Why Canada Is Cozying Up to Europe

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1:57Later this week, Carney will continue his campaign in Europe, where he'll address the European Parliament. There is a huge host of areas where we can work together. It's an exciting time. Look, it's not going to be solved this week in Strasbourg, to be clear. It's the start of a process, but it's the start of a high ambition process. Well, he has this line that he's used a number of times that Canada is the most European of non-European nations. Derek DeCluet is the executive editor for Canada at Bloomberg News. So what he's trying to do is pull Canada much closer to Europe in a bunch of different ways.

2:31Carney is something of a Europhile and I think, you know, sees natural alliances. He has a Rolodex. He was governor of the Bank of England. And even before that, as governor of the Bank of Canada during the financial crisis, He was quite involved in some of the coordination among central banks and regulators for dealing with the financial crisis. So I do think he's a unique person. There are not many people in Canada who could try to pull this off and who have both the connections and that level of credibility. Derek, how significant is this moment for Canada? I think it's really significant. I've been describing it to people as the biggest economic and political story probably of my lifetime.

3:11because really since the 1980s, and arguably even before that, the entire trajectory of Canada economically has been pulling closer and closer with the U.S. And so I think it is a real shift in mindset for the whole country.

3:36I'm David Gura, and this is The Big Take from Bloomberg News. Today on the show, Canada's pivot to Europe. Now the country appears to be reassessing its trade and security relationships and could be turning away from the U.S. and toward the EU.

3:57It was back in May that Mark Carney made another trip to Europe. He was there for the European Community Summit, and rather extraordinary because Canada is not a part of Europe. How receptive has Europe been to Prime Minister Carney's overtures? They've been quite receptive, and I think there are some logical reasons for that. Both Europe and Canada have been at the other end of verbal attacks from members of the Trump administration on all sorts of issues, including defense. And I think one can easily say that some of those criticisms, particularly around the pace of defense spending, were justified.

4:32But I think the common thread of feeling a bit under attack by the U.S., by the Trump administration, the long history of joint NATO membership. You'll remember Carney's speech in Davos in January was where he said, you know, the rules based order is dead. It seems that every day we're reminded that we live in an era of great power rivalry, that the rules based order is fading, that the strong can do what they can and the weak must suffer what they must. Middle powers, they have to work together in order to avoid being bullied. He didn't use the word bullied, but that's that way. That was the message that was aimed in part at Europe.

5:16I mean, who's got middle powers? Europe does. And lots of sort of similarly sized economies. So the debate, even prior to this speech that's about to happen, the debate in Canada about could we actually join the European Union has actually been sort of rolling along in the public sphere for a number of months. There have been numerous kind of long features written about the pros and cons of this, as though EU membership is a real possibility for Canada. I mean, currently it's not, but other things are. I've seen Bloomberg reporting that EU officials see the potential here to create perhaps a closer relationship with Canada than the relationship they have with the UK.

5:58And I'm curious sort of what that would look like. So broadly speaking, what the EU can offer Canada and what Canada can offer the EU. Yeah, I think that our reporting indicates that there's a number of areas in which it's best described probably as a closer alliance, partnership of cooperation. You know, choose your term. There's already, broadly speaking, free trade. There's been a free trade agreement in place between the European Union and Canada for roughly 10 years, and it's been sort of implemented slowly. But you don't have a ton of trade barriers. There's largely tariff-free exchange going on.

6:33So what are the other areas? Obviously, defense is clearly one. And one of the things that pulls Canada and Europe closer together in this current environment is a common feeling about Ukraine. People of Ukrainian descent are one of the largest groups in Canada. And plus Canada has taken on a number of refugees since the war. And so defense, security, the future of Ukraine, these are all areas where there's quite a bit of alignment between the European powers and Canada. But then there are other areas like space exploration, supply chains. You know, one thing that Europe, that Canada can clearly do for Europe is natural resources.

7:15We have a great surplus of oil, natural gas, potash, certain food staples. And of course, you know, Europe does not have a surplus of many of these resources. The only reason why that supply chain relationship hasn't been closer up till now is the physical distance. So there is the supply chain relationship, but I don't think you can underestimate either the security aspect of this. if the current U.S. administration is at least a little bit hostile, I think we can say, to Canada. And Canada needs allies that would come to its defense in a variety of ways. And that is something that the Canadian public never really had to contemplate.

