Elbows up, again: a US-Canada trade flare-up

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1:36The Economist.

1:42Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer.

1:52Today on the show, the struggles of Gen X workers in Japan's labor market, and how the fates of civilizations have turned on sieges.

2:07But first...

2:17If you were keeping an eye on trade talks between America and Canada before the weekend, you'd have thought things were pretty well zipped up. The deal with Canada is moving along and we should be able to have a deal with Canada. We're also starting on a new deal with Mexico. A much better deal for the United States. But when making deals with the Trump administration, nothing is assured. Prime Minister Mark Carney called off the deal-making at the last minute. Without an agreement, new trade barriers came into force. Mr. Carney promised retaliation. Canada will match Washington's new tariffs, dollar for dollar, in order to protect Canadian workers, farmers, families, and businesses.

2:59He seems lately to really relish calling them like he sees them. We're attacked. Like, when you get attacked, we got attacked. But there's more to navigate here than just tariff tantrums. The difficulty for Carney and the Canadian officials here is that in order to survive Donald Trump's caprice and his trade assault, they need to diversify to trade with other places, to reorientate the Canadian economy. They need to do a lot of work. Hal Hodgson is our America's editor. But in order to do that work, they need quite a lot of money. And not many people with a lot of money want to invest in a country that is embroiled in a massive trade war with Donald Trump.

3:43So in order to escape Donald Trump, Mark Carney needs to make peace with Donald Trump. And that is slow work and difficult work and, frankly, quite annoying work. so let's wind back a little bit and sum up where we are with canada and tariffs because canada has been in donald trump's crosshairs for quite some time actually since before he took office he's been banging on about canada being the 51st state canada and mexico were the two countries that trump placed tariffs on first before anyone else this dispute with the canadians and with mark Carney, who took over the liberal leadership from Justin Trudeau early on in Trump's term, then won the general election while in office, is just never ending.

4:31Sometimes you think maybe they're going to pull a deal out of the hat and then something happens that allows it to rumble on. And you can sum it up as Trump is bullying the Canadians and Carney and his officials are pretty much for the most part having to take it because the costs of retaliating against Donald Trump are really, really high for the Canadian economy, which is very integrated with the American one. And when you are attached to a very, very large thing and you are quite a small thing, you don't have that many options. The most recent thing that's happened with Carney walking out of the negotiations, that's the closest that he's come to defiance in almost the entire time.

5:12And Canadians will love that because they want him to stand up to Trump. But in reality, Carney's going to come back to the table and keep trying to get a deal here. So bring us right up to date, because going into the weekend, these were promising trade talks, and then suddenly they were off. What broke down? Yes, there seemed to have been three big things. And even though both sides claimed that the other side was at fault, it does very much seem like it was the Americans proposing things at the 11th hour. The first big thing is that the Americans wanted to exclude from the reduction in tariffs, medium and heavy duty trucks.

5:44And these are one of the lifebloods of the Canadian auto industry and large numbers of them get sent to the United States. So that was almost on its own ruling this deal out. The next thing that the Americans asked for was the Canadians to curb their ability to strike trade deals with other countries. And if you go back to the paradox that we discussed at the beginning, that's not going to fly for Carney because the whole point of this trade deal for him is to get enough stability to make Canada investable enough that it can start to diversify its economy away from the United States. He's not going to say that to the Americans, but that's the idea.

6:18And then the third thing and the most interesting thing was that the Americans started to weaken the protections on French language and culture in Canada. You can see that these are potentially a trade barrier, right? Americans have to put French on their packaging if they want to sell to Quebec, that kind of thing. And this is the political third rail in Canada. You cannot touch it. It is politically toxic to try and make proposals like this. Importantly, the province of Quebec has provincial elections coming up. And if Carney had agreed to limit the protections on French language, he would have been handing an enormous gift to the separatist party Québécois in Quebec because he would have been accused of kowtowing to the Americans and erasing French culture.

6:59So all in all, it was pretty unacceptable for the Canadians. But what's interesting there is that there is a kind of internal politics angle to this. This is not necessarily a plain, simple, unified, elbows-up Canadian response. No, each province has their own stakes. And for the Québécois, that became French language at the end of the talks recently. But perhaps the bigger story is in Alberta. Alberta is kind of like a mini Texas on the other side of the border. it supplies more than half of all the oil that America imports from outside of its borders. If you look at the effective tariff rate on the provinces, Quebec has a pretty high tariff rate.

