DAVID COHEN, WELCOME TO THE SHOW.

>> THANK YOU FOR HAVING ME, WALTER.

IT'S GREAT TO SEE YOU AGAIN.

>> THIS WEEK CANADA RETALIATED WITH LARGE TARIFFS BASED ON THE TRADE WAR BACK AND FORTH WITH THE UNITED STATES.

THIS KEEPS GOING BACK AND FORTH, BUT THIS LOOKS LIKE A REALLY BAD ROUND NOW.

SECRETARY OF TREASURY SCOTT BESSENT SAID "I DON'T THINK YOU CAN BE IN A TIT FOR TAT WITH AN ECONOMY THAT'S 13 TIMES BIGGER THAN YOU. "

IN OTHER WORDS, CANADA JUST CAN'T WIN THIS.

AS A FORMER AMBASSADOR FOR THE U. S. TO CANADA, WHAT DO YOU THINK OF THAT?

>> WELL, I TRY TO APPROACH THESE QUESTIONS WITH AS MUCH OBJECTATIVITY AS I CAN, AND I ALSO REALLY DON'T LIKE CRITICIZING MY PRESIDENT, WHETHER I AGREE WITH HIM OR NOT.

SO I TRY TO TREAD A DELICATE LINE, BUT I TRY TO BE VERY FAIR IN WHAT I SAY.

I THINK ON THAT POINT SECRETARYBESCENT SECRETARY BESSENT IS BASICALLY RIGHT.

LET'S UNDERSTAND WHAT THESE RETALIATORY TARIFFS ARE.

THEY'RE TEARS OF 5, 15, AND 25% OF A NUMBER OF IMPORTANT CANADIAN PRODUCTS EXPORTED TO THE UNITED STATES, INCLUDING STEEL, JUST BY WAY OF EXAMPLE.

BUT THE TOTAL AMOUNT OF TRADE IMPACTED BY THESE TARIFFS IS ABOUT $20 BILLION U. S. AND THERE'S A --THE TOTAL CANADIAN EXPORTS TO THE UNITED STATES IN ANY YEAR IS ABOUT $400 BILLION.

SO ALTHOUGH THE TARIFFS HAVE A HIGH STICKER PRICE, THEY ONLY APPLY TO A RELATIVELY SMALL PERCENTAGE, ABOUT 5% OF CANADA'S EXPORTS TO THE UNITED STATES.

>> SO WHO IN THE UNITED STATES IS GOING TO GET HURT BY THIS?

>> I THINK UNITED STATES CONSUMERS ARE GOING TO BE HURT.

I THINK UNITED STATES BUSINESSES THAT DO BUSINESS WITH CANADA ARE GOING TO BE HURT, PARTICULARLY SMALL AND MEDIUM-SIZED BUSINESSES WHO ARE REALLY GOING TO BE -- ALL THESE TARIFFS ARE NOT PAID BY CANADA.

THE U. S. TARIFFS AREN'T PAID BY CANADA, AND THE CANADIAN TARIFFS AREN'T PAID BY THE UNITED STATES.

THAT'S A MYTH THAT FRANKLY PRESIDENT TRUMP HAS HELPED TO PERPETUATE BY SAYING IT'S THE FOREIGN COUNTRIES WHO PAY THE TARIFFS.

THAT IS NOT TRUE.

IT IS THE COMPANIES IN THE TWO COUNTRIES.

IT IS THE CONSUMERS IN THE TWO COUNTRIES WHO PAY THE TARIFFS, SO YOU'RE GOING TO SEE A PRETTY QUICK IMPACT.

FOR EXAMPLE, ON SMALL AUTOMOBILE PARTS MANUFACTURERS IN THE UNITED STATES IN DETROIT, BY WAY OF EXAMPLE, BUT IN OTHER BORDER CITIES, WHERE THESE TARIFFS ARE GOING TO BE IMPOSED ON THEM.

THEY'RE GOING TO HAVE TO PAY THEM.

THEY'RE NOT GOING TO BE ABLE TO PASS THEM ON.

IMAGINE A SMALL BUSINESS IN DETROIT THAT IS PROVIDING AUTOMOBILE PARTS MANUFACTURED IN CANADA TO FORD OR TO GENERAL MOTORS.

THEY'RE NOT GOING TO BE ABLE TO PASS THOSE TARIFFS ONTO THEM.

THEY'RE GOING TO HAVE TO ABSORB THEM.

AND IF CAUSES THEM TO GO OUT OF BUSINESS OR LAYOFF EMPLOYEES, AMERICAN EMPLOYEES WHO WORK IN THOSE SMALL BUSINESSES, THAT'S WHERE THE IMPACT IS GOING TO BE FELT.

