): Well, I think my first recommendation would be not to move in too quickly, because I think the countries that are most eager to try to conclude something with the U.S. right now are going to face the most extreme U.S. demands. And I think that the whole issue of domestic reaction within the U.S. will put some pressure on that could be moving things in the, in the right direction.

And I think just—the continuing disruption caused by the environment right now may also lead to greater, more moderation on the U.S. side. So, having said all that, though, I think that it is a difficult situation because every country that has expressed an openness to negotiate with the U.S. has to think about, okay, what price is the U.S. looking for?

And so far, the indications are that the price is very extreme. It's not just tariffs, it's value-added taxes and addressing that, where they exist; it's potential currency manipulation in some cases, which the U.S. will try to address. It will try to ensure that the trade deficit is going to decline. Not a negotiation that any country should really want to enter eagerly because you don't know what the price is.

And at the end of the day, you're going to have to acknowledge that you're going to be worse off than you were just a few months ago under the old rules and the old system. So, I think countries need to be fairly cautious about entering into those kinds of negotiations.

John Terry (23:21): Yeah. I also must say that I puzzled over how you would—if the concern is a trade deficit from the U.S. side and part of the quid pro quo from the agreement is, you know, “We'll, we'll drop tariffs if you can do, take steps to improve the trade balance”. And of course, typically governments don't have, in your average market economy, don't have that much control over that. You know, how does the state go about complying with the Trump Administration's desire in that respect?

Steve Verheul (23:54): Well, yeah, that's a—that's the dilemma right now that many countries are facing: “What does the U.S. expect us to do? How can we manage that somehow?” Because they have to think about a whole series of issues. If they provide concessions to the U.S., what is that in exchange for? Are they going to get the same kind of tariff treatment they had before all of this started?

That seems doubtful. How much are they going to pay to leave themselves in a worse position than they were before? And at the end of the day, is the U.S. going to, going to accept this as a, as a bilateral obligation which causes all kinds of complications for any particular country outside of that?

So, I think going into these negotiations, you don't really know what the U.S. is looking for. And a lot of countries have been fairly specific about what kind of concessions they would make— going to duty free trade, on at least some products or across the board—but they don't know what that's going to get them. And with the U.S. also tying in security issues to all of this, the discussions are likely to be broader than just trade, which complicates that matter even further.

John Terry (25:12): And if this is all a negotiating process, is it potentially good for international trade? I mean, for example, if, if the goal of the U.S. was to reduce tariffs as much as possible with all its trading partners—

Steve Verheul (25:26): Mhm.

John Terry (25:26): —I assume, and then it was willing to reduce its own tariffs, you know below the 10%, I assume that would be a positive. But, but do you see a scenario where all this ends up being good for multilateral trade?

Steve Verheul (25:41): So far, I have to say I don't. Because if those negotiations happen and even if they make progress, where does that leave the, the multilateral rules-based system? Like, if a specific country negotiates with the U.S., then, well, this gets back to that fundamental question: are they going to provide those concessions on eliminating tariffs on autos or eliminating tariffs in various other areas, are they going to provide that concession solely to the U.S.?

Or are they going to provide it to all countries, which would comply with WTO obligations on most-favoured-nation status? If it's the former, we can expect huge disruptions and an unraveling of the rules-based system. If it's the latter, countries are going to have to think carefully about whether they can actually live with those kinds of concessions provided to all countries around the world.

Stakes are, stakes are huge. Consequences are very large. And I think one of the things in the back of everyone's mind is, “Is this just President Trump?” Is this just going to be an issue until the midterms, two years from now, or to the end of his term, four years from now? And does everybody want to make the radical kind of changes to the entire world economy if it might turn around again in two or four years?

John Terry (27:11): So, yeah, so, so let's, from the perspective of all countries other than the U.S., I mean, we've seen, we've seen that the U.S. already had been hampering the ability of the WTO to operate, you know, through blocking certain appointments to the appellate body—

Steve Verheul (27:29): Yes.

John Terry (27:30): —dispute settlement. I think in general, the world has seen what happens to these post-World War II institutions that are set up when the U.S. is not a player anymore.

Steve Verheul (27:42): Mhm.

John Terry (27:43): Is there—looking at all the countries other than the U.S.—is there a world in which they get together and figure out the answer to the sort of questions you're asking? And either have something temporary in place on the assumption that the U.S. policy at this time is, is an aberration—

Steve Verheul (28:03): Mhm.

John Terry (28:04): —in short to medium term, or, or something in place that looks at a longer horizon? I'm just wondering what your general thoughts on that and how, how that would come about?

