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COMMENTARY DAVID FRUM ... APRIL 9TH, 2025 The Hub Canada: Trump's obsession with tariffs and America's increasing isolation on the world stage PLAY YOUTUBE VIDEO Original article: https://www.youtube.com/watch?v=t9LkH55drtw Peter Burgess COMMENTARY David Frum explains the damage that Trump policy has done to the world economy and especially to the US economy. Peter Burgess
David Frum: Trump's obsession with tariffs and America's increasing isolation on the world stage The Hub Canada Apr 9, 2025 48.6K subscribers ... 74,623 views ... 2.6K likes In Conversation with David Frum Leading author, journalist and thinker David Frum and The Hub's editor-at-large Sean Speer discuss the ongoing fallout of President Trump's tariffs on countries globally and its economic and political implications. If you liked what you watched, please consider becoming a Hub Hero (https://thehub.ca/join/hero/). Hub Heroes also gets our premium paid newsletters featuring our best insight and analysis along with all our paid content on The Hub.ca. All these benefits are conferred for one year. Sign up now! In Conversation with David Frum Transcript 0:00 welcome to In Conversation with David from I'm your host Sean Spear editor at large at the hub i'm grateful to be back in conversation with David for another installment of our bi-weekly video and podcast series on the key issues concerning Canadian policy and politics in today's conversation we'll discuss the ongoing fallout um from President Trump's tariffs on countries around the world and its economic and political implications david thanks for always thanks always for joining me well I'm happy i shouldn't say happy because it's such a dark day but I'm I'm glad to be with you again indeed uh David there's been an extraordinary market reaction uh in the in the past several days we've seen extraordinary wealth destruction uh in US equity markets and indeed markets around the world uh why don't I just ask you to start with a reflection on what we've seen play out in the since we last spoke well since Donald Trump announced the tariffs on April 2nd uh and this figure of course is moving around as we 1:01 speak but since April 2nd as I speak about about more than $5 trillion of stock market value has been destroyed yes just America sorry standard and poor 500 the biggest 500 companies in the United States so not the other 30 million companies not Canadian companies not British companies not Japanese companies just the 500 biggest American companies more than five mill trillion dollars of wealth destroyed to put that in context World War II adjusted for inflation cost the United States $4.1 trillion wow and if you look at the decline in the S&P since the market peak in February that's more than $9 trillion in other words two World War II and Donald Trump has fought World War II twice this time however the United States seems to be losing it's it's interesting you me you me mentioned World War II um because in in recent days we've seen a new round of arguments uh on the part of the administration and people adjacent to to to it about the the rationale for these 2:00 terrorists including uh some references to this this is the American version of D-Day we we've been with each other David in the past couple of days and you distinguish between what I might characterize as dumb and even stupider explanations for the terrorists right now why don't you just comment on that well there's a dumb explanation and this explanation that sounds smart but is also dumb so the dumb explanation is uh that what the United States the United States has reviewed its situation and although on the day Trump took office it was the most dynamic economy in the world that had widened the gap over China to a point where China would never catch up to American uh GDP um that was an economy uh uh of unprecedented size and scale and dynamism and abundance all despite all of that yes it unfortunately no longer made door hinges and so the dumb argument was we need to get the door hinge industry back to the United States we need to make all those little brass things you see in uh in the stores we need not just to make the iPhones but 3:00 the tiny little screws that hold the iPhones together so that's the dumb argument because how does that do anybody any good the smart argument that actually is dumb or the argument that sounds smart that is dumb is this is all about capital flows um this is about uh the what what has been happening is too much capital has been flowing to the United States and that has been pushing up the value of the dollar making American industry less competitive and what is needed are policies to reduce capital flows and to decrease the value of the dollar and thus make US industry more competitive so let's understand why that's dumb how does capital flow to the United States in two main ways it's there either to invest in American companies yes or it's there to buy American government debt so capital flows to the United States because America is the most attractive place in the world to invest and capital flows to the United States because America's government America's government debt is the safest investment on the planet so what kind of person says well the problem is our debt is too safe and our investments are too attractive we need 4:01 to make our investment less safe and our uh companies less attractive that way we'll pull less capital from the western world and then we can get and now we're back at the dumb argument back into making doorork