THE WEST BLOCK
Episode 34, Season 8
Sunday, April 28, 2019
Host: Mercedes Stephenson
Guest Interviews: Governor of Bank of Canada Stephen Poloz, Japanese Ambassador Kimihiro Ishikane, Clive Hamilton
Location: Ottawa
Stephen Poloz: “The economy is going through a bit of a soft patch. All of the angst has been initiated by the U.S. administration.”
Andrew Scheer, Opposition Leader: “The government in China has a much different world view than we do.”
Prime Minister Justin Trudeau: “We are very much looking at the possibility of sending a high level delegation to China.”
Abigail Bimman, Global Correspondent: “Protesters in Toronto condemned the detention of Canadians Michael Kovrig and Michael Spavor.”
Prime Minister Justin Trudeau: “It’s going to be a great opportunity to speak with you about the many issues that we agree on and that we’re working together on.”
Mercedes Stephenson: It’s Sunday, April 28th. I’m Mercedes Stephenson, and this is The West Block.
The Bank of Canada is signalling that the Canadian economy is stalling. Growth dropped substantially lower than the bank had expected, raising questions about a potential recession and threats to the Canadian economy, from low oil prices to a trade war. Is there hope on the horizon or will it get worse before it gets better? And what does that mean for your pocketbook?
I sat down with Stephen Poloz, the governor of the Bank of Canada. Here’s that conversation.
Thank you so much for joining us here on the show.
Stephen Poloz: It’s a pleasure.
Mercedes Stephenson: You released another update last week and you talked about Canada’s economic outlook. There were things like slowed growth, lower investment, things that people might look at and wonder is this a negative outlook? How would you describe Canada’s current financial outlook?
Stephen Poloz: Well, the economy is going through a bit of a soft patch. It started in the last few months of 2018 and has extended into early 2019. And it’s the result of all those low oil prices that we had back last fall and the transportation constraints, and then we had some very nasty weather, which I’m sure you’re just barely forgetting now. And just in general, there’s trade angst around the world, including here in Canada. There’s concern about the future of trade agreements and what rules we’ll trade under. So any trade dependent economy, such as Canada, is seeing a slowdown. There are 47 economies globally that are seeing this slowdown all at the same time. And so that, we think, is a fairly temporary phenomenon that by the time we get into the middle of the year, we’ll see much more signs of growth. So, a temporary detour is how we described it.
Mercedes Stephenson: If a lot of this is related to trade, how much of that is related to trade with the United States and the spat between the U.S. and China?
Stephen Poloz: So—well, all of the angst is around that. It’s around the trade conflict that has been basically initiated by the U.S. administration. And it’s not just with China, but that is, of course, the scene right now where there’s intense negotiations going on. About last year, the U.S. put tariffs on steel and aluminum against many of their trading partners, including ourselves and each of those countries brought retaliatory measures into play against U.S. exports in the same dollar magnitude, and so that constitutes a trade conflict if not even a trade war. And so what it means is that people are uncertain about what the future will look like. If your business depends on a trade agreement or it depends on trade with the United States, which many of ours do, then you hesitate to invest in order to expand your business or update your business or buy new technology and that’s where it’s perfectly correlated across the world. Investment has slowed right down in wide swaths of the manufacturing sector around the world as a result of that.
Mercedes Stephenson: The bank had investigated before and done research on how NAFTA, or USMCA as it is now, is affecting the economy and sort of investor reluctance. How much of your planning when you’re putting together an economic outlook depends on assuming that USMCA is actually going to be ratified?
Stephen Poloz: Well, as it stands, what we have is just as I described at the global level, investment in Canada has been slower than normal relative to our models for actually more than two years, since the Trump administration came to power. And so we are watching for signs that people would react positively to the signing of CUSMA or USMCA. Here we prefer CUSMA.
Mercedes Stephenson: CUSMA, that’s right, renamed it.
Stephen Poloz: That the signing would give people a lot of relief and confidence that we were progressing. That seems to have fallen off a little bit lately because the issue of ratification has come much more to a fine point. So right now of course, if it’s not ratified, we still have NAFTA in the background, but of course that just leaves all those negotiations kind of in limbo. So right now, companies as they report to us are again, hesitating to invest until they know more. We’re hoping that the government’s new measures to accelerate depreciation for investments will work in the opposite direction and encourage more companies to invest now.