Steve Verheul (28:16): Well, yeah. No, I think that that is really the key question in terms of how all of this will fit into any, you know, any kind of notion of a rules-based system. And I think if there, there is the beginning of negotiations with the U.S. and concessions are made and agreed, then we're starting to look at where—a situation where the U.S. is kind of the hub, and every other country are the spokes, and the U.S. is in control of its relationship on trade with all of those countries at the same time.

And then I think that's getting us into a situation where we would not see any kind of real collaboration among countries who try to preserve any elements of the, of the current rules-based system. The other track that countries could go down is if President Trump maintains the tariffs, or doesn't make many changes to them, and we see a situation where, if there's not going to be any real negotiations taking place, and countries start to lean more into retaliating against the U.S. So far we've, we've only seen China, we've seen Canada retaliate to some measures.

The EU is about to retaliate on steel and aluminum tariffs, but not beyond that. So there's, there's been some discussion in various places about trying to get countries to collaborate on a common reaction to the U.S. and what they're doing on these reciprocal tariffs. But there's not a lot of buy-in to that yet. Every country is still thinking, “I'm going to try to protect my own interests first and foremost, and think about the broader implications later”.

John Terry (30:08): And Steve, just looking back historically, I mean, is there any era—doesn't have to cover the whole world, but if you look to Europe at a particular period of time or, you know, pre-WTO or pre-GATT, interactions between the U.S. and others—are there things we can learn historically as to how this might play out?

Steve Verheul (30:33): Well, not a lot I don't think, because this is fairly unprecedented both with respect to the, the size of the tariffs and the rationale for which they're, they're being implemented. I think many people have talked about the Smoot-Hawley tariffs in 1930, and pointed to some comparisons there. But I think even there we were in a different kind of environment, a different kind of situation.

And any other comparisons, as far as I can tell, take us back to the 1800s. I think we're looking at situations that are much different than what we're in now in terms of the broader context. So, I don't think those are that relevant. So, I would say that it's fairly unprecedented. I don't, can't think of any other examples where a country, and particularly the strongest economy in the world, has gone out and imposed significant, significant tariffs against the rest of the world in an effort to rebalance the economic relationship. It just, just hasn't happened that way.

John Terry (31:42): And how, how realistic do you think President Trump's objective of onshoring manufacturing is, and also creating jobs out of that, given the increasing use of automating—automation and AI in, in a lot of, a lot of industries? I mean, there's obviously a time scale here. If he's looking for things to, to point to in a mid-term time frame, that's not very long, and it clearly takes a long time for investments to become factories. Any thoughts on that? And what sort of—at least in President Trump and the administration's mind, what sort of victories he can point to, to be able to show that this is working and how soon that might happen?

Steve Verheul (32:29): Well, there are a few things that I think are going to make that very difficult to, to achieve, particularly when you're looking at the time horizons in the U.S. political system. First of all, it takes a long time to try to shift production back from one place where it's been operating fairly competitively, back into the U.S., to do that with maintaining those tariffs.

So, you've got a challenge of, of, timing, first and foremost, because, as you suggested, you can't do that overnight. This will take years to, to try to bring investment and production back to the U.S. You take the aluminum sector, particularly where the U.S. has supplied tariffs against all imports of aluminum. It would take the equivalent of the U.S. creating four Hoover Dams and at least $100 billion worth of investment over a number of years to try to get to a point where they could start to serve the U.S. market at a greater percentage than they do now, because they only serve about 50% of the U.S. market through domestic production now.

And then they spend all that money, they take all that time, and they're left with a much less competitive industry than they did from the, from when they started. So, fundamental problems in this entire vision. And then if you're taking into account that this is going to take so long to do, you're running up again into certain steps in the U.S. political system: midterms or next election, where there may not be an appetite to still go through the pain to try to achieve this, this other outcome, and future political leaders may have a different perspective.

John Terry (34:24): And, and what about—you talked early on about, you know, the national security tie-in to all of this.

Steve Verheul (34:31): Mhm.

John Terry (34:31): And, you know, at, at least for this administration, that would be China, would be—

Steve Verheul (34:38): Mhm.

John Terry (34:39): —a key target for that. We've seen, we, of course, have seen tariffs, an initial tariff on China, another 34%.

Steve Verheul (34:48): Yeah.