>> WELL, THE LATEST THING FROM PRESIDENT TRUMP IS TO TRY TO STOP BOMBARDIER FROM SELLING PLANES IN THE UNITED STATES.

THAT'S A GREAT CANADIAN JET MANUFACTURER, AND SUDDENLY THERE'S A BACKLASH AND KANSAS AMONG REPUBLICANS BECAUSE BOMBARDIER MAKES A WHOLE LOT IN KANSAS.

>> RIGHT.

SO THIS IS THE REASON WHY EVEN TRADITIONAL TARIFF POLICY --AND I'M NOT IN LOVE WITH TARIFFS.

YOU KNOW ME A LONG TIME.

I VIEW TARIFFS AS SORT OF A GOVERNMENTAL INTERFERENCE IN THE WAY THE MARKET WORKS.

I'M NEVER A FAN OF THOSE, BUT PARTICULARLY BETWEEN THE UNITED STATES AND CANADA WITH INTEGRATED SUPPLY CHAINS, THE TARIFFS JUST DON'T WORK THE WAY THEY WOULD WORK AS IF YOU'RE IMPOSING TARIFFS ON CHINA, WHICH IS THE MODEL THAT PRESIDENT TRUMP'S TARIFF POLICY SEEMS TO FOLLOW.

BOMBARDIER IS A GREAT EXAMPLE BECAUSE 55% OF BOMBARDIER'S MANUFACTURING IS, IN FACT, EITHER DONE IN THE UNITED STATES OR USES UNITED STATES PARTS.

BOMBARDIER'S U. S. HEADQUARTERS IS IN WICHITA, KANSAS.

THERE ARE A THOUSAND AMERICAN EMPLOYEES IN WICHITA WORKING FOR BOMBARDIER, WHICH IS WHY SENATOR MORAN REACTED SO VOCIFEROUSLY TO THE APPLICATION OF THE TARIFFS BECAUSE IT'S GOING TO ADVERSELY IMPACT HIS CONSTITUENTS IN KANSAS.

>> WELL, YOU'RE TALKING ABOUT BOMBARDIER IN KANSAS.

NOT ONLY DID THEY REACT, BUT THERE'S A LOT --THERE'S MID-TERM ELECTIONS THERE.

THERE'S A LOT OF ELECTIONS HAPPENING THERE.

>> CORRECT.

>> AND YOU KNOW POLITICS PRETTY WELL.

PEOPLE SEEM TO BE RALLYING AROUND PRIME MINISTER MARK CARNEY IN CANADA, AND YET HERE IN THE UNITED STATES YOU'VE GOT MID- TERMS THAT ARE GOING TO BE AFFECTED BY THE COST OF -- MAKING FERTILIZERS MORE SPENSIVE AM.

POLITICALLY IS THE UNITED STATES MORE EXPOSED THAN CANADA IS?

>> SO THERE IS THAT ARGUMENT, AND I THINK THIS IS CERTAINLY A PLACE WHERE THERE IS POLITICAL EXPOSURE FOR THE UNITED STATES.

I HAVE TO ASK MYSELF, THOUGH, WHETHER THE SOMEWHAT ATTENUATED IMPACT OF TARIFFS ON PRICES THAT CONSUMERS ARE ACTUALLY PAYING OR ON PARTICULAR JOBS IN A PARTICULAR CITY OR STATE WILL BE UNDERSTOOD AND WILL OCCUR QUICKLY ENOUGH TO IMPACT THE MID-TERM ELECTION.

THE NOISE IS CERTAINLY NOT HELPFUL TO THE REPUBLICANS IN THE MID- TERM ELECTIONS, PARTICULARLY IN THE BORDER STATES.

AND SO MANY OF THOSE STATES ARE STATES THAT ARE IN PLAY IN THESE ELECTIONS.

MY FAVORITE EXAMPLE OF THIS BEFORE BOMBARDIER WAS SUSAN COLLINS IN MAINE.

CERTAINLY IN A HIGHLY COMPETITIVE RACE, WHERE SHE IS AT RISK.

MAINE IS ONE OF THE MOST DRAMATICALLY IMPACTED OF THE U. S. STATES BY THIS TARIFF WAR.

AND MAINE SMALL BUSINESSES AND MAINE CUSTOMERS, CONSUMERS ARE DEFINITELY IMPACTED BY THIS TARIFF WAR, WHICH IS WHY SUSAN COLLINS HAS COME OUT AGAINST THE TARIFF WAR AND AGAINST THE TARIFFS BEING IMPOSED BY THE UNITED STATES BECAUSE AS A POLITICAL MATTER, SHE SORT OF HAS TO BE AGAINST TARIFFS AND THEIR IMPACT ON HER CONSTITUENTS AND ON HER COMPANIES.

