AYESHA RASCOE, HOST:
Canadians received good news about their economy last week. The country's deficit will be smaller than projected, and its economy is on track to grow despite the chaos and uncertainty of President Trump's tariffs. Here's Canadian Minister of Finance and National Revenue Francois-Philippe Champagne.
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FRANCOIS-PHILIPPE CHAMPAGNE: We're the second-fastest growing economy. So what you're saying is that when we say the Canadian economy is resilient, we've been good fiscal manager, that growth does not happen by magic.
RASCOE: We're joined now by Paul Beaudry. He's a professor at the Vancouver School of Economics. Good morning.
PAUL BEAUDRY: Good morning.
RASCOE: So describe this Canadian economic growth and deficit shrinkage. What does it look like?
BEAUDRY: Well, first of all, it's not that it's huge growth. It's better growth than a lot of other countries. So we're still growing at a slow pace. So the tariffs that have been imposed on Canada still kind of slowed down the growth. But we've had less tariffs than a lot of other places because we still have a trade agreement with the U.S., so there's really only certain sectors that have been affected. But overall, we've had a kind of a reasonable level of growth. And Canada's an exporter of oil, and so when oil prices go up, obviously, it still hurts a lot of people at the pump, like in the U.S., but it still is good because, you know, there's sectors that are growing when oil price goes up. And that also - revenues for the government goes up. So that's all been kind of in that positive way.
RASCOE: The U.S. is also experiencing some economic growth, but it's in a K-shape. How does this compare to Canada's economic growth?
BEAUDRY: It has quite a few of the same properties. Young people are struggling more. There's kind of difficulty finding jobs, everything. But, you know, there's a big part of the population that are doing OK, and that's kind of showing up as these consumers keeping their spending up. Stock markets have been doing well, so those that have that kind of investments have been doing better, and they're kind of keeping up.
RASCOE: How does Canada plan to use the money that's being saved, like, with the deficit being smaller than projected?
BEAUDRY: Well, this is less deficit than you expected. So it's different between someone saying, OK, I'm in less debt than I was or I was expecting to be. This is more like, OK, we'll need to borrow less, not that we have a lot more income from that. But the government did take part of that money and reduced, for example, taxes at the pumps on gasoline - has reduced taxes for the next few months. And there's new ideas - this idea of kind of starting a sovereign wealth fund. But again, this is all borrowed money because we're still in a deficit.
RASCOE: Well, talk to me about that sovereign wealth fund, and it's meant to foster national economic growth with an 18 billion U.S. dollar endowment meant to invest in infrastructure, energy and more. How would this work?
BEAUDRY: Well, we don't know all the details, but like - again, here, I think it's important to see a little bit the difference with, let's say, somewhere like Norway, which, you know, had surpluses. And then you put it into your wealth fund, and then it invests different places, and it's all good. This in Canada, it's still borrowed money.
RASCOE: Then how can it be like a wealth fund? I guess that's my - like, if it's still - if it's borrowed money, how does that work?
BEAUDRY: Well, I mean, you know, like any fund, you could kind of go out and kind of borrow on one side and invest on another part. So it's hoping that it'll get returns that are kind of higher than that borrowed money. And it's also a bit different than most other sovereign wealth funds because this will be open for Canadians to actually invest in it also.
RASCOE: You mentioned how Canada is doing better when it comes to the tariffs than other countries. Do you think that will continue?
BEAUDRY: Well, for sure, this whole aspect of USMCA - so this is kind of this joint agreement the U.S. with Mexico and Canada about a lot of the trade. This is getting renegotiated over the next little while. There's still a lot of uncertainty, and that's kind of one of the things that has been really holding back investment in Canada as people don't know what this trade - this new trade regime will be. And again, here, there are certain sectors where already faced big tariffs in Canada. We have in the auto sector, the steel, aluminum sector. So we're hoping it doesn't expand to lots of other sectors, but it could. We don't know. This is negotiation time.
RASCOE: And, you know, like many countries around the world, Prime Minister Mark Carney is trying to make Canada less reliant on the U.S. for trade. Ultimately, how realistic is that goal?
BEAUDRY: Well, we're right beside the U.S. The U.S. will stay our major trading partner for a long time unless things go really, really kind of crazy. Most of our trade is maybe 70- to 75% with the U.S. And the idea is to diversify that so that maybe it would be reduced to 65- or 60%. So yes, it is the idea of kind of diversifying and looking elsewhere and saying, well, if the U.S. doesn't want to buy our goods, we can sell them other places. But at the same time, we recognize that we're really close to the U.S., and that's kind of the major market for many of our goods.
RASCOE: That's Paul Beaudry, a professor at the Vancouver School of Economics. Thank you so much for joining us.
BEAUDRY: My pleasure. Transcript provided by NPR, Copyright NPR.
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