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Tariffs, tension and a charm offensive.
Can Canada cut a deal with Donald Trump?
I'm honored to have the Prime Minister of Canada, Mark Carney.
In the last few months, we've seen the US tariffs on our lumber products triple.
We are anxiously waiting.
We're going to be talking about trade.
We're going to be talking about a lot of different.
Welcome to World Business Report from the BBC World Service.
I'm Sam Fenwick.
Coming up, Canada's push to revive trade talks with the US and the AI video tool that's got Hollywood worried.
We'll start in Washington, where there's been something of a loving at the Oval.
You kindly hosted me and some of my colleagues a few months ago and I said at the time you are a transformative president.
And since then, the transformation in the economy, unprecedented commitments of NATO partners to defence spending.
Peace from India Pakistan, through to Azerbaijan, Armenia.
Canada's Prime Minister there, Mark Carney, has been meeting with the US President to discuss a more favourable trade deal between the two countries.
Mr Trump was full of praise for his Canadian counterpart.
Here he is speaking to reporters.
He is a very strong, very good leader.
He's a nice man, but he could be nasty.
He could be very nasty, maybe as nasty as anybody.
How?
Let me put it this way.
I can tell you this, because I deal with lots of leaders all over the world.
He is a world class leader.
He's a man that knows what he wants.
And I'm not surprised to see that he won the election and won it substantially.
And I would think he's more popular now.
He's a good man.
He does a great job, but he's a tough negotiator.
So then what's holding things up?
If he's a great man and you want to do a deal with Canada, why aren't you?
Because I want to be a great man too.
But was all that warmth just for the cameras and the reporters, or has something concrete actually been agreed?
Let's go live now to Washington to speak to Sir Akshay Rai, deputy editor at the political news outlet, which is The Hill.
So first of all, that atmosphere around those talks seemed very jovial.
There was lots of smiling.
There was lots of laughing, as we heard.
Is there a sense that either side is really pushing for a deal this time?
That's right.
What we're hearing right now is that there was a very warm exchange between the two leaders, a very marked exchange from Mark Carney's predecessor, Justin Trudeau.
What we know is that obviously he had a very contentious relationship with him.
And what we're now seeing seeing is a very different version of the president.
There was a lot of laughter, a lot of cordial, you know, vibes in the Oval today.
And while Mark Carney left without a deal, there does seem to be a shift in their relationship.
And, for the first time, the president sounding optimistic about a possibility of a trade deal with Canada.
Can you remind us where we're at?
In August, President Trump raised tariffs on Canadian goods to 35, though many of the products are still exempt under the current free trade deal.
Canada did then hit back, didn't it, with its own measures.
Where are we with the current tariffs?
Who's paying what?
That's right.
So currently there is still a 35 levy on Canadian imports, though he has allowed for some exemptions under the pre-trade agreement with Mexico and Canada.
But he's also imposed some sector-specific levies on Canadian goods, which is 50 on metals and 25 on automobiles.
Now automobiles came up and he said that Canada will be very happy with whatever deal that they do end up signing eventually.
But That deal still seems to be eluding Mark Carney, because he did leave the Oval Office with no indication that this was about to be signed or close to the finish line yet.
Well, stay with us.
Let's bring Brian Menzies into our conversation now because we want to get a feel for for how this is really hitting people in Canada.
Canada's lumber industry has been hit hard, facing tariffs, as you say, of more than 35% on exports.
And they're also dealing with weaker demand for American housing, which a lot of their wood goes into building.
Brian Mendes is the Executive Director of the Independent Wood Processors Association.
So Brian, just explain how have these tariffs affected affected Canada's independent timber processors?
Well, good evening, Sam.
I can tell you right now that last month, in August, we received an increase to 35 from 15 previously in July, and now we're up to facing 45 next week.
As of when it went up to 35 the order forms from our US customers and we ship most of our product to the United States because we have this large market right next to us.
Those order forms are not coming back right now.
Nobody's ringing our phones, our emails are shut down.
So we're very concerned about what's going to happen this year for our industry, whether or not we can keep going.
And the double whammy is the slowing US housing market.
Yeah, there is that problem too, the slowing U.S. market.
But at the same time too, as we talk about constricted supply in the US, the price of their industry's raw materials start going up, because they have to purchase them from private lands as well.
And what happens now, it's costing them more money to produce it.
And I'm hearing that American companies, some American companies are just as concerned now.
Now, the Canadian government introduced retaliatory tariffs, but then they did cancel them.
Was that the right thing?
Do you think that your prime minister is playing this right?