BUT WHETHER A VOTER WHO WILL PAY --LET ME DO A FULL ATTENIAATION HERE.

WHETHER A VOTER WHO'S GOING TO PAY MORE FOR TOMATOES AND LETTUCE IN THE SUPERMARKETS IN THE UNITED STATES BECAUSE POTASH FOR FERTILIZER HAS GONE UP AND DRIVEN THE COSTS FOR U. S. FARMERS AND AGRICULTURE UP, WHETHER THE VOTER IS GOING TO TRANSLATE THOSE HIGHER GROCERY PRICES TO UNITED STATES TARIFF POLICIES, I THINK THAT'S --IT MAY BE TRUE, BUT IT'S NOT AS DIRECT A LINK AS YOU'D EXPECT.

>> IS THERE ANY MERIT TO PRESIDENT TRUMP'S DESIRE TO REBALANCE TRADE WITH CANADA?

AND DO THE CANADIANS NEED TO TRY TO UNDERSTAND WHAT HE'S TRYING TO DO?

>> SO I THINK --I THINK THE ANSWER IS THAT THERE IS SOME MERIT TO SOME OF PRESIDENT TRUMP'S TARIFF POLICIES.

I'M NOT SURE BALANCING TRADE IS --IS THE RIGHT ISSUE.

AND, BY THE WAY, THAT'S NOT JUST WITH CANADA.

THERE ARE A HUNDRED COUNTRIES THAT HAVE AN IMBALANCE OF TRADE WITH THE UNITED STATES, AND PRESIDENT TRUMP'S IMPOSING TARIFFS ON ALL OF THOSE COUNTRIES.

SO I THINK THAT BALANCE OF TRADE ISSUE IS NOT A LEGITIMATE ISSUE TO IMPOSE TARIFFS ON MYSELF.

I MEAN, THAT'S JUST --I THINK THAT'S THE WRONG JUSTIFICATION BECAUSE I THINK IT MISSTATES BALANCE OF TRADE AS A --AS BOTH THE CAUSE OF IT AS WELL AS A RESULT OF IT.

THERE IS A IMBALANCE OF TRADE BETWEEN THE UNITED STATES AND CANADA, BUT THE UNITED STATES IS GETTING A LOT OF GOODS FOR THAT MONEY THEY'RE PAYING.

AND HERE IS THE REAL HEADLINE.

THE GOODS THEY'RE GETTING THAT'S DRIVING THE IMBALANCE OF TRADE IS ENERGY.

IT'S OIL AND GAS.

IF YOU BACK OUT THE OIL AND GAS THAT THE UNITED STATES BUYS FROM CANADA, IT IS CANADA THAT HAS A SLIGHT BALANCE OF TRADE PROBLEM WITH THE UNITED STATES.

OR BALANCE OF TRADE BETWEEN THE UNITED STATES IS ALMOST EQUAL, SLIGHTLY FAVORING THE UNITED STATES OVER CANADA WITHOUT ENERGY.

IT IS THE ENERGY IMPORTS OF THE UNITED STATES FROM CANADA THAT IS DRIVING THE IMBALANCE OF TRADE NUMBERS.

AND SO IF YOU DEPOSIT THAT BY PINNING TARIFFS BY TRADE --IF HE WERE SUCCESSFUL HE'D CUTTING DOWN ENERGY IMPORTS FROM CANADA, AND THAT WOULD DRAMATICALLY AFFECT IN AN ADVERSE WAY STATES LIKE MICHIGAN, WHERE WE TALK ABOUT STATES WHERE MID-TERM ELECTIONS ARE IMPORTANT --MICHIGAN, OHIO, KANSAS, AND EVEN IN THE NORTHEAST BECAUSE OF THE IMBALANCE OF TRADE FOR ELECTRICAL ENERGY WITH A SIGNIFICANT AMOUNT OF ELECTRICAL ENERGY MOVING FROM KANSAS TO THE UNITED STATES IN MASSACHUSETTS, NEW YORK, NORTHEASTERN STATES.

AND I DON'T --I DON'T THINK THAT PRESIDENT TRUMP OR ANYONE IN HIS ADMINISTRATION IS ADVOCATING FOR THE UNITED STATES TO BUY LESS ENERGY FROM CANADA BECAUSE IT'S CHEAP.

