Prof G Markets: Why Tariffs Could Crush Canada’s Economy — Featuring Mike Moffatt

Release Date: February 27, 2025

In this insightful episode of Prof G Markets by the Vox Media Podcast Network, hosts Scott Galloway and Ed Elson delve into the intricacies of the capital markets, focusing on how recent tariff threats by the U.S. administration could severely impact Canada's economy. The episode features a compelling conversation with Mike Moffat, founding director of the University of Ottawa's Missing Middle Initiative and former economic advisor to Justin Trudeau. Below is a detailed summary capturing the key discussions, insights, and conclusions drawn during the episode.

1. Apple’s $500 Billion Investment in American Innovation

Timestamp: 06:00 – 10:40

Scott and Ed kick off the episode by discussing Apple's ambitious plan to invest over $500 billion in American innovation over the next four years. This investment aims to develop a manufacturing facility in Houston for building servers to power Apple Intelligence and create 20,000 new jobs.

Notable Quote:

• Ed (07:37): “Apple is essentially a profit cash volcano... The market values them on profits, but their P/E ratio is extremely high, posing potential risks.”

Both hosts analyze whether this investment is a genuine move by Apple or a strategic maneuver to appease the Trump administration amid ongoing tariff tensions. Ed expresses skepticism about the actual impact of Apple's investment, suggesting it might simply be repackaging pre-existing plans to gain political favor.

Timestamp: 10:40 Ed contemplates trimming his Apple holdings due to the company's high P/E ratio and questions about sustainable growth, highlighting concerns over Apple's management of capital expenditures relative to its revenue.

2. Leadership Shake-Up at Cantor Fitzgerald

Timestamp: 11:00 – 17:32

The conversation shifts to Cantor Fitzgerald, a major private investment bank, where CEO Howard Lutnick has appointed his sons, Brandon and Kyle Lutnick, as Chairman and Executive Vice Chairman respectively.

Notable Quote:

• Scott (13:01): “Nepotism infects all sorts of companies and private companies. It’s a little bit easier to pull off than public companies.”

Ed and Mike delve into the implications of this move, questioning the competence and readiness of young leaders in handling a multi-billion-dollar corporation. They draw parallels to historical nepotistic practices in other industries, expressing concern over potential declines in financial performance and increased lack of accountability.

Timestamp: 17:32 The discussion highlights the risks associated with family succession plans, noting studies that indicate financial performance tends to decline and accountability diminishes when control is passed to family members rather than merit-based leadership.

3. Escalating Income Inequality in America

Timestamp: 18:14 – 26:19

Scott and Ed examine new data from Moody's Analytics revealing that the top 10% of earners in the U.S. now account for 50% of all consumer spending, up from 36% three decades ago. This shift underscores the growing income inequality and its broader implications on the economy.

Notable Quotes:

• Scott (18:14): “Luxury brands would do really well. High-end travel would do really well... It's an argument for a more progressive tax structure.”
• Ed (19:43): “The top 10% of earners are driving nearly 50% of all consumer spending... It’s another signal of how bad the inequality in America is really getting.”

The hosts discuss the potential second-order effects, including reduced social mobility, increased economic instability, higher debt accumulation, and greater likelihood of financial crises. They also explore investment opportunities that may arise in such a stratified economy, humorously suggesting bunkers as a viable option.

Timestamp: 22:14 Ed passionately argues for a more progressive tax structure, emphasizing that reallocating wealth to the lower and middle classes could have a higher economic multiplier effect, stimulating greater overall economic growth.

4. Interview with Mike Moffatt: Canada’s Economic and Political Landscape

Timestamp: 29:30 – 57:17

The episode's centerpiece is an engaging interview with Mike Moffatt, who provides an in-depth analysis of Canada’s economy, political situation, and the looming threat of U.S. tariffs.

a. Overview of Canada’s Economy

Timestamp: 30:47 – 33:35

Mike explains that Canada boasts a $2 trillion economy with a population of approximately 40 million. The country is heavily reliant on trade, constituting about 40% of its GDP, primarily with the United States. This dependence makes Canada vulnerable to tariff impositions.

Notable Quote:

• Justin Trudeau (30:47): “We are very reliant on a single customer.”

b. Current Political Climate in Canada

Timestamp: 31:56 – 35:26

With Justin Trudeau recently resigning, Canada is undergoing a leadership transition. The upcoming leadership campaign within the Liberal Party is expected to see Mark Carney, former Governor of the Bank of England and Bank of Canada, emerge as the new prime minister. This change is seen as pivotal in navigating the strained Canada-U.S. relations.

Notable Quote:

• Mike (32:56): “Mark Carney is a machine... How much does monetary policy history affect your ability to do these things?”

c. Canada’s Historical Context and Cultural Roots

Timestamp: 33:35 – 35:26

Mike provides a brief history of Canada, highlighting its formation from loyalists post-American Revolution and the significant French influence in Quebec. He contrasts Canada’s “patchwork quilt” approach to immigration with the U.S.'s “melting pot” model, emphasizing Canada's tendency to preserve cultural identities.

