Transcription
The short answer is yes, in terms of the overall trends. I think you've described it well, and let me expand a bit, which is that there are structural inflationary pressures that come, and I've spoken about this in the past, around the time that I gave the speech here actually, I think, about the process of deglobalization, some forms of fragmentation. I mean, one of the benefits of globalization, there are many challenges, but one of the benefits was it was structurally disinflationary. And the reverse is also proving to be true, the fragmentation that comes with that. In many cases, for good reason, there's being more resilient. You're paying an insurance premium to become more resilient, but that has to be ultimately paid and is passed through. So, there's a structural element to that in and of itself, just in terms of the changing of the level of integration.
Okay, first point. Second point, part of your question, but very much of the reality that this room, this city, this country is living, is just the scale of the infrastructure buildout that is only just beginning. Across, I'll call it the intelligence stack, but it's everything from power to the data centers, to the chips, to the and beyond that comes and affects virtually every enterprise, and it's only just starting. And the scale and the speed of that build, which on one hand is tremendously exciting and promising, on another hand, just causes big shortages. You think about if you're in the energy business, you know, five years to get a gas turbine, as one example of that. Land, power, those elements are front and center. So, that is adding, I think, to inflationary pressure.
The third element, which we haven't yet seen, but we're at the cusp, and again, because we're in the heart of global finance, a number of the people in the room would be living this, is actually the cost of protection, cyber protection, and broader range of protections that's occasioned by mythos. Everyone knows what mythos is in this room. And what that's showing, and that's I think is going to be the early stage of the big operating spend that's going to be required to address those issues. So, the marginal cost of software is no longer zero. It's actually quite material and is likely to be there for some time. So, those are three elements of the structural inflationary pressures that are there.
Then you have what's coming with that, the growth component, certainly the growth component which comes from the investment boom. The growth component which, and this is one of the big questions, when will the productivity show up on a macro scale? It will come, but when does that show up? And which would offset some of this. Finally, you throw into that the challenge we have globally, and it will be one of the issues center stage at the G7 around global imbalances, Chinese overcapacity, Chinese underconsumption. I mean, just put in context, China's ballpark 13% of global consumption, 30% on the way to 40% of global manufacturing. So, just orders of magnitude, the pressures that come there. It's a bit of an offset to the inflation side, but we can't solve the macro problem ultimately. You never totally solve a macro problem without getting the imbalances component addressed there. Some of that will be financial.
So, what, and last thing I'll say and then hand back to you, which is part of the answer, not all of the answer, but part of the answer is going to be around energy. And when you look from our perspective, we see a very clear path to doubling our lowest cost energy effectively in the OECD of the major economies, doubling that grid, doubling it without emissions materially. We see a very clear path to expanding our energy exports, which are the cheapest natural gas effectively in the world, certainly landed in the United States, and the cheapest oil exports that the US can get, plus on the critical mineral side. So, part of a structural solution, Canada has it, we're going to benefit from it, but it is part of a potential structural solution in a new partnership with the US.
Great. Let me just pick up on one element of this before we take a broader set of issues that you're leading, not just for Canada, but for much of the rest of the world. So, another way to think about this junction in the global economy, you and I've been talking about this, is that whether in the context of the global economy or in geopolitics, this is becoming, I think, more and more clearly an age of asymmetry. It's a transitional era where power flows less from size or wealth than from the ability to convert imbalances into leverage. As great powers seek to exercise their power in the ways that they do, a range of countries like Canada, middle powers, and others are seeking to identify their asymmetric strength, their source of leverage. We think of asymmetry a lot as a risk or a challenge, but if you look at various choke points and whether upstream inputs to the global economy, how do you think about that as you're now putting into place and really executing on the vision in Davos? How are you thinking about how Canada can win in this age of asymmetry?