John Terry (34:49): Just this afternoon, President Trump seemed to confirm that he's going ahead with another 50%, although he also says he's expecting a call from President Xi to talk about a negotiation. I mean, do you have, a—a number of things arise from putting a wall up against China: is obviously all of the supply chain disruptions, etc., the possibility that the Chinese, which they appear to be doing, devalue currency to manage these tariffs—

Steve Verheul (35:15): Mhm.

John Terry (35:15): —and the issue of, of, cheap Chinese goods flooding other markets. And then, of course, the U.S restrictions on wanting, you know, Chinese component goods to come into the U.S., you know, by way of other markets—

Steve Verheul (35:31): Yes.

John Terry (35:31): —just take a few moments to help us untangle some of the particular issues that China raises here.

Steve Verheul (35:37): Well, I think that when we first started to, to think about what might happen in the review of CUSMA—that has to be concluded by, by July 2026—our main orientation was thinking that we would have to line up with the U.S. with respect to barriers against imports from China, barriers against imports or investment from China.

And that would be the path to consolidating a North American basis for, for integration. I think what we've seen with the, with CUSMA over the years, too, since 2020, is we've seen a lot of growth in intra-North American trade, mostly at the expense of China. So, a lot more production coming out of Mexico that would have formerly been China, production from China, and, you've seen that concentration within the North American market that has expanded considerably. So that leaves China in a difficult position because it's, it's still looking for markets, it's still looking for growth. But I think what we've seen, and there's no questioning, there's an obvious continuing effort between China and the U.S. to become the more important economy,

and there's a lot of tension around that. And China is—to me, seems quite determined to, to play this out and, and to go head-to-head with the U.S. and do whatever it takes. And I do think that at the end of the day, China's resolve could be potentially larger than the U.S. resolve, because I think the U.S. will be much more vulnerable to internal concerns and complaints about the direction that President Trump is going right now.

John Terry (37:37): And what about the European Union? I guess, I guess one of the areas I'm interested in, in exploring with you, the EU has talked about, you know, their so-called bazooka—

Steve Verheul (37:49): Yeah.

John Terry (37:49): —retaliatory, and so far they've, they've been quite careful about retaliation. One of the things they've put on the table is potential retaliation in the area of services. And we haven't seen, to date, the Trump Administration, apply, you know, the tariff approach or some equivalent to the services sector, in which, of course, it runs services surpluses, trade surpluses—

Steve Verheul (38:13): Yes.

John Terry (38:13): —that’s made in countries around the world. Any thoughts as to what happens if the EU, you know, decides to use that bazooka, does something in the services sector, and how that might spiral out?

Steve Verheul (38:28): Yeah. No, I think the—that the EU is, is considering retaliation at the moment on, on the goods side, but only on steel and aluminum tariffs: the 25% that were put in place against all sources of steel and aluminum. That retaliation is being set up to, to come into place as early as, at least the first step, on April 15th.

So, not too far away. But yeah, I think the EU is constrained in doing much more on retaliation on the goods side. But given that the U.S. has a surplus in services with, not just the EU, but with most countries, the EU is bound to look in that direction if things continue to go on a more difficult track.

So, I think we could definitely see that. And the U.S. economy, you know, 76% of their GDP is the services: it's not goods. They’re a services economy much more than they were in the past. So, all of that has to be taken into account as well.

John Terry (39:33): Yeah. And in that respect, you know, there, there is something I think strikes many observers about all this. I mean, it is a fight over goods. President Trump seems very concerned about, about trade deficits in goods. I mean, why do you think it is that there hasn't been more discussion of services? I mean, I can see why President Trump may not want to pay attention to that, but, but, but more discussion of, of, when you look at the overall trade that things are much more imbalanced than the U.S. might suggest.

Steve Verheul (40:06): Well, yeah. I mean, that's, that's exactly right. I think if, if we were talking about trade, then usually you would take into account both trade-in-goods and trade-in-services to, to get a full picture of the economic relationship between countries. But yes, the U.S. has completely ignored the services element entirely.

And I think the main reason for that is that President Trump has focused on the U.S. building things: building cars, producing steel, aluminum, other products related to that. So, he doesn't pay much attention to the goods side of things, is not prepared to acknowledge that that does in effect rebalance trade to some degree, if you take the two into account in the relationship with any specific country. But he's entirely focused on goods and the goods trade deficits, which is, is, is certainly questionable in terms of, of that kind of analysis. But that's the track that he's on and I think it's unlikely he’s [inaudible].

John Terry (41:12): I mean, it seems to present a sort of irresolvable problem that there are a lot of other countries around the world that can build things much more—that have comparative advantage when it comes to building things, whether it's labour, labour costs or automation or whatever.