8:05Where else could we find allies other than the U.S.? Why would you need them? We're so tight with the U.S. And now suddenly that's an element of the public debate is how do we find allies if the Trump administration or some future administration starts to menace Canada in a much more serious way than tariffs? Are there risks to going this route? Is there a risk here of upsetting the U.S., for lack of a better phrase, by focusing so much on the relationship with Europe? I think so. And I think the Carney government and his advisors and the prime minister himself, they're really aware of that. They've been there to hear what the U.S.

8:41wants. And one of the things that the U.S. clearly wanted in those trade negotiations was some say about other trade deals that Canada is going to do or might want to do in the future. Now, a lot of that is about China and making sure that Canada doesn't become some sort of backdoor for Chinese goods to get into the U.S. And that's a very real and I think legitimate consideration for the U.S. But this administration in Washington has made it pretty clear that they like Canada's resources. They want more oil and they want more access to critical minerals. And I think to the extent that Mark Carney and the Canadian government and the European Union or other elements of Europe sign deals to ensure the shift of those resources across the Atlantic, I think that is something that the U.S.

9:32will probably not enjoy. Whether they take a specific action about it, I think, you know, is another question and would depend on the shape of what that alliance looks like. There is, on the one hand, the kind of granular work of forging these trade deals, forging new relationships with Europe. On the other hand, you have Prime Minister Carney, who is, you know, smart guy, well-educated, held a variety of high-profile policy positions, kind of opining on the world order and how it's changing. And I wanted to ask you just about his broader vision, yes, for Canada, but for its place in the world.

10:06More broadly still, I saw that he said, it's my strong personal view that the international order will be rebuilt, but it will be rebuilt out of Europe. Can you talk a bit about that, sort of the degree to which what we're talking about at a granular level is part of this kind of broader project or broader effort that he sees unfolding? Yeah, I think it's a great question, you know, what he meant by that. Why does he see it built out of Europe, which is not as economically dynamic as the U.S. is right now and not as economically dynamic as some parts of the Asia-Pacific? But what it does have is, you know, Europe is built around powers that now have strong democratic traditions and certain values about common security, for example, pushing back against Russia.

10:52And I think that that's more than anything why he looks to Europe is that he sees a continent that for all of its flaws has built a number of institutions since the Second World War to ensure these things go from generation to generation. and to make Europe stronger and a bit of a beacon in the democratic world. And, you know, the U.S. has always been a beacon to the democratic world. It's just that there are some now bigger questions about the direction that the U.S. is going. The U.S. remains Canada's largest trading partner, but the trade war is forcing both sides to rethink their relationship.

11:34The future of that relationship, after the break.

12:03Thank you.

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14:35In January, Canada's Prime Minister Mark Carney delivered an address in Davos, Switzerland, decrying the end of a rules-based international order and urging the middle powers of the world to wake up to a new reality and build closer ties with each other. Nine months later, Canada finds itself in the midst of a trade war with the United States. I asked Bloomberg's executive editor for Canada, Derek DeCluet, where that trade war stands. So where we stand now is the tariffs between the two countries are as high as they have been in this administration. A few days ago, the Trump administration announced it would ban certain categories of Canadian goods.

15:15And it's our belief now, based on things the prime minister has said, based on things we've heard out of Washington recently, that perhaps both sides are looking to quietly de-escalate this. But there's no question that, at least from the point of view of many Canadians and all the polls show this, they do feel that trust has been broken. And there may, in fact, be a deal, but the rebuilding of trust, I think it will take longer. You've been following these negotiations so closely. What are the biggest pain points for each side in these talks? The biggest pain points for Canada have to do with the auto industry and the explicit intention of or desire of the president and his commerce secretary to ensure that virtually all of the auto assembly plants in Canada are eventually shut and that production is moved to the U.S.

16:09Steel is a pain point. The lumber industry is actually really important in parts of Canada. And these tariffs on wood, they're causing job loss. They're causing mills to shut down in places where sometimes that's the only employer. From the U.S. side, the retaliation is at the top. You know, alcohol, wine and spirits are not actually that big a factor in bilateral trade. But it's so very visible, you know. It's like we pulled the booze off the shelves. Everybody's got video and pictures of it. Bourbon makers in Kentucky are mad. You know, wineries are mad. And it's just a very in-your-face thing.

