Canadian Economist: Trump's Tariffs Are A Gift To Mark Carney¶

Source: Prof G Markets (Ed Elson) Upload Date: 2026-09-09 URL: https://youtu.be/V9y0BY4p9Rc Guests: Mike Moffatt (Canadian economist, founding director of the Missing Middle Initiative); John Burn-Murdoch (columnist & chief data reporter, Financial Times)

Market Snapshot (Sept 9, 2026)¶

• Indices: Major US indices fell on Middle East tensions.
• Oil: Brent crude rose above $99/bbl.
• Rates: 10-year Treasury yield increased (the episode later attributes this to US fiscal trajectory).
• SpaceX: Up ~4% on reports its weight in the Nasdaq 100 will rise during this month's index rebalancing.

Segment 1 — Canada vs. US: The Trade War Escalates¶

The Headlines¶

• Canada announced counter-tariffs ranging up to 15% on roughly $20B of US goods.
• Tariffs on American steel, aluminum, and iron products were doubled to 50%.
• Other affected US exports: furniture, clothing, appliances, dairy.
• This is retaliation for the 50% tariffs Trump imposed on Canada last month after trade talks collapsed in late August.
• PM Mark Carney vows to "repel Trump's bullying, dollar for dollar, tariff for tariff."

How We Got Here (Mike Moffatt)¶

• These tariff flare-ups predate the current administration — there were similar episodes during Trump's first term.
• The summer's negotiations were specifically aimed at abolishing the threatened $20B tariffs.
• Canada entered talks, then withdrew. The exact breaking point isn't fully public, but reported sticking points include:
• Auto industry provisions
• Canada's right to sign independent trade agreements with other partners
• When talks failed, Trump imposed the tariffs; Canada responded in kind.

Smart Targeting by Canada¶

The Canadian retaliation isn't just symbolic. Per Moffatt, tariffs are concentrated on: - Swing states (political pressure) - Product categories where Canada can substitute imports from the EU or Japan rather than the US — minimizing domestic price pain while maximizing US exporter pain.

Economic Impact¶

• Canada is more exposed (smaller economy, more dependent). Estimate by Trevor Tom (University of Calgary): a sustained trade war costs Canada 0.3–0.4% of GDP growth over a year.
• Counterbalancing tailwind for Canada: Western Canadian Select (WCS) heavy crude prices have surged from ~\(50 to **~\)80/bbl** following Iran tensions — a major offset for an oil-exporting economy.

Political Dynamics — Carney's "Rally Effect"¶

• Carney's Liberals lead the Conservatives 47% to 31% in Nanos polling — a 16-point gap.
• Among non-Conservative voters, 90–95% support the counter-tariffs — a level of consensus Moffatt calls "stunning" for Canada.
• Even Conservative voters are split ~50/50 on the counter-tariffs.
• Moffatt's read: Trump's aggressive tactics (the AI hockey-stick meme, the "USA flag over Canada/Mexico/Greenland" image) trigger a rally-around-the-leader effect that strengthens Carney's hand and gives him room to walk away from a bad deal.

"If the administration is trying to force Canada to sign the deal, that's probably the worst thing it can do, because it only increases Carney's popularity and gives him more opportunities to walk away from an unprofitable deal." — Mike Moffatt

Trump's Canadian Fan Base¶

• About 15% of Canadians lean pro-Trump — roughly half of conservative voters, mostly people who have long wanted Canada to be more "American" on tax/social issues.
• The broader sentiment has shifted noticeably more anti-American year-over-year.

Long-Term Restructuring¶

• Canadian exports to the US dropped from ~80% of total exports a few years ago to ~67% today.
• Carney is visiting the EU next week; rumors of a Canada-EU comprehensive agreement (not membership, but deep integration).
• Defense procurement implications: Canada may finally abandon its long-running F-35 debate as part of broader diversification.
• Despite the anger, both sides acknowledge the relationship will likely be rebuilt — but it requires multiple successive US administrations of goodwill. Moffatt compares the current moment to a "messy, angry divorce."
• Carney's emerging legacy is that of a wartime leader; whether Canada gets an "Attlee" successor after the crisis is the open question.

Strategic Takeaway¶

Trump's tariffs may be doing Canada a long-term favor — forcing the diversification it should have pursued decades ago. The political incentive structure inside Canada currently rewards holding firm rather than cutting a deal.

Segment 2 — OECD Global Education Report: A Productivity Time Bomb¶

The Data¶

The OECD released its global education assessment (PISA-style testing of 15-year-olds across 90+ countries). Over the past decade:

• All three are the lowest averages the OECD has ever recorded.
• Preliminary data three years ago suggested a pandemic-driven dip that would recover. It hasn't. The decline has deepened.