7:38Alberta has almost zero tariff supplied to any of its exports to America. There has been talk of using that supply of oil and energy into America to hurt America, to cut off Canadian and energy supplies as a way of retaliating against Donald Trump. But Carney is very, very loathe to do that, in part because doing so would really piss off the Albertans. And that would be a problem because the Albertans have a referendum coming up on whether or not to remain in Canada. Likelihood is that the vote will go against that, that Albertans will vote to stay in Canada. But you do not want to be irritating your richest province in the middle of a trade or in order to strike a deal with someone who may well tear it up the next day.

8:25And in doing so, increase the risk. So in the absence of this trade deal that was torn up over the weekend, what changes? So the most immediate thing that changes is more tariffs, unsurprisingly. Tariffs came into effect at one minute past midnight on Saturday morning on about$20 billion of Canadian exports. And that's on top of tariffs that were already in place on aluminium and wood and cars and vehicles. Canada's economy was really battered around by tariffs last year. It shrank in the beginning of 2025 and then it was flat for the second half of the year. And it had just started to tick up.

9:00The chances are that these tariffs sort of batter that back down into something between stagnation and shrinkage. Inflation is also likely to tick up. There's about 90 ,000 Canadian jobs that are threatened by these American tariffs once they come in. What Carney has said is that he will take two weeks and at the end of those two weeks on September the 8th, he will match the American tariffs dollar for dollar. If he does that, then that's just going to create more pain for more Canadians. But it may be that politically that is his only option, is certainly his only option to say that that's what he will do.

9:35So it seems that Mr. Carney is kind of stuck in the paradox that you laid out at the start, being able to diversify depends on a deal he's struggling to get. That's right. And the only play he seems to have is to wait. And so then the question is, what's he waiting for? And perhaps the biggest thing he's waiting for is the American midterms. That is the event on the horizon that has the greatest chance of changing the foundations that are underneath Donald Trump in a way that might force him to come back to the table with the Canadians a little less aggressively, a little more conciliatorily, because perhaps the tariffs that he's put on Canada are going to start to pinch Americans.

10:16And they are already pinching Americans. Americans in Maine are already cross about the higher prices they're paying for Canadian goods. So Carney just has to hope that that price pressure leads to another Donald Trump taco, and it may well. Hal, thanks very much for joining us. Thanks for having me, Jason.

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11:42I'm sitting in a cafe with Torigoe Atsushi, a 50-year-old man in Tokyo. Mr. Torigoe tells me about the time he graduated. Moeka Iida is an East Asia reporter for The Economist. It was a time of bad economic conditions, he says. All he could find was low-paying jobs. Mr. Torigoi has spent most of his career working in the stock rooms of a luxury fashion firm. His income has barely gone up over the years, and recently it actually fell. His employer suddenly cut bonuses and revised its payment scheme. But then, to his surprise, he came across recruitment ads by the firm offering higher base salaries for younger recruits.

12:22His predicament is emblematic of something broader in the country. He belongs to the country's so-called employment ice age generation. So what does that mean? Why is it called that? The ice age generation are people in Japan who graduated college and entered the workforce roughly between 1993 to 2004. These people are now in their 40s or 50s. So I guess the English equivalent would be the Generation X or Gen X. The ISIS generation's experience is shaped by the burst of Japan's economic bubble in the early 1990s. And a lot of them, having entered the workforce at a time of economic downturn, struggle with precarious, insecure work and also low pay.

13:05And in fact, their struggles are quite familiar to a lot of Japanese people. So the woes of the ISIS generation is something that gets discussed a lot in politics and in the news. and their economic hardship is also associated with a lot of social problems that Japan has, for instance, like hikikomori or social recluses. Japan's recent economic changes are adding a new twist to their story. So what's happening in Japan now is that the country is emerging from decades of deflation. Prices are finally going up and firms are able to pass down prices to consumers and are able to give them back to employees in the form of salaries.

13:44But these pay rises are concentrated among younger workers, and the Ice Age generation is left behind once again. As you say, they're squeezed on both sides. It was a good working environment before them. It appears to be a better working environment after them. They ended up stuck. Yes, exactly. The struggles of the Ice Age generation becomes even clearer when you understand what came before them. So looking at the people who graduated during the bubble era, what happened in the bubble era is in the 1970s and 1980s, companies hired in huge numbers. And there's a lot of stories about this time period.