knobs and door hinges again so uh you know there there are people who back the Trump plan who are genuinely stupid and and you can only feel sorry for them there are people who are craven and cringing and you can feel contempt for them but then there are people who make up these crazy arguments and I think we can be a little angry at them because what is happening here is so harmful the analogy I compared it to today is like the captain of the vessel deliberately steered the ship to where the largest iceberg he could find and crashed right into it snapping the vessel like an egg and the officers where there aren't enough light lifeboats are telling everybody 'Don't worry an invigorating midnight swim through Arctic waters is just the tonic everybody needs.' I I saw that post well done another argument we've heard from 5:00 the president himself in the past 24 hours or so uh is that these tariffs are working which is to say they are bringing countries to the table to negotiate some type of new arrangement um that would ostensibly reduce or even eliminate uh uh the bilateral trade deficit that that the United States has has with these different countries you're skeptical David uh notwithstanding these claims that 70 countries have already come to come to the administration in search of a deal you you think that countries around the world are likely to hold out why yeah well first the Trump's vision of the problem is not just that the United States has an overall trade deficit with the world and remember it has a trade deficit with the world because it is drawing all this capital from the world that's not a it's not a problem that you're so intractable of a place to invest but but he insists looking at the other side of the coin that therefore the merchandise trade deficit is a big problem yes he is worried that the 6:00 United States doesn't have a trade surplus with each and every country of the world so not only should it run a trade surplus with the world and remember the price of that is capital doesn't flow not only should it run a trade surplus with the world but it should also run a trade surplus with Madagascar uh it should the United The United States Madagascar that sells vanilla beans to the United States should be buying I don't know what a fancy office chairs whatever I what is the one of the poorest countries in the world going to buy from the United States it's going to be buying from very low tech manufacturing countries uh to and paying for them with the vanilla beans it sells to the United States yes um so he that's his diagnosis he says it's working uh because he says he claims the United States is getting all this revenue that cannot possibly be true uh tariff rates so high do not collect revenue they prohibit trade you might as well just ban trade with China um he wanted to be able to say that interest rates were going down but in fact interest rates are going up as investors all over the world dump every category of American assets including Treasury bonds and he says countries are queuing to deal with 7:01 him well there may be a phone call um you know countries pay diplomatic services to keep contact but the smart play from everybody's point of view China the European Union Canada too is to go slow because the pain of these tariffs Trump's assuming the pain will be greater on the receiving countries than on the United States yes and for some countries Canada and Mexico that's true canada is suffering more than the United States is mexico is suffering more than the United States is but here's the difference the Canadian electorate knows why they're suffering they know it's not their government's fault uh and they know that the Trump ask is annexation of Canada to the United States so Canada didn't start this it's not its fault it did nothing wrong and the stakes for Canada are existential under those conditions people will bear quite a lot of hardship on the American side yeah America's more powerful but they started the war it's stupid it's unpopular it's unjustified and it has no purpose no no one can 8:02 explain what it's for and so while the American people are able to bear more pain collectively than the Canadian people can they're obviously going to be less willing to bear pain than the Canadian people and meanwhile he's fighting a trade war with China where the Chinese people get no say at all about how much pain they bear and their government which is comfortable can say you know what we can stay poor longer than you can we have a lot of practice so the what governments around the world are going to be doing is saying you know what let's postpone this till September let's see let's see how Donald Trump behaves when he's at 30% approval rating or heading south let's see how America negotiates when unemployment passes 6% and is on its way to eight and maybe 10 and even incredibly 12 let's let's see then let's see when Americans are both in the middle of a terrible recession and are still paying 7% for mortgage rates uh let's see how they negotiate then time is not on Trump's side and he's done it's like one of these um I mean it's one of the most out out 9:00 self-defeating tactical moves in history he's put a gun at his own head um and he's actually this is the wrong metaphor because the the he's pulled the trigger and then he'd be dead and he's not the United States in this case is still wriggling um but he's created a situation where time is on his opponent's side and he is convincing himself that time is on his side and that's just not true yeah what a thoughtful answer