US Specifically¶

• Reading scores: -14 points (lowest US score ever recorded).
• Math: at OECD average.
• Science: at OECD average.
• One of the widest gaps between top and bottom performing students of any country tested — nearly 300 points between best and worst in science.

Why? Drivers¶

1. Lingering COVID effects — chronic absenteeism that never normalized.
2. Digital/social media environment — fragmented attention; OECD found students "scanning" tests rapidly and bombing.
3. AI as a learning crutch — the OECD's own data:
4. Frequent AI users showed significantly worse ability to generalize from educational texts, even after controlling for socioeconomic background.
5. Daily AI users scored ~28 points lower than non-users — roughly a year and a half of schooling behind.

The Counterintuitive Economic Argument (Burn-Murdoch's nuance)¶

• Adult literacy in the US is materially lower than in the UK, yet the US economy vastly outperforms the UK.
• Among functionally illiterate US adults, average earnings are similar to the average British worker.
• Hypothesis: what drives economic dynamism is the quality of your top talent, not the median. The US still attracts and produces world-class founders/engineers/scientists who disproportionately shape the economy.

But Burn-Murdoch is clear: this isn't an argument that educational decline is benign. It's an argument about where in the economy the damage shows up first.

The Inequality Channel¶

• The more important economic impact may not be GDP — it may be the widening gap between a small, ultra-high-skill cohort and a large under-skilled cohort.
• The US bottom-decile in reading assessments has been falling further behind for decades, well beyond this report.
• Implications compound: labor market, political participation, social cohesion.

The AI-in-Schools Debate¶

• Recent Chinese study: students using AI for assignments performed well during the year, then collapsed on AI-free final exams. Same pattern reported at US universities.
• Zohran Mamdani's NYC push to ban AI in schools is part of this emerging political backlash.
• Burn-Murdoch's forecast: expect a shift back to high-stakes, supervised final exams — abandoning take-home coursework because it can't be credibly AI-proctored.

The "AI Is the Future, Why Test Without It?" Argument¶

Burn-Murdoch pushes back: - Calculators exist in working life — but schools still teach mental math first. The point of school is building the cognitive substrate, not just producing a worker. - The risk with AI isn't that students won't know how to use the tool. The risk is that the learning itself never happens — they don't learn how to read deeply, write at length, or even how to think by writing. - Plausible equilibrium: keep early/middle education AI-light; integrate AI tools in later, more applied stages of training.

Segment 3 — The American Debt Trap¶

The Number¶

• OECD countries now spend ~$2 trillion/year on interest payments alone.
• US annual interest bill: ~$1.25 trillion — roughly 20% of federal revenue.
• US interest expense has roughly tripled since 2015.
• US interest spending now exceeds US defense spending.

How We Got Here¶

• Annual federal deficit: ~$2 trillion.
• Total national debt: >$40 trillion.
• Trump campaigned on balancing the budget; the deficit has grown on his watch.
• Higher deficits → higher Treasury yields → higher interest costs. A self-reinforcing spiral.

What's Coming (per CBO)¶

• US net interest spending likely to double over the next decade.
• Soon, interest will be the single largest line item in the federal budget — larger than defense, larger than Social Security, larger than Medicare.

"America's debt problem is reaching a critical point. The situation is worse than ever before. And if we continue to not take this seriously today, then I think the conclusion is quite obvious. We probably never will." — Ed Elson

The Structural Trap¶

• The US has faced high interest rates before, but never with $40T in debt.
• The combination — high rates × enormous stock of debt — is the lethal variable.
• Creditors demanding higher yields are pricing in a loss of confidence in US fiscal discipline.

Cross-Segment Synthesis¶

Three threads, one throughline — the unwinding of American-led globalization:

1. Canada is being forcibly decoupled from the US economy — and is pivoting, with popular backing, to the EU and diversified trade.
2. Human capital is quietly degrading across the OECD, with the US as the canary (widening internal inequality masks it in GDP terms).
3. US fiscal trajectory is making the dollar/Treasury complex a structurally riskier asset — which keeps long yields elevated, which keeps interest costs compounding.

The strategic implication for markets: the post-1990s "US hegemony trades" — cheap dollar, dollar-funded leverage, US-led trade integration — are all under simultaneous pressure. Diversification away from US exposure (geographic, asset class, even cognitive) is becoming less a tactical choice and more a baseline survival posture.

Sponsor note: This episode was supported by Anthropic (Claude) and Fundrise (BCX — public ticker for private technology).