16:48And the U.S. wants that over with. And there are other things. One of them is dairy, you know, milk and cheese. And there's a complex set of rules in the USMCA about how that trade works. And it's the U.S. view that Canada interpreted the rules in such a way as to make it as hard as possible for American milk producers to gain access to the Canadian market. And they're really annoyed by that. You bring up the USMCA, Kuzma, to Canadians. And I think there was a hope on the Canadians' part, on Mexicans' part, that this would be extended, that that deal would be extended. There was a mechanism to do so.

17:27Instead, it's now up for renegotiation. And I wonder sort of what that signaled when the US decided not to kind of rubber stamp the continuation of that agreement. I think that that was not a surprise for those who were following Donald Trump closely really since the 2024 campaign. You know, although it is his deal and he negotiated it in the first term, you know, he was pretty clear even back before he won the election that he didn't love it and that they felt that there were issues with it and they wanted to renegotiate. I think people here are starting to prepare for something that they were not really prepared for a year ago, which is the idea that this thing will just expire at some point, either because the U.S.

18:08withdraws from it or because we get to 2036 and it hasn't been extended and that's the expiry date. and that you wind up with this very patchwork trade relationship between Canada and the U.S. and Mexico where you have tariffs in some sectors and no tariffs in another and different rules that are negotiated on an ad hoc basis. People here are starting to mentally get their minds that that might be the outcome. You mentioned the kind of symbolic nature of the latest threat in the U.S.-Canada trade war, that is these new import bans and there's this window that we're in right now between their announcement when they might be implemented.

18:43What is your sense of the appetite for continued conversations between these two sides in this period? I think there is appetite. For one, there is some political pressure in the U.S. that we are seeing, particularly from border states. Some of that has to do with short-term politics. You know, there's a Senate seat in play in Michigan. There's a Senate seat in play in Maine. And these are places that are more favorably disposed to trading and having a good relationship with Canada because people who live in those places know a lot more Canadians and the economic ties are much stronger. In Canada, I would say there's also an appetite because let's be real here.

19:22You can say you're going to diversify, but there are some industries for which that's extremely difficult or maybe even impossible. As the prime minister packs his bags to go to Strasbourg to deliver that speech, is he thinking about building new relationships that will insulate Canada for the next two years of the Trump administration? Or is he thinking beyond that? What's his time horizon for what he's doing? And how much of a kind of radical reinvention of Canada's relationships is he trying to make? I do think he's thinking beyond that. And I think that the viewpoint within Ottawa, within the prime minister's office, is that you can't count on a snapback to the old order when Donald Trump goes.

20:05There are all sorts of reasons to believe that there's going to be some kind of trade protectionism. I think there's also an argument to be made that it is unhealthy for a country like Canada, a rich country, but a very resource-dependent country to have 75 percent of its exports go to a single buyer. And that you have to mitigate that risk no matter what you think is going to happen in 2028 in the U.S. election. Derek, it does seem like you could argue that President Trump is doing Canada a bit of a favor here, that he's kind of prompting Canada to diversify its relationship with other countries.

20:41I think that that is a view that's shared by a lot of people, that we did become complacent because of this long path of very easy and growing trade with the world's largest economy, and that it became ultimately a relationship of too much dependence. So there are plenty of people who will say, yes, this is a favor. I would say it's something else, too. It was a wake-up call for Canada about that level of complacency about its own economy, that you can't just ride the tailwind of the U.S. and that you have to do a number of things. And in fairness to the Canadian government, even prior to Carney, they have made efforts to ensure that they were signing trade agreements with the EU, but also with partners in Asia to get closer to South Korea and economies like that.

21:31You have to reorient the Canadian economy in a couple of ways. One is those external relationships and being much stronger in dealing with non-U.S. trading partners. And then the internal relationship. Canada is a big country, and one of the reasons it trades north-south is that sometimes it's expensive to trade east-west. It's hard to, if you're building a project in British Columbia, to buy steel from Ontario. It's a long way to ship it. Far distance, yeah. And so they are also trying to do that, I think, with the idea that no matter what happens in U.S. politics, you could insulate yourself better over the longer run.

22:16This is The Big Take from Bloomberg News. I'm David Gura. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back tomorrow.

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