David there's so many different entry points uh for for a follow-up question why don't I start with with China uh as we speak uh we're seeing another round of of escalating tariffs uh between the two countries talk a bit about what it means for USChina relations uh and and China's broader place in the world well um the United States has had trouble with China for a decade it's clearly since the 2010s it's been clear that China is evolving in um unfortunate ways it's becoming more aggressive more expansionary less a less congenial 10:01 trading partner so 15 years ago there was an answer to this problem which is assemble a large group of like-minded nations uh into a trans-pacific partnership led by the United States Canada was a member it wasn't just Asia-Pacific countries because Chile was a member uh as well as the obvious candidates Japan Australia and so on vietnam was going to be a member i think there were something like 30 countries in the TPP um if I remember right so get these 30 countries together and say we'll have we're going to have a common front to China and not only that we're going to write rules amongst ourselves china ruins every rule writing negotiation it's in so we'll leave them out we will write rules together uh the United States Canada Chile Japan uh Peru Indonesia Malaysia Philippines Vietnam we'll write rules because we we can sort of agree on what those rules should look like we'll get our tariffs down to zero and then we're not confronting China in an aggressive sense we'll say at the end 11:00 of the process here's the constitution we've written for trade in the Pacific are you in or out if you're out it's difficult for you because there are 30 of us if you're in these are the rules you don't get a say you sign on the dotted line trump canled that in his first couple of weeks in office in 2017 so he made sure that when the United States confronted China it did so alone oh wait no not even alone it did so under circumstances where it's pushed the Europeans and just about everybody else to being on China's side because no one wishes the United States well in this unprovoked crazy confrontation where there is no roundup of allies where the allies are to suffer as much or more than the Chinese the United States is is in intensely isolated while trying to impose its will on the second largest economy in the world yeah yeah what a l lamentable set of circumstances precisely because as you say in an alternative universe um the US administration could have been building a coalition of countries who've increasingly come to reach the conclusion that you just set out which is that our bet on on China's 12:01 involvement in the global economy uh hasn't hasn't yet paid off um you mentioned the the selloff of of treasuries i I want to ask you about that talk a bit more David about what's behind it and and its its possible significance well we uh we talk about remember the um well the significance is everyone's going to pay more for money so uh the traditional remedy for a for a financial 12:28 crisis like in 2008 2009 like in uh 12:32 during COVID in 2020 is the Federal 12:34 Reserve and associated banks working in conjunction with the European there there are two big banks and two midsize banks in the world that matter the uh Federal Reserve and the European Central Bank plus the Bank of England and the bank bank of Japan if those four entities are on the same page their power is enormous and we saw how successful they were in preventing a global depression during COVID they also coordinated punishing sanctions on Russia at the beginning of the Russian 13:00 invasion aimed at taking Kiev in 2022 yes this time Trump has created a situation where the other three major banks in the world don't want to cooperate with the Federal Reserve so what you'd normally expect is that they would together uh push down their interest rates at the same time so nobody's currency would appreciate against anybody else's the currencies would move in level peg the interest rates would move downward together you'd create liquidity if you needed to do quantitative easing that is extraordinary measures to create new kinds of credit beyond just cutting interest rates you would do that together um and uh you would act as a um with this extraordinary planetary show of force well right now the United States has to worry um it's acting alone and the world is saying 'We don't want your treasury bills we are dumping all American assets.' So that means declining economy higher rates which will intensify the economic crisis and one more thing needs to be said about this at the risk of throwing too many thoughts at people too fast please when you talk about the alternative 14:01 universe keep remembering this point about the capital account and the trade account being the inverse of each other if the if Trump truly had wanted to reduce the trade deficit one way to say is well we can reduce if we're going to reduce the flow of capital into the United States we don't want to reduce the flow of investment obviously but maybe we sell less debt to the rest of the world that is if Trump had announced a plan to reduce the US budget deficit which is he inherited one that was almost $2 trillion reduce the budget deficit by three quarters over the next seven or eight years that would have um reduced the purchases of foreign purchases and domestic two of US government debt and the and the trade balance would necessarily automatically adjust you get a smaller trade deficit if you had a smaller budget deficit and and the whole and