Trade!

Floor of the New York Stock Exchange. [o]

MAX ALLEN   This Trump trade war and Canada's position in it . . . what's going on?
 
JIM LEECH   What's going on in some ways is unprecedented. In other ways, we've seen this many times before. If you want to talk about trade wars or want to talk about annexation of our country, both have happened, or at least attempts were made multiple times in the last century. It’s not unusual. What is really happening, however, is an awakening in this country to our complacency. If we’re looking exclusively at the trade front, we slipped into the comfort zone of depending on one customer. They teach courses in Business 101 that say if you sell to only one customer, a big department store, let’s say, at some point somebody there might decide to source your product someplace else. Or that store may go bankrupt and you're left holding the bag — with huge investment in capital, employment, inventory, and raw materials that will take you some time to redeploy in another direction.
 
That's what's happening in Canada right now. We're waking up to some of the vulnerabilities that we've had, and I don't think it's too late, by any stretch. It's just painful in some ways to make the switch. Even if Donald Trump tomorrow said, “Hey folks, I was just joking. We’re back to the free trade agreement and everything is cozy again,” this is enough of a wake-up call that Canadian businesses and political leaders will say that having whatever percentage of our trade dependent on one country is not the smartest thing in the world.

The U.S. has always had this addiction to low cost, and that is what has driven the failures felt by many people in the U.S. in global trade.

 
MAX   Was anyone awake to this five years ago?
 
JIM   People have said it from time to time, but after they said it, they just moved on. I can't point to anybody who made a speech five years ago saying we're too vulnerable. Five years is an interesting time, because that goes back to Trump 1.0. Maybe there were people saying it or thinking it then, but not 10 years ago.
 
MAX   I didn't wear this shirt deliberately to lead into what I'm going to say now, but about six years ago I bought 15-20 shirts like this — wild patterned, cotton-linen with maybe some polyester — online from China, $13, free postage. I had no idea, neither did anybody else, what was going on with this, which is a steal. How was I able to get this from China for that price, no postage? It was because the Chinese were thinking like the Japanese who, at the end of the Second World War, were famous for making junk, and then decided there's a market in making good stuff, all we had to do was manufacture high quality stuff, especially electronics, and there was a market, and so that's what they did.

JIM   It is my view that the US has always had this addiction to low cost, and that is what has driven the failures felt by many people in the US in global trade. On the one hand, they love it because they can get stuff for diddly squat, and on the other hand, they don't seem to understand, “Hey, that’s why I've being unemployed!” They don’t make that connection. And at the end of the day, my sense is their addiction to low cost things will overcome the rest of the social ills.
 
MAX   You think?
 
JIM   Unless there's a revolution.
 
MAX   What do you mean by a revolution?
 
JIM   An uprising by people.
 
MAX   Yelling in the streets, that kind of revolution?
 
JIM   That's where it starts. So, since they are addicted to low cost things, they will continue to search for them - I think that drives Americans more than anything.
 
MAX   Why do you think that?
 
JIM   I just watch it. I watch them. If they have two items and one costs a penny less, they're going for that one. Usually, but not always.
 
MAX   Canadians, too?
 
JIM   Less so. And you're seeing that now. You've seen that in the boycott of American products, and other things in response to the tariffs and Trump’s talk. People will pay 10 cents more for something because it's got a maple leaf on it.
 
MAX   You think there's some kind of general moral sense among the citizenry that drives this? Why the difference?

JIM   How long we can sustain that I'm not sure. That will ease the transition to a diversification of both the supply of goods coming in and goods going out of the country. If you can get domestic consumption to increase, and domestic demand to increase, then that will ease the transition. But in my mind, there has to be a transition. You can't go back. The pencil is broken.

First published on Cagle.com, The Netherlands, March 4, 2025. By Joep Bertrams.

MAX   I worked with Jane Jacobs for a good deal, and one of her phrases that sticks with me is ‘import replacement’. She thought that cities grew and were important when they began to make things within the city that were previously imported. We seem to be going through it right now in spades.