Well, at this point in time, yes.
I mean, I think we needed to indicate we could flex our muscles.
You know, we talk in Canada about elbows up and we can do that.
But at the same time, we wanted to sit down at the table with good faith.
And I think dropping those I mean let's keep in mind only the consumers in the countries in Canada would have been paying for those penalties.
And it didn't make sense to Canadians either.
But also we dropped some of our court cases, our appeal cases, and we dropped a few legislations, like the digital tax legislation.
We've done our best to sit down and say hey, we're ready to sit down and be part of these negotiations in good faith.
I heard a little bit today from President Trump that they're receiving that message, but yet, you know, the proof is yet to be shown.
Sir, actually, Mark Carney is facing political pressure at home, isn't he, to come back with a deal.
Are there signs, do you think, that that might be happening?
Let's go to Sir Akshay on that, please, Brian, and then I'll come back to you.
He is under extreme pressure.
You know, we know.
The opposition leader has indicated that anything short of him signing a trade deal in Washington DC would be a huge loss if he was to come home without one.
And we know that Canada remains the only G7 country not to have reached a trade deal with Trump this year, which really, you know, is illustrative of the complicated relationship that these two have shared.
So right now, Mark Carney under a lot of pressure, but he left the White House not answering any questions from reporters asking whether or not they'd reached that crucial agreement to get that trade deal to the finish line.
Brian looking forward.
Then how resilient do you think Canada's timber sector can be if there isn't a deal?
Well, I'm afraid I don't have an answer for that right now.
We're small, medium sized companies.
There's family run companies, multi-generational families.
And we make, you know, kind of the higher end wood products you see behind me.
And you know, any time the price tag on a thousand dollar piece of wood changes to one thousand plus another four hundred and fifty dollars, the consumers in the United States will not be interested.
So we have to look for markets elsewhere.
That's very difficult.
That is a very long process.
We need some immediate answers right now.
We need some some way out of this right now.
What would be a win for you in your industry then as Mark Carney returns home?
You know, I have heard a lot about aluminum and steel and dealing with energy stuff.
I would like to hear that they, the United States and specifically Canada, wants to sit down and find a way through this softwood lumber problem.
We've had going on now for decades, coming up to nine years.
So I think this is a irritant between neighbours that's been festering.
And I've always said if you don't deal with your small irritants between neighbours, it starts escalating to other products.
And we've seen that happen.
And just from a kind of voters perspective.
Sir actually was saying that you know Mark Carney needs to bring back a deal.
Does he need to bring back a deal?
Is he losing the faith?
Well, I think there's a lot of encouragement for Prime Minister Carney right now.
I remember we've been through an election just recently.
He came back from a very low position when he joined on as the leader of the Liberal Party and substantially won back almost to a majority government.
And so he does have to register some movement here.
At the same time, there doesn't seem to be much alternative as to where we would go from here otherwise.
So he does have that pressure politically.
But I would say that Canadians are hopeful right now.
And they're putting a lot of hope onto him.
So hopefully he comes back with something.
Yeah.
Brian Menzies from Canada's Wood Processors Association.
Thank you very much.
And Sirakshi Rai, Deputy Editor of The Hill.
Thank you too for joining us today on The Processors.
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You're listening to World Business Report from the BBC World Service with me, Sam Fennec.
So while Canada is trying to strike a deal with the US, the European Union's also trying to get Donald Trump's attention.
And they're doing that by rising their tariffs on steel to 50% matching US levels.
Brussels hopes that it will persuade Washington back to the table to talk about trade.
Let's talk now to Blake Hurtick.
He is an expert in global steel prices at the commodity pricing firm Argus Media.
Just explain to us first of all, Blake.
Will this mean that all steel going into the EU will have to pay this additional tariff?
Yeah.
Hi, Sam.
Thanks for having me.
And yes, I mean, this is yet to be ratified.
It has to go through the European Commission legislative process.
But on its face, there's two kind of components here.
One is actually lowering the amount of import quotas by about 47% from the prior guidance.
And that would...
Basically, that volume would be able to enter the country, the block tariff free.
And then the everything beyond that would now be subject to a 50 percent tariff.
And this would apply to all forms of steel, from you know, kind of the flat steels that go into making automobiles and appliances and other things like that, to the construction type steels like rebar and other various things.
And then even some of the semi finished kind of products as well.
So, you know, it's a pretty wide ranging impact on every form of steel coming into the EU.
And just give us an idea, the amount of steel that they're going to allow in before it's tariffed, before it faces that extra tariff.