Steve Verheul (41:27): Mhm.

John Terry (41:27): You know, how do we, how do we get to the point if, if President Trump is not going to take into account the services trade, how do you ever get to the point where you're going to have trade deficits and, you know, trade balances in goods, you know, in a satisfactory place for, for President Trump? Is it even possible?

Steve Verheul (41:45): Well, you know, I mean, if the U.S. does succeed and get trade, getting trade deficits back to an acceptable pace, place, from their perspective, which would essentially be more or less balance or even surpluses, then their economy is going to be fundamentally weaker as a result of that. And that's really not going to achieve the kinds of objectives they think it's going to achieve.

Now, the exception I would make to that, to some extent, is that he is focused, as I mentioned earlier, on specific sectors that he thinks are particularly of strategic importance: the autos, aluminum, steel, lumber, a handful of others. And he feels that for security reasons they do have to meet production to the extent that he can, within the U.S., for those in order to keep the U.S. as a, as a strong and secure economy.

John Terry (42:51): I guess that that sort of leaves us a little bit to the last area I wanted to talk to you about, which is Canada.

Steve Verheul (42:58): Yeah.

John Terry (42:59): And—a number of questions in this area, but let's, let's start with what we, because we were really to some extent the guinea pigs for the initial announcements that President Trump was making on tariffs. We went through a number of, you know, painful tariff announcements, then pauses, and then more announcements, then pauses, before things sort of settled in, at least for now, at a particular state.

Steve Verheul (43:24): Yeah.

John Terry (43:25): What is—what have we learned over the past few months with respect to Canada and Canada's policies and how Canada's likely to fare, you know, through this period?

Steve Verheul (43:38): Well, yeah, there's been a lot of analysis and, I think, internal examination of where Canada is at with respect to all of this, I think we're kind of stuck by the, by the core facts that two thirds of our GDP relies on trade and 75% of our exports go to the U.S. And yes, we've talked about internal trade barriers and the benefits that could bring, we've talked about potential diversification of, of exports and how that might put us in a better place.

But I think at the end of the day, we're not going to be able to get away from having some kind of relationship with the U.S. And I think it's in the U.S. interest as well to have that relationship with Canada. So, so we can't just think that we're going to be able to replace whatever disruption we see in the U.S. market with alternatives, either, you know, improvements in internal trade or diversification.

John Terry (44:44): And are we seeing, I mean, I think all of us were—notice a difference in President Trump's tone between dealing with former Prime Minister Trudeau and current Prime Minister Mark Carney.

Steve Verheul (44:56): Mhm.

John Terry (44:58): He's also talked about how much he likes Claudia Sheinbaum.

Steve Verheul (45:02): Mhm.

John Terry (45:04): And how important, and, and from your, your experience also with Trump 1.0 and now, like, how important are personalities and personal connections? Because I know there's been a lot of effort on the Canadian side to—as there always has been in previous administrations—to forge those connections with the new administration.

Steve Verheul (45:25): Mhm. Well, I think President Trump carries that issue of personal relationship to, to such a larger extent than any leader I've ever seen, certainly in my career, in Canada and in the U.S. So, it is a real issue for him, surprising as it might seem. He did have some, some tensions with Prime Minister Trudeau, although their conversation on February 22^nd of this year was one of the warmest conversations they've had throughout their relationship.

But that may have been partly as a result of the knowledge that Prime Minister Trudeau was leaving. I think with, with Sheinbaum, she's been very cautious. She's been very careful not to offend President Trump in any way. Hasn't retaliated yet. And I think, you put all that together with, with the fact that, as you mentioned, Trump seems to like her, and that so far, so far has worked out reasonably well.

And with respect to, to Prime Minister Carney, I think that one conversation is not a lot to go on, particularly since it was an introductory conversation. And I don't think we should put too much stock in that, but I think, going forward, we'll have to see how he reacts to Canada. But I think within the North American contract context more broadly, the focus will be much more on Mexico, because that's a bigger concern,

and there are some bigger challenges there than it will be on Canada. So, within the North American context, I think there's a little less pressure on us than there is on Mexico.

John Terry (47:24): The, the, the back and forth, the various announcements made over the past number of months about exports from Canada, the U.S. resulted in the end in, and from Mexico with, with, with a concession or an agreement that if a good was CUSMA-compliant, USMCA-compliant, it could, it could get in on the, without having to be subject to the larger tariffs that had been, you know, whether they're 25% or 10% that were being applied.