Yeah, it's this is a crucial point, and it's a very, it's your framing, actually, the age of asymmetry, but it's a very good way to understand how many countries around the world are approaching their trade relationships, their investment relationships, their priorities. For exactly the reason you can look at it defensively. Where am I exposed? We used asymmetry, to use your framework, against Russia with the financial payment system. China used it on critical minerals. Those are two prominent examples, but where else am I exposed? Am I exposed in space? Am I exposed in cyber? Am I exposed to various things? And that is the framing, at a minimum, as a leader, you have to think about those issues and how do I minimize those exposures? The answer, if you're a country of the size of Canada, or even if you're, you know, a European, one of the major European economies, is there's no one answer. The answer is a series of partnerships, a web of partnerships that need to be put in place. Then the more positive side. So, that's a defensive thing. Who do I need? Who can I rely on? And who's not going to hold me up down the road? That dictates a lot of these trade discussions. The more positive is, well, where can I be a solution to others? And that's where I do think we have a number of advantages in Canada. Let me give it a specific, let me granular. So, I mentioned critical minerals. Okay, so what? Well, here's the so what. Last week I was in Quebec. We opened, just broke ground on the largest graphite mine in the G7, eight times the production of everywhere else. Key for, and it's integrated into battery chains and others is what will be built. So, who are the off-takers? The government of Canada provided support to get the thing going. Here's your guaranteed off-taker. We've already syndicated it out to Italy, to Japan, Panasonic in the case of Japan, ENI for Italy, Luxembourg, that that is buying off of that. So, they know that they don't have that chokehold on lithium. That's one example. We announced yesterday, again, private company, indigenous-led, actually, private company, an LNG, 25-year LNG train to Germany, which helps, obviously, reduce exposure to Russia. So, you know, that sort of energy providing. Same thing on uranium. Where else are we strategically relevant? I think, well, I know, we are strategically relevant in cyber. We're strategically relevant in next-stage cyber, which is quantum. So, we're building a series of pacts with, and you would expect it, with our closest allies, the closest allies of the United States in those areas, to build out. I'll give one other example, which is in space. From a consumer perspective, we're all familiar with Starlink and those advantages, low Earth orbit satellite. But, it's crucial for military and defense applications. And nobody wants to be in a position where there's only one option. And we have a company, Telesat, which is the next option, which is literally coming. That element of their business is coming on stream next year. So, those are, to make it tangible, those are the types of conversations that are happening, or deals, I'd put it even that way, that are happening. And then they get embedded in bigger trade relationships as well.
Let's turn to China because you've touched on it a couple of times. And while your Davos speech really completely reset, I think, the way businesses, investors, and governments are thinking about this moment, what I always emphasize to people is where you came to Davos from. You had just been to Beijing. And you, like many other advanced economies, are navigating this very complex challenge given the imbalances, given how you just described China's economy, of how you navigate the opportunity with an economy like that with the strategic exposure you have. Take us, if you will, a bit into the room, the meeting you had with Xi Jinping. What did you say to him? What did he answer back? How can we better understand that Canada-China relationship from that meeting?