JIM   There's a line you cross where at some point that perspective justifies protectionism, and that's what tariffs are. If a citizen of that city decides she wants to pay 10 cents more for something, that's her decision, and that helps stimulate domestic production. One would expect that the higher price tolerance which stimulates the domestic production, will eventually start to bring prices down, because one of the major drivers of the cost of a product is how much volume you're producing. For years the argument has been that a Canadian producer producing only for the Canadian market is not viable because the market is not big enough to sustain the types of volumes needed to to get to a reasonable cost level. Which leads to the question, why do we trade send supply into the United States and other countries? We do it because we don’t have a large enough domestic market.
 
MAX   Your career, what I know of it, was not focused on making products for sale, making things, it was about policies, broadly speaking. How do you know what you're talking about?
 
JIM   True, my background was primarily in finance, but for about five to six years I was making things. Interestingly enough we were making them here in Canada and selling them throughout North America. As a newbie to manufacturing, I was learning all about Japanese manufacturing techniques, and things like that. So, here was a Canadian company in a product category that had only four suppliers, three of them American-based; together 60% of our manufacturing was done in Mexico, and we traded across the border. We were the number two out of four. And because there were only four of us, it was a classic oligopoly. Before I was involved, the product, smoke alarms, cost about 150 bucks. Now you buy them now for $4.50. So that's driven by volume.
 
MAX   And cheap labour from Mexico?
 
JIM   Yes, both inexpensive labour from Mexico and high volumes.
 
MAX   Did you know the other three guys?
 
JIM   I knew two of them..
 
MAX   Did you get along?
 
JIM   As I said, it was an oligopoly. Oligopolies are great, if your competitors are smart; if they're stupid, they're terrible. Here’s why. We had the hardware chain Canadian Tire as our client. We manufactured smoke alarms for them for their private label, which was great. I remember when our head sales guy came in and says, “I think I've broken into Costco.” I said, “That’s the worst news I've ever had.” Why? Because the only way you could break into Costco was to cut price, and if you cut price at Costco, somebody's going to cut price for Canadian Tire. And while the volumes stay the same, we all are forced to reduce the selling price of our product by five cents, which is about as dumb as you could get. That's an oligopoly. I mean, you learn that in first year micro-economics.
 
MAX   My first question to you was “What's going on?” I thought to myself, what's he going to answer, and what am I going to do if he says, “I don't know.” When you don't know what's going on, what's a good strategy?
 
JIM   Wow. Personally, I would be networking like crazy, using my network and saying, “What's going on? What do you hear? What do you see out there?”
 
MAX   Do you ask those questions out loud, or do you read or both?

JIM   Both. Having a conversation is probably more valuable. You pick up on nuances. You read the body language. If you've declared today a crisis and you're in that mode, then the more conversations the better. It's constant; constant keeping in touch. It's funny because this will conflate with something else, and that is the rise of Mr. Mark Carney in the last...
 

"Super Carney" . . . from the Guardian, June 30, 2013. [o]

MAX   …10 minutes.
 
JIM    Exactly. Unbelievable.

MAX    We're shifting here, moving onto the terrain of politics. And more specifically, Mark Carney as the Prime Minister of Canada, at least for a while. Did you ever work with him?

JIM   I haven't spent time with him in the last five years, but in the financial crisis of 2008 when he and I, in the same month, became respectively Governor of the Bank of Canada and CEO of Ontario Teachers’ Pension Plan [one of the world's largest institutional investors], and we both had pretty famous predecessors or well-respected predecessors. So three months after the financial crisis hit, we commiserated with each other saying, “What the hell did our predecessors know that we didn't know?” And we thought they were smart, but then we learned that they were brilliant for having gotten out. But Carney, through that whole crisis, convened regularly scheduled meetings with all of the major players in the financial community in Canada, and probably elsewhere. But in Canada there were these eight o'clock Thursday morning meetings, and it was all about, “What's going on . . . what do you see that's going on?” What he really wanted to know was what my traders on the floor of the exchanges saw. He understood financial markets and the messages that they were sending, and that if X happened in the market, then Y was likely going to follow, and he could head it off. While most governors of the Bank of Canada have been brilliant economists, Carney understood the practicality of what those signals in the market were telling him was going to happen. I saw at least one incident where, based on discussions with myself and our traders, he said, “Okay, thank you,” and within 24 hours things changed based on what he’d done. Clearly he had phoned people and said, you guys have to do such and such.