How much is that?
Is it a lot in the kind of quantities?
Can you give us an idea of what that scale might be?
Yeah, so I think it's easiest probably to take hot-rolled coil as kind of the basis for comparison.
That's kind of the most high-volume commodity traded grade of steel, which goes into again, like I'm saying appliances, the auto sector et cetera.
They're capping those under this proposal at 52 million tons, which is down by about 36 million tons from their 2024 import levels.
And the total slashing for that quota for flat-rolled products as a group is – by 8.5 million tons.
So it's a significant amount.
And for some context, there I mean a very large steel mill.
Modern steel mill now could make 5 million tons per year of steel, of that grade of steel, to give you maybe a little bit of context around it.
And do you think the move will bring Donald Trump back to the trade negotiations?
Do you think it will be enough to do that?
I'm not one to even begin to think that I understand what's going on in Donald Trump's head.
But I do think this move could be a step into reigniting some of the negotiations around steel, particularly because it's a big sticking point, because you know the US.
Trump has had 25 percent import tariffs on steel steel imports in the United States since Trump's first term.
Those were increased to 50% earlier this year.
And that's been a massive sticking point between a lot of allied countries in the United States as well.
I think a move like this shows that they're kind of on the same page and fighting the same fight in regards to basically, global oversupply, particularly around China, and the amount of steel that is being dumped into the global market.
And it mirrors the US policy, not just in terms of the 50 tariff rate, but also they've specified they're shooting for an 80 utilization rate for domestic steel mills, which is the exact rate the United States said that they were targeting for when they implemented the 232 national security tariffs back in 2016.
And I think one thing you could probably look to as well, as the US did carve out when they negotiated the trade deal with the UK earlier this year their tariff rate is at 25 for steel compared to 50 for EU.
Now, just talk about that.
You mentioned the oversupply of steel into the global market coming from China.
As you said, the EU is worried about dumping and that kind of affecting their markets.
Do you think that these new tariffs will prevent that?
Do you think it will stop China from creating so much steel that it does go into the open market?
I don't think much can stop China from producing what it's going to produce.
And that still has to find an outlet.
In the past, when China's domestic sector was very strong, they were consuming a lot of it.
But I think it bears repeating to provide some perspective on the situation in the commodity steel market is that the world as a whole produces just a shade under 2 billion tons of steel per year.
And China alone counts for half of that at a billion tons.
I mean the US, where I'm at.
We love to talk about our domestic steel industry here, how great it is.
We have the capacity to produce a tenth of what China produces, right?
So you don't get that kind of scale and imbalance of global oversupply when producers are reacting to market forces, right?
I mean Chinese steel producers do not have the same capitalistic pressures as a Western producer in the EU or the US or in Latin America.
I mean many of these Chinese mills are running as a means of manufacturing, as a means of maintaining employment, not profit margins.
So it's just a different ballgame entirely.
Blake Hurtick, thank you so much for coming on and explaining that to us.
Blake's from Argus Media.
They're a global commodity pricing firm.
Thank you very much, as I say.
Well, while trade tensions and tariffs dominate headlines, investors are heading for safer ground and they're going into gold, because gold prices have jumped again, driven by worries about the global economy and the prospect of lower US interest rates.
Let's talk now to Ellen Lee, portfolio manager at Causeway Capital, joining us today from Los Angeles.
So gold just keeps going up and up and up, doesn't it, Ellen?
It's something we might want to start taking our jewellery to the shops to get it cashed in.
Give us an idea of how much it's going up by.
Well, its rise this year has been met with a huge surprise.
However, I think what's causing it, there's some elements of structural tailwinds.
I would say number one, As US fiscal credibility is being questioned.
Many are concerned that you know, as a reserve currency, does dollar have the dominance and credibility it used to have?
So if you look at central banks around the world, including the US allies as one of the, as countries that are not so aligned with them, there's been a structural shift in diversifying out of US dollars.
So there is a fundamental increase in demand for gold, which will increase the price of gold.
And, more recently, with the way the Fed has taken action.
Sam, you mentioned that US is decreasing interest rates or posturing around that, despite employment growth, unemployment being where it is and inflation where it is.
So people are questioning its independence.
And so gold price has reacted to that.
And most recently Sam, I think investors, whether they're institutional or not, I think even retail investors, are reading the headlines and thinking maybe I should diversify into gold as well.
So if borrowing costs come down, how much further could gold go up?
I mean, that's really hard to exactly say, but I think there is still room, as the fact that reserve currency is supposed to act as inflation resistant right.