Okay. Well, let me give a bit of context first, which in terms of the Canada-China relationship and where it was prior to those meetings and why that was important. Our relationship was, to put it mildly, in need of a reset. Diplomatic relations had broken down, trade relationships were fraught with a series of tariffs. We had big challenges in Canada, particularly for our agricultural sector, our fisheries sector, where there were we were locked out of the Chinese market, which was historically a very important market. To put it in human terms, 250,000 people whose livelihoods directly were affected by this. So, we had that. We also had a series of restrictions on China. So, at a minimum, and the dialogue was not there. And look, in this world, yes, it's the second largest economy, but you need to have a dialogue with China. I mean, this is stating the obvious. Virtually every issue or most issues in the world, geostrategic and other, China is a player, and having that dialogue. So, we needed to reestablish. So, what we accomplished out of the, to simplify, and then I'll get to the in the room and the dynamics and where this goes, what we accomplished was a very basic reset of the relationship. So, that China reopened their agricultural markets. There's some details around this, they're important, but big picture, yes, for that. We restored access for Chinese vehicles, electric vehicles, to the same level as it was in 2024 when things broke down, which to put in context is 49,000 vehicles in a market that's 1.8 million vehicles. So, less than 3%. And with a, that's at the MFN tariff rate, which is 6 and a half percent, and then above it, it's at 100% tariff rate. So, basically, that's the cap on Chinese vehicles coming in. And historically, they're all Teslas, it looks like most of the ones that'll come in are Teslas as well in the short term. Now, over time, we're going to get lower cost, broader range of things, but in a controlled way. But, the discussion, so these are important trade discussions. There's other elements of the trade relationship, etc. But the broader discussion, which I think is the thrust of your question, is about where's the world going? And that's what President Xi and President Trump, and quite understandably, are particularly focused on. Where, I'll give it's, it was in the news recently, but so I'm going to pick up on one aspect of the conversation. He raised, I'm sorry, I raised with him the Thucydides trap. Now, I raised it with him because I had been in a meeting with him with a handful of US CEOs a few years previous, and President Xi had raised it in that context. And I quoted, in effect, back to him, the president, saying, "I remember you said that. And what you said at the time was the way out of it is cooperation on issues of global public interest." So, what are the issues of global public interest? Leading them to where is that cooperation between the hegemons he's really talking about, but others supporting? And, you know, for him, at least in the response then, which in fairness was more or less what he'd said two years previously, is around climate. Is around clean energy and climate, and we're establishing a leadership there, but everyone needs it, and how do we share this, and how are we going to finance it, etc. And his point there was exactly that, how do we restructure the institutions? So, that's one thing. I'll say one other thing, which I point I made to him, because you raised imbalances earlier, which is I also raised with him, adjacent to this, is that the scale of the challenges of imbalances, the fact that this is bad for having lived through, we lived, I'm looking at you, Bob, we lived through the crystallization of imbalances in the global financial crisis. That this needs to be, they need to be part of the solution. Part of the solution is the overcapacity, greater consumption, absolutely fundamental, but part of the solution is also the role of their currency, the role of RMB, the opening up of their capital account, is going to be a necessary part. And if you are, in his analogy, a rising power, economic powers they certainly are, you have to assume more responsibility for the global international monetary and financial system. And that is one of the toughest things to do, that transition, but you've got to, you've got to move, in my judgment, and I said it to him in private, I'm happy to say it in public, in my judgment, they need to move more rapidly and more deliberately on it. I think we need to help them in a way around the margins. So, both of those areas where we're really talking about global public good is necessary for the engagement.
Turning to another aspect of your role and your leadership, you're spending, I'm sure, more time than you would want on open conflicts in the world. And so you touched on the Russian invasion of Ukraine and the war that's going on four years on in Europe. You mentioned that the outcome is not in doubt, but only a question of how much human suffering will further have to take place. Give us a sense from where you're sitting, what do you think the outlook is for the war? And maybe speak a bit to some of the risks. There's certainly concern in Europe that the Russians are going to have another push over the summer, possibly threaten one of the Baltic states as they've in a more specific way. Give us a sense of how you're thinking about this as a leader, as a NATO leader, and also maybe a bit how it connects to defense strategy and defense industry strategy for Canada.