then and then your interest rates would go down that this is basically the Clinton policy uh of the 1990s reduce the budget deficit reduce the trade deficit at the same time reduce in borrowing costs and then 15:01 you get a expansion without inflation everybody's happy instead he's um he's launched the United States onto a path of ruin we can hardly even begin to wrap our minds around i I read some economist saying somewhere 'No one has ever modeled anything like this.' because it never occurred to any economist that any country would do anything so stupid yeah one one of the other challenges um that banks and others are facing in modeling the macroeconomic effects of this particular episode David is the is the developments that we don't know about uh one thing that you said to me yesterday that was both profound yet uh terribly alarming is um a scenario in which in in the coming days or weeks uh we see a a a fund or a financial institution exposed by uh by this huge market contraction uh why don't you just 16:00 reflect on that point for our audience well there's an old financial market saying that when the tide goes out you see who was swimming naked so in any up phase and the markets have been in an up phase since 2022 arguably since the end of co um there are people who make bets and they leverage those bets so they'll make a bet on something and then borrow a lot of money against the bet and you never know who those people are until the bet goes wrong when markets turn so suddenly and dramatically and savagely bets begin to go ary I think and and and there will be a Lehman Brothers like in 2008 some firm you've heard of or maybe one you haven't that just explodes and causes extraordinary damage and no one knew that the firm wasn't that big but they'd borrowed 50 times their holdings and so the the impact of what they've done will be very big i think we may have seen that last night the Treasury market went crazy between about 11:30 p.m eastern time and about 12:30 p.m eastern time and then it calmed down what looks to have happened is that 17:01 somebody not a government but somebody dumped a lot of treasury bills at about 11:30 probably somebody in Asia um just because of the time zones uh and so what that the hypothesis there is somebody had a bet that went bad and needed to raise cash fast and so they sold their treasury bonds fast and that's what they sold a lot of Treasury bonds very fast and that's what disrupted the marketplace now mercifully the dump was big enough to mess up the marketplace but not big enough to really paralyze it or cause a true crisis but imagine if that same event happens and somebody has is in bigger somebody bigger is in bigger trouble that's the thing to look for someone dumps a lot of treasury bills at a long at a long time can't meet their obligations and defaults on debt we saw that 1997 with the long-term capital management crisis which nearly ended the Clinton boom uh early uh that a lot of that happened in 2008 first with Beer Sterns in the spring of 2008 then with Lehman Brothers in the fall of 18:01 2008 and that the Lehman Brothers failure was the starting gun to the true financial crisis p chapter of that larger story and I think it's very likely we'll see something like that again someone has been swimming naked the tide's out and they are leveraged 20 30 40 50 or more to one uh David in an earlier answer you said that ultimately resolution runs through American politics uh in recent days we've started to see some Republican politicians uh challenging President Trump's uh tariffs i've been struck though we've seen fewer voices in the business community speak out against the tariffs and and their short and long-term consequences maybe a two-part question first of all what do you think explains uh the the the lack of of push back from American business leaders and secondly why don't you game out um the how this manifests itself in a in in in 19:02 Washington uh over the coming uh weeks and months well the American business community is very aware of Trump's practice of intensely personal retribution look at what he's done to the law firms if you represented the United States government against Trump's attempted coup or if um you did something else he didn't like that your firm is in his he says the government won't do business with you can't argue before the US government these actions are probably illegal uh but by the time the law takes its course the firm's clients have quit and said we'll go somewhere else so firm after firm has had to bend the knee to Trump to prevent its clients from walking away while Trump pressures them in ways that are probably illegal so the American business community is is afraid of that too especially at a time when businesses are going to need all kinds of special favors from Trump they need their uh they people who are importers and everybody is will need exemptions of various kinds so they're afraid and they don't speak out meanwhile in Congress 20:00 there are some members of the House some members of the Senate on the in the Senate Tom Tillis from North Carolina and Ted Cruz to give him credit from Texas have spoken out but to bring this immediate crisis to an end here's what has to happen congress has to find some way to take power take its ter power back from the president that will require a vote in the House require a 60 uh plus vote in the Senate and it will require a presidential signature and since Trump won't side sign it requires even bigger majorities to override the president's veto and that's just not very