Mercedes Stephenson: Looking out west, obviously the oil and gas industry took a tremendous his over the last year. What do you forecast? Do you think that there’s going to be a recovery in that industry?
Stephen Poloz: Companies are still adjusting to $50-60 oil. They did a lot of the adjustment. They’ve reduced their costs. They’ve reduced wage costs and other costs, and they’ve adjusted their long-term plans so investment is running at about 50 per cent of what it was back then. And now with the troubles that emerged again with weak domestic oil prices, in the last fall there’s been another plan put in place to cut investment either further. So these, of course, reflect in the unemployment and drilling activity. There are other upstream activities and we have the delivery constraints acting to contain enthusiasm for longer range projects. All that to say it’s still in adjustment phase. We think now, of course, oil prices have firmed quite a bit. Natural growth in the sector can continue.
Mercedes Stephenson: Recessions tend to be a bit cyclical, every 8-10 years if you talk to economists,and there’s been a number of the big bank economists who’ve suggested that slowing growth and the slowing economy might suggest we’re heading for a recession. Are you concerned that the Canadian economy could enter a recession in the short or mid-term?
Stephen Poloz: So we’re not forecasting anything remotely like a recession. In fact, we expect the economy to recover to around 2 per cent growth by the middle of this year, and through this year and next year. And that the world economy in general, would be growing around 3.25 per cent, which is about its potential growth rate.
Mercedes Stephenson: Do you think that threat of a trade war is the biggest threat to the Canadian economy?
Stephen Poloz: Oh yes, it’s the biggest threat to a number of global world economies, including our own. And if there was something home grown for ourselves, our biggest risk is the overhang of debt that we carry from this past cycle, household debt. And the way we think of that is if there were a shock such as a global slowdown that was more profound or more protracted than the one we are just in the middle of now, then that shock could be magnified in Canada because of its interaction with the stock of debt. But that’s how we think of it. It’s not like it will do anything by itself. It’s all sustainable. People are servicing their debts. Arrears rates are extremely low, so everything seems to be well in hand. But it is the kind of condition that if there is a shock that affects the economy and causes unemployment to rise, it will cause a bigger downturn in the economy because of the debt.
Mercedes Stephenson: Governor Poloz, thank you so much for you time.
Stephen Poloz: It’s a pleasure.
Mercedes Stephenson: Up next, Japan’s prime minister is in Canada for meetings today with Prime Minister Justin Trudeau. What does Japan want from Canada?
Mercedes Stephenson: Welcome back. Japan’s Prime Minister Shinzo Abe is on a world wind tour of western countries, touching down in Europe, Washington, and this week, here in Ottawa, to strengthen alliances and build strategic support, as tensions escalate in Asia. What does Japan want from Canada and how can Tokyo help Canada to deal with China?
Joining me is Japan’s ambassador to Canada Kimihiro Ishikane. Welcome to the show, ambassador.
Ambassador Kimihiro Ishikane: My great pleasure, Mercedes.
Mercedes Stephenson: So today your prime minister is meeting with our prime minister and he’s been touring all around the world, different western countries in Europe, the United States and Canada. What’s the purpose of Mr. Abe’s trip?
Ambassador Kimihiro Ishikane: Well, the one underlying purpose for his trip all over Europe and the United States and ending at Canada is to make sure that the outcome in the G20 Summit meeting in Japan be a successful one because we are facing so many challenges in the economic field as well as political security field. They are wishing to—he is wishing to make this G20 as successful as possible.
Mercedes Stephenson: Ambassador, I know that security is a big concern as well for Japan right now. There’s been escalating tensions in the region. Are you hoping that Canada might have more to offer on the military or defence front?
Ambassador Kimihiro Ishikane: Well, I should say yes and no. I should say yes because there is a room—there is plenty of room for more cooperation in different sectors between two countries. But it’s—our cooperation is not limited to the defence sector per se, because I wish to—or we wish to place our cooperation between Japan and Canada in a bigger picture. In a bigger picture means not only bilateral basis but also our cooperation in Asia-Pacific or even in the Pacific.