IT'S CONVENIENT.

IT'S A FRIENDLY COUNTRY, OR IT HAS BEEN A FRIENDLY COUNTRY UNTIL THIS TRADE WAR.

>> IF THIS TRADE WAR CONTINUES, LET'S LOOK AT SOME OF THE THINGS THAT CANADA COULD DO MORE IN RETALIATION.

COULD THEY CUT BACK OR CUT DOWN ON ENERGY SUPPLIES TO AMERICA, AND WHAT EFFECT WOULD THAT HAVE?

>> SO TWO THINGS.

THERE HAVE BEEN SOME IN CANADA WHO HAVE ADVOCATED FOR PUTTING CANADA'S ENERGY EXPORTS TO THE UNITED STATES IN PLAY.

ONE OF THOSE PEOPLE IS A FAIRLY IMPORTANT PERSON, PREMIER FORD, WHO THE IS THE PREMIER OF ONTARIO, WHICH IS THE LARGEST TRADING PROVINCE OF CANADA WITH THE UNITED STATES.

THE PRIME MINISTER TO DATE HAS SAID THAT HE DOES NOT WANT TO PUT ENERGY IN PLAY, AND THERE ARE OTHER PREMIERES, PRIMARILY PREMIER SMITH FROM ALBERTA, WHERE MOST OF THAT OIL AND GAS COMES FROM WHO HAVE VEHEMENTLY PUSHED BACK ON PUTTING ENERGY IN PLAY AND USING ENERGY AS A CARD IN --IN THIS TARIFF WAR.

AN ENORMOUS AMOUNT OF OIL AND GAS CONSUMED IN EASTERN CANADA ACTUALLY RUNS THROUGH PIPELINES THAT RUN THROUGH THE UNITED STATES.

I MEAN, IF CANADA RETALIATED BY PUTTING ENERGY IN PLAY, THE UNITED STATES COULD RETALIATE BY SHUTTING DOWN CANADIAN ACCESS TO THOSE PIPELINES, WHICH WOULD MEAN THE FIRST PROVINCES HURT BY AN ENERGY WAR WOULD BE ONTARIO AND QUEBEC, TWO OF THE LARGER CANADIAN PROVINCES.

SO THAT'S ONE OF THE REASONS PROBABLY WHY PRIME MINISTER CARNEY HAS BEEN AGAINST INJECTING ENERGY INTO THE TARIFF WAR.

THE OTHER THING THAT'S BEEN TALKED ABOUT CANADA HAS A WEALTH OF CRITICAL MINERALS.

IT IS SOMETHING THE UNITED STATES COVETS.

AND, AGAIN, THERE HAS BEEN CONVERSATION THAT MAYBE CANADA SHOULD BEGIN TO LIMIT UNITED STATES ACCESS TO CRITICAL MINERALS.

AGAIN, PRIME MINISTER CARNEY HAS SAID THAT HE DOES NOT WANT TO USE CRITICAL MINERALS IN A TARIFF WAR, AND ONE OF THEIR GREAT CALLING CARDS IS THE RELIABILITY OF SUPPLY.

YOU DON'T HAVE TO WORRY ABOUT CANADA WHEN YOU MAKE A DEAL TO BUY CRITICAL MINERALS OR MAKE A DEAL TO BUY ENERGY.

CANADA WILL HONOR THAT DEAL.

SO AS OF NOW PRIME MINISTER CARNEY HAS SORT OF REJECTED THE TWO BIG CALLING CARDS THAT CANADA HAS, ENERGY AND CRITICAL MINERALS, AS RETALIATORY TOOLS.

>> COULD CANADA END UP MAKING A TRADE DEAL WITH CHINA?

>> I THINK YOU SEE A LOT OF FOOTSIE BEING PLAYED.

AND IF YOU WILL, IT'S NOT JUST CANADAMISM I CANADA.

I THINK THE IRONY OF TRUMP ADMINISTRATION TRADE POLICY, AND THIS IS NOT --I'M NOT MAKING A JUDGMENT HERE.

I THINK I'M JUST STATING FACTS.

THE IRONY OF UNITED STATES TRADE POLICY IS THAT IT IS PUSHING MANY TRADITIONAL TRADING PARTNERS INCLUDING CANADA, BUT MANY OTHERS --THE EU, THE U. K. , JAPAN.

IT IS PUSHING ALL THOSE COUNTRIES TO MAKE DEALS WITH CHINA.

AND OF COURSE THE SIGNATURE ELEMENT OF UNITED STATES TRADE POLICY REMAINS TO HAVE TRIED TO WALL OFF CHINA AND NOT TO MAKE TRADE DEALS WITH CHINA.