14:20So students would find their mailboxes filled with recruitment letters from companies keen to woo them, or being treated to fancy meals by prospective employers. But everything changed when the bubble popped in the 1990s. Because Japan's employment system is very rigid, and it's hard to shed existing workers, even in the face of an economic downturn, the people who were already employed by companies clinged on to their positions, but the firms froze hiring instead, so it affected younger people and students. And in fact, the ratio of job openings to college applicants fell significantly from a peak of nearly three to less than one by the year 2000.

14:58So then what did they all do? Where did they all go? So because they couldn't land into stable jobs offered by companies, many of them ended up in so-called irregular work. So Japan's labor market has a very polarized system. On one hand, you have regular workers who enjoys a lot of labor protection or labor rights, and they enjoy seniority-based pay rises as they age. And then on the other hand, you have people in the irregular track who are in fact often performing the same kind of work as their regular peers, but they're just working on more precarious contracts. So they are the first to be cut in economic downturns and they also receive much lower pay.

15:41So a lot of the ICE agers ended up being recruited as irregular workers. And around this time, the term freeter became popular. So that refers to young people who are bouncing between casual jobs. And there was also growing discussion about parasite singles or young people who continue to live with their parents and rely on them economically. And so is that still the case? Are there a lot of ICE agers who are still just flitting around between jobs? Some of the narrative around this generation is a bit overblown. So I spoke to some analysts who walked me through the data. And if you look at the share of the ICE generation in regular employment, that has actually caught up with all the cohorts.

16:18A lot of them have actually landed in stable jobs. But even there, the damage is very visible when it comes to their earnings. So the Ice Age generation, if you look at their earnings, it tends to be much lower than the older generations. And in terms of why, if some of them were in irregular work for long stretches, even if you managed to transition to the regular track, your salary is likely to be lower than your peers. And also, when the Ice Age generation entered these companies, a lot of the upper ranks of these organisations were filled with bubble-era workers who are occupying the higher managerial roles.

16:54And I guess it's not that many more years that these ice agers will be in the labor market anyway. Exactly. So there is a big question that people are asking about what happens, say, 10 years down the road, 20 years down the road, when these ice agers hit retirement age, their earnings are low, and Japan's pension scheme is tied to lifetime earnings. One solution might be for people to work longer, as a lot of older people in Japan already do. One expert I spoke to warned that a lot of the ISIS generation end up on welfare, but the welfare system is not designed to support the elderly in long periods.

17:31That could be very costly for the government. So what we're going to see in the future is fewer productive young people supporting the old. Well, Japan is a state that thinks about demographic issues more than probably any other. What sort of policy changes or ideas are around to fix these problems, these worries? When you talk about the ISIS generation, the government has been talking about them for a very long time. But a lot of their programs have been focused on helping them find stable jobs and getting them into regular jobs. And then another big issue is housing. So compared to older generations, ice ages are less likely to own homes and they rely on the rental market.

18:12But Japan's rental market is actually very hostile towards older tenants. So there might be a really big housing issue in the future as well. And the The government is belatedly starting to think about this. So recently it came up with a three-year plan. They mentioned things like asset building and housing, but a lot more serious thinking will definitely be needed. Thanks very much for joining us, Moika. Thank you so much for having me, Jason.

19:10The Odyssey

19:20to sack Troy are striking.

19:25So much so that it got me thinking about real sieges from military history.

19:33Sieges are often the hinge points of a conflict. The fates of campaigns and even civilisations have often depended on them. The military historian Jeremy Black helpfully identifies two types. The first is totemic. These have what he calls civilizational significance. Often they mark a turning point in history or they come to embody some wider cultural importance.

20:06For example, take the 1683 Ottoman siege of Vienna. The city at the time was the capital of the Holy Roman Empire and withstood two bloody months of assault. The failure of the Ottomans to take it ended their ambitions to expand into Christian Europe.

20:31Elsewhere in history, sieges gained cultural weight.

20:37In 1836, 200 Texans resisted a much larger Mexican force led by the ruthless General Antonio Lopez de Santa Ana. The Texans included, of course, Davy Crockett, the frontiersman and politician.