Mercedes Stephenson: Would it useful to you to have something like a Canadian navy ship in the area more frequently? I know for the first time, I think, we took part in a Japanese exercise last year.
Ambassador Kimihiro Ishikane: Actually you know a different cooperation is steady on the way. First of all, we have signed what we call ACSA agreement, which enabled us to facilitate our military exercise in the region. And as you have just mentioned, the Canadian government has decided to dispatch its military asset to the region to carry out the monitoring of the sanction regime, which is up on now North Korea. And also we are conducting a couple of military exercises, one of which is named Kaedex. Kaede means maple in Japan, so it’s military exercises between Japan and Canada. And also, last year, Canada has for the first time joined the military exercises between Japan, U.S. and Canada. So it’s things are now underway.
Mercedes Stephenson: How much of that is about sending a signal to China?
Mercedes Stephenson: And looking towards China and keeping that peace and prosperity, one thing on many Canadians mind has been the two Canadian citizens who are detained in China. They’re accused of spying. I know Japan as well has, I believe it’s nine citizens that have been detained and accused of espionage. What advice do you have for the Canadian government on dealing with China and on this kind of a delicate issue?
Ambassador Kimihiro Ishikane: I have to say this is—your question is very difficult to answer because that requires extreme—extraordinary patience from our part. I think there are two things which you need to be very much careful. Number one is we need to be consistent on our position, where we deal with our Chinese friends in this particular matter because these matters are particularly sensitive to them as well, that’s number one, continuous consistency in the position. Number two is how we send our message to our Chinese friends in this particular sensitive issue for them. So when and how and to which person or to which organization we need to convey the message, this is something we need to be very careful about. So—but I have to say the Japanese government are doing that and conveying that message at various levels from the top to the administrative level, where we consider appropriate.
Mercedes Stephenson: When it comes to North Korea, certainly another topic a lot of people are thinking about. There has been this dialogue with Donald Trump. Do you think the situation is getting better or worse?
Ambassador Kimihiro Ishikane: Well, again, you know, there are two sides about what’s happening there. One thing is for sure, is, you know, now we are having a kind of fairly common situation than before, because when I was in Tokyo, our North Korean leaders—leader has launched missiles or, you know, conducted the nuclear testing almost every weekend, especially the missile launch was taking place almost every weekend. And since the holding of the summit meeting between the United States and North Korea, it has stopped. So in a sense, there is a de-escalation of tension. But on the other hand, we haven’t yet seen any concrete steps forward to address the issue which is in place. So now I think—I still think there is much to be done.
Mercedes Stephenson: Ambassador, thank you so much for your time.
Ambassador Kimihiro Ishikane: Thank you.
Mercedes Stephenson: Coming up, how significant is Canada’s influence in China? And is it time for Canada to take a harder stance?
Mercedes Stephenson: Welcome back. China’s power and wrath have been keenly felt here in Canada in the wake of an arrest of a senior Huawei executive that has strained Canada-China relations and raised questions about Chinese influence here. Australian professor Clive Hamilton is spending some time here in North America researching a new book looking at those concerns about the extent of Chinese influence. Last year, he released Silent Invasion on his findings of China’s political influence in Australia. So, how does China’s influence over Canada compare to Australia?
Joining me now from New York City is Clive Hamilton himself. Welcome to the show, Mr. Hamilton.
Clive Hamilton: Good to be here.
Mercedes Stephenson: So, you’re here in North America taking a look at that Chinese influence. How significant do you think the influence and penetration is here, in particular, in Canada?
Clive Hamilton: I think it’s very extensive and indeed very deep. The Chinese Communist Party has been developing its influence in the major Canadian institutions over some decades now, going back to the 70s in fact. And what I think we’ve seen recently is the first real test of the ability of the Chinese Communist Party to pull levers in Canada, and it’s been working pretty well. They’ve been working very hard at continuing to penetrate the Canadian institutions to influence the elites in business, in government, in the universities. So the Chinese Communist Party has a lot of powerful friends in Canada.
Mercedes Stephenson: When you look at where those powerful friends are, what would be some examples of some of those institutions where there’s been significant penetration?