MAX   Why did no Canadian banks and financial firms not fail while so many others in US and Europe did?

JIM   In simple terms, the powers-that-be in the Canadian government overseeing what the banks were doing and how the markets were functioning were able keep the issues contained. And realize that because Canada is such a small financial community relative to the US, these regulatory people could make 10 phone calls and be in touch with the key players. What they would be looking for was how these complex and risky mortgage products were potentially putting the banks and others into dangerous positions in terms of liquidity. Financial markets operate on trust or confidence among the various players. What Carney was focused on was heading off any breech of confidence due to a liquidity fear that could lock up the markets. Based on his experience, he could interpret market signals and take action to head off a bad outcome. In the US things got out of hand in that regard before the Fed could take action, and that’s the drama we witnessed when Lehman Brothers went down in September of 2009.
 
MAX   I'm interested in how a money man as yourself, if you'll pardon the term, and the people he associates with, I want to know how you all think in situations of significant challenge and heightened pressure.

JIM   Okay.

MAX   I'm going to tell you a dog story. If I ask my dog what's going on, here's what he does. He slows down. He looks around. He makes an effort to be nice to other dogs, and to other people. He doesn’t pick fights. That is what he does when he doesn't know what's going on. That's my observation on what they do. Now, compare that to successful billionaires, you or people you know who are business people. What do they do when they don't know what's going on?
 
JIM   Your dog analogy is not a bad one. It partly depends on your definition of success — and on the type of people I want to hang around with, and spend time with, and admire and invest in. The smartest ones I've known do go through a slowdown and try to figure out what's going on before they react. I always use the expression “finding terra firma.” If you're in a crisis and things are going on all around you, your company's losing business or your wife has left you or whatever, the biggest mistake is to keep kidding yourself that you're not in shit. Based on this expression, my tips for people in crises is find terra firma fast, get to a place where you can say to yourself, “Okay, I'm okay here. Now let’s see how I can march forward incrementally.” Or at best, change the whole strategy. But stop kidding yourself and get to reality fast and acknowledge the reality of the situation.

MAX   When you were responsible for very large sums of money, did you think it was your money?

JIM   Yes and no. In the case of the public companies where I worked, I did have my personal money invested. However, there was also a whole bunch of other people's money invested alongside me. In that case our interests were perfectly aligned, but I felt an overriding responsibility to them as they were ‘backing me.’

Teachers’ was very different. None of it was my money. The funds were monies saved by the teachers of Ontario to secure their financial future, and we were holding that money in trust to fund their retirement. If we screwed up, we jeopardized their future. In both instances I felt a tremendous obligation, as well as fear.

MAX   Fear of what?

It changes and numbs people's ability to think through and reason. It’s being used to numb our own population, to stop us from doing something.

JIM   Fear of failure. Fear of losing, in the first case, absolutely every penny of mine, plus that of others, many of whom invested because of me. In the second case, there is no way that I wanted to tell my Grade 6 math teacher that we had lost her money and she would have to keep working until she was 80!

MAX   Really?

JIM   Oh, yeah.

MAX   Is there a difference between $100 and $1 billion?

JIM   A bunch of zeros, of course. Is there any other difference? It's a very good question and there are a million different ways to approach it. One thing, for example, when I went to Teachers, and all of a sudden everything had three to six more zeros at the end, and people would say, “Oh, my God, how can you even fathom what 10 billion dollars is?” I used to say, facetiously, but there's a little truth to it – all it is is a whole bunch more zeros. So think of it as a $10,000 investment, not a $10 billion investment — the principle is the same.

But to answer the question, it matters whether it's $10,000 or $10 billion. It matters. And when you're a fiduciary, as I was in the pension business, or if you are the head of a public company with all these shareholders, I am driven personally by that sense of obligation. I feel that a lot. With Mastercard Foundation, it was all philanthropic money; none of it was mine. There, the obligation was somebody has provided you with this money, and it's your obligation to turn that money into ‘good.’