Notable Quote:

• Justin Trudeau (34:59): “Canada is more of a patchwork quilt that people hang on to their cultural identities for generations.”

d. Societal Challenges Facing Canada

Timestamp: 37:19 – 41:59

Mike identifies three primary issues plaguing Canada:

1. Housing Crisis: Average single-family homes are priced around CAD $550,000, exacerbated by lower incomes and high demand.
2. Market Concentration and Oligopolies: Efforts to promote Canadian ownership have led to high market concentration, creating barriers for small businesses.
3. Business Culture: A conservative approach to business inhibits innovation and the entry of new suppliers, hindering economic dynamism.

Notable Quote:

• Justin Trudeau (37:29): “We have a lot of oligopolies... Barriers to entry naturally create oligopolies.”

e. Healthcare System Evaluation

Timestamp: 40:20 – 41:31

Comparing Canadian and American healthcare systems, Mike highlights that while Canada’s system ensures universal coverage, it faces challenges such as long wait times and underinvestment. Trudeau acknowledges these strains, attributing them to population growth and inadequate government investment.

Notable Quote:

• Justin Trudeau (40:20): “There are a lot of strains here now in Canada... Anytime anybody suggests a major healthcare reform, somebody says, 'That's American style healthcare and we can't do that.'”

f. Impact of U.S. Tariffs on Canada’s Economy

Timestamp: 49:45 – 52:33

Discussing the potential ramifications of U.S. tariffs, Mike outlines a dire scenario where tariffs could lead to a 3-4% drop in Canada’s GDP, exacerbating inflation and disrupting complex supply chains. Trudeau underscores the interconnectedness of North American supply chains, illustrating how tariffs could inflate costs even for domestically produced goods.

Notable Quote:

• Justin Trudeau (52:17): “It’s going to screw up our supply chains... We're going to see price rises and difficulty in production.”

g. Canada’s Stance on Becoming the 51st U.S. State

Timestamp: 52:33 – 56:42

Addressing President Trump’s proposal to annex Canada as the 51st state, Trudeau clarifies that while a minority (12-15%) might find the idea appealing, the vast majority of Canadians are steadfast in their national identity and allegiance.

Notable Quote:

• Justin Trudeau (53:19): “We just want to stay Canadians. We love being Canadians.”

h. Cultural Differences Between Canada and the U.S.

Timestamp: 46:15 – 56:42

The conversation explores distinctive cultural dynamics, such as Canada’s conservative business practices and societal apprehension towards failure, compared to America's more open and risk-taking culture. Trudeau emphasizes that Canadians value honesty and are more cautious, which impacts business innovation and economic policies.

Notable Quote:

• Justin Trudeau (47:00): “Here in Canada, we're never trying to maximize the best case scenario. We're trying to minimize the worst case scenario.”

5. Concluding Thoughts and Final Remarks

Timestamp: 56:30 – 59:40

The episode wraps up with reflections on the strong historical alliance between Canada and the U.S., despite current tensions. Ed and Mike express concern over the strained relationship, emphasizing the deep familial and cultural ties that bind the two nations. They advocate for renewed efforts to restore and strengthen this alliance, highlighting the resilience and collaborative spirit that both countries share.

Notable Quote:

• Ed (57:03): “I trust that they're a little bit more measured and more mature than our current leadership. I hope this is just an embarrassing moment in history.”

Key Takeaways

1. Economic Interdependence: Canada's heavy reliance on U.S. trade makes it highly susceptible to tariff impositions, potentially triggering significant economic downturns.
2. Leadership and Governance: Succession plans based on nepotism in major corporations like Cantor Fitzgerald pose risks to financial stability and performance.
3. Income Inequality: The growing disparity in wealth distribution in the U.S. has profound implications for consumer spending and overall economic health.
4. Canada’s Internal Challenges: Canada faces critical issues such as a housing crisis, market concentration, and a conservative business culture that hampers economic growth.
5. Canada-U.S. Relations: Despite political tensions, the deep-rooted alliance between Canada and the U.S. remains robust, though it requires careful navigation to prevent economic and social strife.

Notable Quotes with Attribution and Timestamps

• Ed (01:57): “I don't fully get it. Surely she's rich if she's got the Canada goose.”
• Scott (06:52): “Why would you make such a fuss about this? To appease Trump.”
• Mike (07:37): “Apple was going to spend this money anyway. This is par for the course for Apple.”
• Justin Trudeau (35:26): “Connor McDavid, in sudden death over time of the Edmonton Oilers, put it in the net for Team Canada.”
• Ed (18:14): “It's much more stimulative than when you put a dollar in the pocket of the top 10%.”
• Mike (19:43): “The top 10% of earners are driving nearly 50% of all consumer spending.”
• Justin Trudeau (52:17): “It's going to screw up our supply chains... We're going to see price rises and difficulty in production.”
• Ed (57:03): “I trust that they're a little bit more measured and more mature than our current leadership.”

This episode of Prof G Markets offers a nuanced exploration of the economic and political landscapes shaping North America, emphasizing the interconnectedness of the U.S. and Canadian economies and the potential fallout from escalating tariff threats. Through expert analysis and engaging dialogue, hosts Scott Galloway and Ed Elson provide listeners with a comprehensive understanding of the challenges and opportunities that lie ahead.