AND THE PROOF POINT OF THIS IS THAT A FEW MONTHS AGO CANADA MADE A SMALL DEAL WITH CHINA RELATING TO CANOLA BECAUSE CANADA IS A HUGE EXPORTER OF CANOLA AND CHINA IS BIG IMPORTER OF CANOLA.

AND THAT SMALL DEAL DREW A VERY NEGATIVE REACTION FROM THE TRUMP ADMINISTRATION OF DON'T GET INTO BED WITH CHINA, YOU'LL GIVE US NO CHOICE BUT TO RETALIATE AGAINST YOU FOR DOING BUSINESS WITH CHINA.

>> IF CANADA DOES MAKE SOME DEFENSE ARRANGEMENTS WITH CHINA, AND IF THIS TRADE DISPUTE WITH THE UNITED STATES CONTINUES, HOW COULD THAT AFFECT NORAD, THE NORTH AMERICAN DEFENSE WE HAVE WITH CANADA?

>> SO IF --OF COURSE THEY'RE COMPLETELY COUNTER TO EACH OTHER.

NORAD IS A VERY IMPORTANT BINATIONAL DEFENSE ARRANGEMENT.

BY THE WAY, IT IS A JOINT DEFENSE COMMAND UNDER THE JOINT COMMAND OF CANADA AND THE UNITED STATES.

IT IS THE ONLY BINATIONAL DEFENSE COMMAND IN THE WORLD, WHICH TELLS YOU HOW CLOSE HISTORICALLY THE U. S.

-CANADA RELATIONSHIP WAS.

NORAD WAS ALL ABOUT CONTINENTAL DEFENSE.

IT'S ABOUT DEFENSE OF NORTH AMERICA, AND CANADA IS A CENTRAL PARTNER IN THAT DEFENSE.

I'LL REMIND YOU --I DON'T HAVE TO REMIND YOU, YOU'LL REMEMBER.

BUT REMEENLD IND YOUR LISTENERS A COUPLE OF SUMMERS AGO ABOUT THOSE BALLOONS FLOATING OVER CANADA, FLOATING OVER THE ARCTIC.

THEY TURNED OUT TO BE CHINESE SPY BALLOONS.

AND ULTIMATELY THEY WERE SHOT DOWN BY NORAD AIRCRAFT.

NOW, THE INTERESTING THING IS THE NORAD AIRCRAFT THAT SHOT THEM DOWN WERE UNITED STATES FIGHTER JETS BECAUSE THE CANADIAN AIR FORCE DID NOT HAVE THE RANGE AND TYPE OF AIRCRAFT ON ASSIGNMENT TO NORAD OR ELSEWHERE THAT WERE CAPABLE OF SHOOTING THOSE BALLOONS DOWN, WHICH GOES TO THE UNDERINVESTMENT OF DEFENSE BY CANADA, WHICH IS ONE OF PRESIDENT TRUMP'S LEGITIMATE GRIPES, AGAIN, WITH RESPECT TO CANADA AS WELL AS OTHER NATO ALLIES THAT WE'VE SEEN PLAY OUT.

A SUBSTANTIAL INCREASE OF COMMITMENTS TO NATO BY CANADA AND OTHER NATIONS.

I THINK THE PRIME MINISTER HAS PLAYED HIS HAND EXCEEDINGLY --PRIME MINISTER CARNEY HAS PLAYED HIS HAND EXCEEDINGLY WELL.

I MEAN, HE DOESN'T HAVE A LOT OF CARDS BECAUSE OF THIS DIFFERENCE IN SCALE, BUT I THINK HE'S TRIED TO NEGOTIATE AS A SOVEREIGN NATION.

HE'S PUSHED BACK IN A RESPECTFUL WAY WHEN HE NEEDS TO PUSH BACK.

HE HAS NOT ENGAGED IN NAME-CALLING.

HE HAS TRIED NOT TO PERSONALLY ENGAGE WITH PRESIDENT TRUMP.

HE'S ENGAGED PROFESSIONALLY AND TRIED TO NEGOTIATE, SO I HAVE A HIGH LEVEL OF CONFIDENCE THAT ANY DEFENSE-ORIENTED CONVERSATIONS AND DEALS THAT CANADA WOULD MAKE WITH CHINA WOULD PROTECT CONTINENTAL DEFENSE ISSUES TO THE MAXIMUM EXTENT POSSIBLE.

>> DAVID COHEN, THANK YOU SO MUCH FOR JOINING US.

>> WALTER, THANKS FOR HAVING ME ON.

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