I remember vividly when Mastercard was a mere a mere US $20 billion — now it's 50; I shake my head at it — and I was Chair, I had a discussion at the board concerning risk where the question was asked, “What is our risk appetite?” It was a classic exercise where we hired KPMG to come in and interview all of management and all the board members and ask the question: “What do you think the biggest risks are facing the business?" The response that I had anticipated was that we might fund some person or group who would abscond with the money and run to Paris.

MAX   Paris?

JIM   That's where they all go when they steal the money. So, "What's the biggest risk?" I anticipated everyone was going to say that, and, actually, it was what management said. Not the board though. What the board said was brilliant. They said: today we have $20 billion and are focused on making an improvement in Africa, so our biggest risk is that 10 years from now we have pissed away the $20 billion and nothing has changed. That is our biggest risk. And I went, wow, that is very mature. What an adult approach to life! And from that a lot of change happened within the organization. The message to management was clear: you must take more risk. If everything you do is a little bit incremental, here and there, that is not going to change the trajectory of this continent. And with us and $20 billion, we actually have the ability to influence it, to make a difference. Today, at $50 billion, they have even more of a chance.

MAX   Different kind of risk or more risk — is there a difference?

JIM   It doesn't mean you take $50 billion and put it on one square at the casino. What it means is a portfolio of projects, some which are low risk and some which are higher risk. And much the same as an investment portfolio, you don't put everything into the high-risk/high reward category, because you can't recover. But you need something in your portfolio to make a transformative difference.

It is perfectly analogous to the pension business. At its creation in Canada, it was mandated to invest in government bonds, nothing else; the legislation said that's all you could do. Then, government realized that the pension plans had made a promise to all their retirees that could not be realized by investing only in government bonds. The pension promise was premised on earning, let’s say 5% after inflation. But you are not going to get there by buying government bonds. Therefore, by definition, you must take risk and you are therefore obliged to buy common stock or other higher risk/higher reward assets. But it doesn't mean you put your entire portfolios into those investments.

MAX    And with something as politically and financially risky as the tariff situation we find ourselves in, what’s the approach?

JIM   Take things one step at a time. We'll wait and see exactly what President Trump is going to do. I'm getting different signals. I'd have my people get in touch with his people to say, let's stay in touch. And, let's bring it down a few notches and make it very clear to them that we're not going to roll over. This isn't a roll-over game, we're not playing that. I think that's your dog.

MAX   My final question is about the military, of which you have experience. The most powerful weapon in the world used to be the nuclear bomb. What do you think the most powerful weapons in the world are now?

"The shutdown of Voice of America and other broadcasters weakens America and supporters of democracy..." [o]

JIM   Disinformation has always been a weapon, and it was used very effectively in the Second World War. It was used by both sides. It's interesting Donald Trump closing the Voice of America. I remember when I was in Germany during the Cold War, I mean, the Voice of America was going on all the time. To me, right now, disinformation is clearly the most powerful weapon. It changes and numbs people's ability to think through and reason. It’s being used to numb our own population, to stop us from doing something. It's number one on my list. I don't call it disinformation, I call it software.
 
MAX   Go on.
 
JIM   Some people might say AI, but we're talking about some kind of machine operation which has something to do with intelligence.
 
MAX   I have three other things on my list. Number two is fentanyl. Some of my friends say that the most destructive thing that China has done is a chemical, is fentanyl.
 
JIM    Someone could write a pretty compelling thesis that fentanyl is “chemical warfare”. Similar to poisoning the water mains of New York. Fentanyl is probably more effective.
 
MAX   Number three on my list as a weapon is policy. It's not a weapon like a nuclear bomb is, but making rules is a big weapon. The fourth one I've got on my list, but I don't know what it means myself, is chaos. So it's not so much machinery or hardware these days, it's some other kind of thing. A thing you can't even touch.
 