Steve Verheul (47:57): Yeah.

John Terry (47:57): Did you, did you take—particularly as being a negotiator of USMCA from Canada's perspective—did you take some solace or some guidance from the fact that the U.S. administration did go back to a treaty that it had negotiated, in fact, that President Trump had done, had praised when he signed it during his first administration?

Steve Verheul (48:19): Yeah, I did take some solace from that, because it was the only trade agreement in the world that he actually provided some kind of recognition of, or acknowledgement that, that there were considerations around that trade agreement. So, I think that the notion that products that were, products that are consistent with the obligations of USMCA or CUSMA, continue to get duty-free treatment is a very, very important signal for us at this stage.

Still leaves us with fundamental problems on steel, aluminum, autos and others likely to come. But if we still have that acknowledgment that, if trade is consistent with the agreement, then it's exempted. So that gives, I think gives us something to build on and to try to ensure that President Trump and the U.S. recognize that North America is of particular importance to them when it comes to trade, and they need to, to continue to acknowledge that going forward.

John Terry (49:28): So, let's look for a second at a couple of those sectors. You were involved, obviously the first time around, the first steel and aluminum tariffs during Trump's first administration. And those were largely resolved, although they can, sort of—they continued on to the next administration somewhat. Do you have a sense of comparing that time to this time? And what you see is a, is a way in which that, you know, that can be potentially resolved or mitigated on Canada’s behalf?

Steve Verheul (50:04): Well, yes. I mean, we did have 25% tariffs on steel and 10% on aluminum during that period. Canada retaliated and those were eventually lifted. The U.S. considered continuing it on aluminum. We retaliated and they dropped it at that stage. So, we did have that back and forth on those products, at least at that point in time.

I think this time it will be a little bit more difficult because of Trump's, President Trump's, orientation around trying to fundamentally bring some production back to the U.S., and away from the rest of the world, including Canada. So that one is going to be harder to, to deal with, I think, given what these kinds of tariffs are put in place. But I think, I think that's kind of the negotiating environment we can see ourselves in, where there's an acknowledgment that most trade within North America is going to be duty-free,

and, we're going to have to focus on specific sectors that the U.S. sees as strategic importance, and see what we can do on those to, to give comfort to the U.S. that we're not a threat.

John Terry (51:20): And just on steel and aluminum. Have you seen any data? I haven't yet as to whether—as to who's paying those tariffs. I mean, aluminum, for example, is a sector in which it's generally acknowledged, you know, Canada is a, is a major supplier to the U.S. The U.S. doesn't have alternatives. And the concern is that from a U.S. consumer perspective is that the, you know, the American importer would simply just add that tariff on and, and not realistically be able to look to other sources in the U.S. Have you seen any, any data that suggest that's the case yet?

Steve Verheul (51:56): I think yes. On aluminum, I think that that is pretty much where we're at. The U.S. does rely on imports to meet roughly 50% of its needs, which is a lot. Canada is the major supplier. There's an integrated relationship there, so difficult for them to move quickly away from that. Steel a little bit less so, but there's still, you know, they need 20% of, imports to account for 20% to supply their domestic market, so there are issues there too. The other important element with steel and aluminum, though, is that unlike last time around, they have introduced the notion of also covering derivative products. And that just carries it further down the, down the value-added lane of applying tariffs there.

And last time what really happened was that even though aluminum and steel were being restricted, it just shifted trade to more highly, highly value-added products coming from Canada into the U.S. So, it'll be a slightly different situation this around, this time around.

John Terry (53:17): The, the—I think you, as well as other commentators, have cautioned against renegotiating the USMCA, CUSMA too, too early. There is a timeline as set out in the treaty that calls for review, etc., which has, doesn't occur for some time.

Steve Verheul (53:39): Mhm.

John Terry (53:40): Anything that’s caused you to change that view? I mean, we seem to hear different perspectives from U.S.—from Canadian political leaders at various times as to how quickly we should go out and get to those issues, whether it's dairy supply or—

Steve Verheul (53:53): Mhm.

John Terry (53:53): —you know, whatever the issues are. Do you have a perspective on, on how, in Canada's interests ideally, you know, those negotiations should roll out?

Steve Verheul (54:05): Well, yeah, I think that it's probably in Canada's interest to try to get those negotiations started sooner than later. But I think Canada should be cautious in how quickly it moves towards any kind of conclusion, because I think with the U.S. in the current position it's in, it feels it has a lot of leverage, a lot of negotiating capital on its side, and it's making very extreme demands. It needs to be some more pushback from the market, from stock markets, from economic indicators, to try to bring the U.S. down to more reasonable, reasonable objectives in that kind of negotiation. And the other part of that is that this time around, it won't simply be a negotiation or a trade. We will get security-related issues into that discussion as well.