likely to happen but even if it were to happen even if it were to happen the message to the world would be 'Okay we regret what we did this time.' But what the world needs to know is you'll never do it again because this is an extraordinary breach of trust the United States is is you can't this is no longer just Donald Trump acting like a maniac this is a breach of faith by the United States which has abregated its treaty commitments to its North American 21:00 partners abregated other free trade agreements it has a free trade agreement with South Korea one with Colombia one with so many bilateral relationships and it's part of the World Trade Organization and that and his obligations there too and it's just disregarded every single one of them so even if the United States says okay okay sorry that was a mistake we we regret it before the world economy goes back to anything like a functioning basis the world needs to know you've put institutional measures in place so this can't happen again and that's a much bigger project um you can only It's much harder to unsmatch the vase than to smash the boss yes the vase is smashed and it's not just Trump vase it's America's vase and it's going to be a while and it's going to take some creative leadership and some changes of laws to assure uh partners that not only is this episode over but the potential for the next episode has been safely locked up yeah well said let's let's wrap up with a final question David about Canada in the meantime uh what's 22:01 your advice to Canadian policy makers in the context of of the election campaign you probably know that Mark Carney and Pierre Pali of the two people most likely to be prime minister when the election is over have committed to entering into bilateral negotiations on what's being characterized as an economic and security agreement ostensibly something more comprehensive um than our current trade agreement what would be your your advice uh for whomever is at the table uh in those eventual negotiations i'm going to give some kind of cynical advice so Canada should enter into negotiations because while you're negotiating that seems to stop Trump from breaking anything more but it should not hurry you want these negotiations to go slow because the pain is accumulating on the United States and again Canadians understand this is not of their doing and that the p's ask is the the abolition of Canada so Canadians will understand even if there are tough times ahead for Canada Canada didn't start the war canada didn't want the war 23:00 canada didn't make the war canada would end the war as soon as it could and but the stakes are Canada the existence of Canada so it can't afford to lose the Americans did start the war it is their fault they don't have an ask and the states for them are just being an obnoxious jerk and that's an easy thing not to do anymore so go slow let the pain accumulate be conscious work with other allies that their negotiations also go slow um uh and then I'll endorse two things you've said to me in private uh one is be don't impose a lot of retaliatory tariffs um that just causes pain to Canadians for no good reason instead use selective export taxes t put an export tax on potach put an export tax on electricity um put an export tax even on on although export taxes on oil that oil's heading to you know giving it away for nothing um Trump's wrecked that market too but export taxes on other forms of energy maybe natural gas um selective export taxes not a lot of import taxes that's that's your idea 24:01 which I credit you for you've also made the point that can Canadian provincial government should set up funds this is a brilliant idea of yours to go poaching American talent all those people fired from the National Institutes for Health all the people who want to work on vaccines in a country that says magic amulets and incantations are the way we'll treat infectious disease you know put together each premier put together a fund and say um you know life in British Columbia is pretty nice uh and and uh you know you've got here a long we'll give you a 20-year contract to bring your whole lab to Canada poach talent where you can um and then constant education of of public opinion so the Canadians know why this is happening and that it wasn't their government's fault and then I will endorse my own last idea it's kind of mischievous but I I I think Canada should um wave uh sales taxes on show of a US passport so if Americans feel the need for a Nintendo set at world prices I mean Canada's obviously not going to engage in smuggling itself but why 25:00 should Canada help the Americans punish freedom loving Americans for wanting to buy Nintendos or Nike shoes at at the fair price so if they want to come to Canada and and buy Nikes or Nintendos or anything coffee cinnamon um uh show your American passport no sales tax for you yeah i've been thinking more and more about that proposal just as we update wrap up David and one of the things that makes it so clever is of course the president and others around him have at various points asserted that Canada's value added tax is actually a tariff uh and so this would be an instance of uh exactly of essentially uh conceding the point and uh and offering relief uh to Americans uh those are precisely the brilliant ideas that our our audience Well two of them are yours those two of them were yours two best ones uh uh every week i want to thank you for joining me David and I look forward to catching up next week byebye

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