Okay. So, let me start with what we're doing and then get to the outlook for it. So, we are, we're one of the largest, arguably the largest per capita contributor to Ukraine across humanitarian and defense. So, 25 billion dollars and counting. Our defense contributions, our principal defense contribution, but this is going to change, this is changing with time and it gets to your defense question, have been basically purchase or financing of US weaponry for Ukraine, defensive weaponry. So, they're called "pearl packages," but for those of you who follow it, would know what they are, and it's a way to band together through NATO purchase, largely, as you would expect, missile and drone defense. It's an expensive way to do it, but it's necessary, as we saw with this atrocious hypersonic missile attacks a few days ago that Russia inflicted. So, so we're doing that. The second thing is we're involved. We've trained 50,000 Ukrainian troops and running. We're very involved there. We're part of what's called a coalition of the willing, which is a series of countries, largely European, but including Australia, New Zealand, a few others, ourselves, that is providing a security backstop. So, when there is a peace deal, there'll be a credible backstop for Ukraine. First line of defense, of course, is them. Second line of defense would be us in various forms. And that is, I will just give you the punchline, that is a highly credible, detailed operational security backstop. It's been, it's been worked out, and full credit to President Macron, Prime Minister Starmer for helping to lead and make that a reality. The third thing in the region is we lead the brigade in the NATO brigade in Latvia. So, as I've said, I think I said in my remarks, it's on the front line. That's, you know, that is very much an operational role. So, when, and to get to where the conflict is, to put human suffering in context, I mean, the terrible civilian suffering, I mean, the civilian suffering in Ukraine, the direct hits, but Russia's losing 35,000 people, troops, a month. 22 to 23, depending on the month, of those troops are killed. The balance are incapacitated, to use a euphemism, but will not fight again. They're losing troops faster than they can replace them. They are not gaining territory. Ukraine is able to strike, as you see increasingly, deep into Russian territory on strategic energy and other targets, and they are doing so, and they will continue to do so. Russian economy is under more pressure. This can go on for longer than any of us already has, but I can continue to go on, but the balance of force is moving in the Ukrainian's direction. And that gets to the last bit of your question. I'll try and be quick, but this is super important. So, we and others are following the Danish model where we're partnering with, because Denmark pioneered this. We're partnering with Ukrainian defense contractors. We're financing them to produce drones and other things for Ukraine's defense. But then we're building capacity in Canada and Denmark and other places so that we can build that out for the future for our own defense, because, you know, the cutting edge of defense, defensive warfare is in Ukraine, and the integration of autonomous warfare, AI, and those defenses are in Ukraine. So, part of this, we, Canada's been a laggard. We're no longer a laggard in defense spending. We're not going to be a laggard, but part of the advantage of being a laggard, there's sometimes an advantage is when technology and things are changing, we will catch up at the frontier, or at least that is, that is very much our intention.
I know we're coming up against our deadline, but we have a couple more questions. First, we obviously in New York, we in the United States. A line in your speech I think caught many of us and I think is really important, which is what you said that this stronger Canada, more sovereign, more self-reliant is actually going to be a better ally to the United States. I don't think it's lost on any of us just how complicated US-Canada relations have become. But having said that, what makes you optimistic? Not just given the transformation you're leading in Canada, but what you know and how you describe the US economy at the end, what makes you optimistic about this economic relationship and partnership going forward?
Well, I'm going to start on economics, but I'll end on values, because I think that's ultimately where things stand. On the economics, I mean, it's still the case that 85% of our trade goes across tariff-free. There's highly integrated. Everyone benefits from that. Secondly, there are huge opportunities for that new partnership, in part because we're becoming stronger. So, the energy side, I've mentioned. I mean, this is a time where the US is energy short for good reason because of the transformation, but it's really energy short, and that's going to get more acute, and we can be part of the solution. We can be part of the solution just on inference as well, to put it more broadly, energy and inference. The third thing is there are core areas. It's our strong view, and we've been clear about this, that a fortress North America in autos, in steel, in aluminum. That's in everyone's interest. We're part of the solution clearly on critical minerals. We're working very well with the US on that. And then as well, as I move towards values, I mean, we shouldn't, there are issues, but we did need to step up to take more responsibility for Arctic security. We're doing that now. We're taking responsibility with respect to Ukraine, with others, the front lines in the Baltics. And the opportunities for defense and security cooperation are legion. So, we look to that. Last thing, you know, in the end, and I am conscious we're coming up to our timeline and our 250th birthday here. You know, these core values on freedom, on liberty, like that's ultimately where we stand. And that reasserts that reasserts over time. So, we'll work our way through. Bob will come up, he'll tell us it's 12:45, and everyone will get on with moving forward. Thank you very much. Thank you.