JIM   One of the questions you asked me before we started was “In the face of what's going on, in this period of uncertainty and instability, how would I advise someone in charge?” Your dog analogy is very good. This is the part about sitting back and thinking before acting. How difficult this transition is going to be, nobody knows, because nobody knows even what the tariffs are going to be, and what the reactions will be. There's going to be push back south of the border, on Trump, and he may just give them the finger, who knows? But one thing that's clear is the whole academic research infrastructure of the US is under siege right now, and he is — whether he actually thinks he's doing it or not m— destroying it and with it the future dominance of America.

MAX   He's destroying it?
 
JIM    Oh, yeah. I think he's probably already put cancer research back a year already.
 
MAX   That means you think that scientific research is invaluable.
 
JIM   I don't know if it's as definitive as that, I think it is very, very valuable. And I think you can, and in the right hands, it can be deployed as wealth creation. If I was in the Canadian government right now, I would say, let's look at the opportunities here. If Johns Hopkins is cut by $800 million, you know how many researchers that lays off? If I was Canada I would be going to Princess Margaret Hospital, the largest cancer centre in the country, and say, “You got a billion dollars to attract all these freaking people.” It’s the same thing that happened when Ronald Reagan stopped embryo research. There are tons of medical scientists here in Canada because they could come up here and do what they weren't allowed to do it in the United States. Create a brain drain from the US up to Canada, that's one example. Another example is, Trump is caught between Musk and MAGA on the types of immigrants they will let into the country. The elites, the high-tech guys, want to bring in all Southeast Asians under whatever special visa it is, because they're scientists and researchers. And MAGA is saying, no, we don't want any immigration of any kind.
 
Go to the Googles of the world and the people who are really in the forefront of various types of research and say to them: Set up your research facility in Canada, we'll bring all these scientists in, and we'll allow the intellectual property to be created here. So there are counter punches, if you want to call it that, that are non-tariff related that you can take advantage of. Attracting talented people who would rather be in a place where their funding isn't cut off for political reasons. We did it in the financial community. Teachers fund did it right after 9/11. We repatriated probably 50 Canadians from Wall Street. Kids who'd gone down to Harvard and all the stuff and were employed on Wall Street. 9/11 happens, they're all frightened and their parents are up here aging, saying, what are you doing down there? They were all at the right age where they wanted to start to have children. Do I want to have a child in New York City? It was easy. We were the only large organization in that business at that time, so if they wanted to come back to Canada, we were it. I'm exaggerating a bit, there were a couple other competitors. But it was easy. So I'm not sure. I'm not sure you couldn't turn this crisis into . . .

“Where was that shirt manufactured, young man?”

MAX   . . . a jackpot.
 
JIM   A real opportunity. It takes money. If I was advising Mr. Carney, I would say, get your bright-eyed Minister of Innovation, Science and Industry on it. $400 million to Columbia? $800 million to Johns Hopkins? My god, it's a medical Mecca.

MAX   What was he thinking, alright.
 
JIM   And the conditions. I was looking at the conditions he put on Columbia to get funding again. They’ll never agree to that, they can't. He gets to appoint a monitor, decide what students come? There's no way that a university could agree to that.
 
MAX   Would they let me in with my $13 shirt made in China?
 
JIM    They’d ask, “Where was that shirt manufactured, young man?” My note on the cotton-linen-polyester $13 shirt shipped for free is that China seems to be headed toward an attempt at self-reliance. No matter what the cultural or social scale is, whether it's a big or little operation, the self-reliance idea seems to me to be smart. ≈ç

JIM LEECH is a Canadian business executive. His early career was in the military; educated at the Royal Military College of Canada, he reached the rank of Captain at the age of 22, but decided to leave and enrol in a MBA program at Queen's University that started him in a career in business and finance. From 2014-2021 he was chancellor of Queen's University in Kingston, Ontario; prior to that he spent 12 at the Ontario Teachers Pension Plan until his retirement in 2014, when he joined the board of the Mastercard Foundation. His current volunteer roles include the board of Historica Canada; Chair of Advisory Board, Institute of Financial Sustainability; Chair Emeritus and Co-Chair Senate, UHN Foundation; Chair of Advisory Board, Peloton Capital; and was a founding director of Right To Play International. He lives in Toronto.