Clive Hamilton: Well certainly in the business community if you look at the top companies, some of the most influential and politically important companies in Canada, they have long and deep financial relationships with Chinese companies and they essentially see the world the way Beijing wants them to see the world. And they exert very considerable influence over both of the major political parties in Canada and they exert a tremendous amount of influence in shaping the way the federal government responds to China’s demands. But it’s not just at the federal government. And one of the things that has struck me, which is quite similar to what has been happening in Australia, is the way in which the Chinese Communist Party and its agents of influence in Canada have been impressing the views of Beijing and advancing people sympathetic to them in local and state government as well. And so what we can see now is that there are substantial numbers of people who essentially operate on behalf of Beijing, occupying significant political positions at all levels of government in Canada.
Mercedes Stephenson: Do you think that Prime Minister Justin Trudeau and the Liberal government have been significantly influenced by the Chinese?
Clive Hamilton: I think there’s no doubt about that. One can track the influence of Beijing as Chinese Communist Party on the Liberal Party through its major corporate donors, through some of its members, through the entry of certain Chinese Canadians, those who are sympathetic to Beijing, into politics, into the Liberal Party. And bear in mind that Prime Minister’s Trudeau’s father was really a pioneer in opening up relationships between Canada and China, and so Justin himself, grew up in a Beijing friendly atmosphere and has gained a great deal of support from Beijing, from Chinese corporations, from major donors, who are linked to the Chinese Communist Party. And so I think the kind of massive ruction in the relationship that’s happened over the last several months has come as a kind of earthquake into the thinking of senior levels of the Liberal Party about how they deal with this country, which they thought was their friend suddenly turns into a bully and they don’t really know how to respond to that.
Mercedes Stephenson: And what do you make of the Canadian government’s response so far because they’ve been demanding the release of the Canadians, but they haven’t really taken any punitive measures against China in retaliation.
Clive Hamilton: Well, you know, I think the government in Ottawa has really been quite weak in its response to Beijing. I think it’s thinking about China and how to respond to the situation is actually being shaped by people who are sympathetic to Beijing, and of course, it’s done, you know, the minimum necessary, which is demand the release of the two hostages, the two Michael’s, who have been kept in terrible conditions and interrogated six, seven hours a day for no reason at all. I think really, Ottawa needs to be doing and could be doing a great deal more. I mean, the truth is that if you don’t stand up to bullies, the bullies will keep doing it. And so, I think a line in the sand needs to be drawn and that Canada needs to say to Beijing, we know you won’t like this, but we are going to stand up for Canada’s interests and we’re willing to take the pain if that’s necessary. If that means getting a bloody nose in order to stand up to Beijing, then so be it.
Mercedes Stephenson: What more do you think the Canadian government should be doing, and what lessons can we learn from Australia?
Clive Hamilton: Well, I think Canada is really, you know, at stage one of the pushback process. And there are many stages to go, and Canadians need to decide whether they’re going to pushback against this extraordinary campaign of Chinese influence in Canada. Some people actually think it’s too late, that China, the CCP is so deeply imbedded in Canadian institutions that it’s too late. But at a minimum, Canadians, I think, have to try, otherwise you’ll lose your sovereignty, you’ll see continued erosion of democratic rights.
In Australia, we’ve undergone this major national debate over the last two years, resulting in the federal government on a bipartisan basis, passing some very powerful new legislation against foreign interference, clearly directed at China and essentially turning into criminal offences, a whole range of interference and influence operations, which are covert, coercive or corrupt and which really raise the stakes for Beijing in carrying out its influence operations in Australia. And I truly think that Canada needs to begin to take similar measures if it wants to protect its sovereignty.
Mercedes Stephenson: Thank you so much for joining today, Mr. Hamilton.
Clive Hamilton: A pleasure.
Mercedes Stephenson: That is our show for today. We’re always looking forward to hearing from you, so please reach out and find us online at www.thewestblock.ca. You can also reach us on Twitter, Facebook and follow us on Instagram. Thanks for joining us today. I’m Mercedes Stephenson, see you next week.
The West Block – Episode 34, Season 8 — Sunday, April 28, 2019
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