So, so it's going to be a broader negotiation than just trade, which adds additional complications, but also additional opportunities.

John Terry (55:08): And, and as we go into those negotiations, do we keep, do we keep, you know, the prospect of, you know, surcharges or quotas on energy and those sort of issues on—as potential retaliation on, on the table? I know I, I think back to the Canada-U.S. Free Trade Agreement, where, of course, the U.S. had a commitment that Canada wouldn't restrict, you know—there are various limits on Canada's ability to restrict energy flows to the U.S. at that time.

Steve Verheul (55:36): Mhm.

John Terry (55:36): What are your thoughts on that?

Steve Verheul (55:40): Well, I think that it's possible. I think that it's going to be a difficult negotiation because, from a Canadian perspective, we'd like to get back to duty-free trade virtually across the board that we've had up until just recently. And anything less than that, it's going to be difficult to accept. And I think that there are going to be discussions over these core sectors, about whether there would be tariffs left in place or not.

And I think that we really have to think about what kind of obligations we would be prepared to take on. And we'll want to keep a close eye on what others are doing, and in particular, we're going to want to keep a very close eye on what Mexico may be doing, because if Mexico negotiates on its own with the U.S., they could well be making concessions that Canada may be uncomfortable making, which would put us in a difficult position from that perspective.

John Terry (56:38): Yeah, I assume that a key part of these negotiations is to—because we all saw there was a bit of separation between Canada and Mexico in terms of statements made, you know, when President Trump first talked about tariffs in November of last year, I assume it's very important for Canada and Mexico to stay in close touch through these negotiations.

Steve Verheul (57:00): Well, those, those early statements were very unfortunate, in my view, because they did create some distance between Canada and Mexico and they, they cast a bit of a shadow over the relationship. And that doesn't leave us in an ideal position by any stretch, or Mexico, in a good position. We're far better off if Canada and Mexico are working together towards strengthening the North American market and trying to convince the U.S. to, to go that direction too, but if Mexico and Canada are going to go in different directions, it all gets much more complicated and much more risky with respect to achieving Canada's objectives.

John Terry (57:41): And you talked about this a bit earlier, but when, when President Trump was making his statements about the 51st state, we obviously saw a big wave of nationalism across the country.

Steve Verheul (57:54): Mhm.

John Terry (57:54): When he was going to put it across the board 25% tariffs, we saw a lot of focus on bringing down interprovincial trade barriers and looking for other markets.

Steve Verheul (58:04): Mhm.

John Terry (58:04): And obviously those initiatives are coming, but are you concerned at all that some of the, the energy around those might dissipate as this, as this issue moves forward and, and over the next number of months and we may run into the, the same problems we've run into in the past, negotiating reductions of inter-provincial barriers and finding new markets? And, and I guess if you think there's a concern that any policy prescriptions or other advice you have for people trying to achieve those objectives?

Steve Verheul (58:34): Well, yeah. No, I think that, you know, if we're in a situation where we do start to move towards some kind of accommodation with the U.S., it's acceptable to us, I think there will be less pressure on the internal trade barriers and on diversification of, of exports and getting some of our resources to market more effectively. But I think that the lesson should still be fresh that we cannot rely on the U.S. as a partner, and that they could change at any particular time in directions that would not be in our interest.

So, I would hope that we would find a way to, to move forward, particularly on being able to get some of our resources to points where we could sell them to other markets. Certainly on the oil side, many critical minerals, other areas, we'd be in a far better position if we could do a little market diversification on those products.

John Terry (59:40): Thanks, Steve. I see that we've reached four o’clock, and you've been very generous with us with your—we know you're in demand both as a speaker on these issues and as an advisor, and just want to thank you again for, for coming on our webcast, for offering, you know, the sort of analysis that really can only come from all the years you spent doing this.

Steve Verheul (01:00:08): Mhm.

John Terry (01:00:09): And thanks very much. And thank you, everyone, for, for listening. We've, I've tried to include in my, in my questions the various questions people sent in. So, I appreciate that. And, if people want to, there'll be a recording of this as well on our website, so if people want to pass it on to friends or, to, to hear more about what Steve has to say, I encourage that.

Thanks very much, everyone. Bye for now.

Steve Verheul (01:00:38): Thank you. Bye.