I think the demand for gold will go up by central banks as well as others that are uncertain about the global economy.
Well, thank you very much for explaining that as well.
Ellen Lee, Portfolio Manager at Causeway Capital, talking to us today from LA.
Now we're staying in California because there's fresh tension between Hollywood and the tech world.
And this time it's over OpenAI's new video generator, Sora A, And the tool can create ultra realistic clips from text prompts.
Here, listen to this.
Ever since he was a kid, he wanted to be a duckling racer.
His first word was quack.
So that is a clip from The Quack by Sora 2.
It features professional racers competing against a massive duck.
Believe it or not, every bit of that was created by AI.
And studios are furious that copyrighted characters have appeared in its feed without their permission.
Well, earlier I spoke to Lily Jamali, the BBC's North America tech correspondent.
So this is basically a tool that OpenAI has unveiled the latest iteration of.
It allows you to put a prompt in.
You pick anything you want.
You know, me eating McDonald's french fries on the top of my office building.
And it will basically generate, using artificial intelligence, that video of me doing that.
You can put prompts in with text.
You can use images as well.
And a lot of these images actually look, these videos look very realistic.
And so it's a very magical experience for a lot of users.
But Hollywood is obviously up in arms because many of their copyrighted characters and other content have been appearing in these generated videos that OpenAI has been making.
And why are they upset about that?
Because they sound a bit of fun.
They are fun, but this is the ongoing issue with so much of this AI revolution that's been happening, which is you have all these copyrighted materials, whether it's text, in the case of books, in the case of things people have written on blogs over the years.
And in this case we're talking about copyrighted characters like SpongeBob, SquarePants and Pokemon and so on and so forth, appearing in this.
This is valuable intellectual property that is owned by the Hollywood studios.
You have, you know, likenesses of certain actors here.
And what's so unusual is the way that OpenAI embarked on this journey.
They decided unilaterally they were going to require everybody to opt out of having their content used in this way.
That's basically rewriting copyright law on their own.
And Hollywood quickly caught on to this and said, no, no, no.
That's not how this works.
You have to get our opt in.
You have to pay us in order to use these characters that in some cases have been around for decades.
And Sam Altman has said since then that he might then share some revenue with the people that own the copyright.
You're not going to be allowed to do this.
So he writes this post saying that you know, back to the old way, where you have to opt into allowing these characters to be used in this way.
And he said you know yes, revenue sharing is on the table.
But actually got to ask him about this yesterday at OpenAI's Developers Day here in San Francisco because there was so much hubbub about this issue.
And he is hoping that this prospect, sort of dangling this idea of engagement, will be enough to get some of these Hollywood types to come along with him.
The idea that you know, maybe we don't share all the revenue with you, but if you're happy with the kind of engagement, the exposure that these characters are getting on Sora, maybe that will be enough of an enticement for them to go along.
That's not probably going to fly with Hollywood at this point.
They are, I would imagine, preparing lawsuits to file.
But for now I think Sam Altman has successfully avoided that because of this sort of retracing of his steps.
What's the potential for these films, these movies that are made?
You know, this is interesting.
It's not just the generation of these AI videos.
They're also going into this feed, a social feed similar to what you would see on TikTok.
That seems to have been the initial thought about how this product might live in the world.
You know, you log on to your app and just start scrolling through them, you know, forever and ever.
But as they sort of see how people are actually using this product.
One of the things we learned at OpenAI's Developer Day yesterday was they're starting to notice there's a lot of interest in friend-to-friend you know, sending something that's just between two people or just between a group of people, not sending it and posting it to the wider world.
Maybe inside jokes could be a potential way of maybe creating videos that are based on an inside joke, between two friends, for example.
So a bit more like a social media feed than something that you might see at the cinema, perhaps.
The social media feed was the original idea.
And I think what they're noticing is that there's a lot of person to person interest, that maybe it's a private message, that they share one of these videos over a private message or to a small group of friends.
But the bottom line here is that OpenAI as successful as they have been remember ChatGPT is really what brought on the AI era.
That's their product.
They are not a profitable company right now.
And there's all this talk about, are we in an AI bubble?
This company is generating revenue, but they are not turning a profit.
And what was so striking to me reading Sam Altman's post over the weekend about this was he said at one point we have to make money at some point from this tool.
And I think That issue, that pressure on him is very real.
They have to be a profitable company at some point to appease their investors.
And he told me when I asked him about this, he's confident and patient.
He wants some patience from his investors as well.
Confident and patient that they will get there.
Lily Jamali there.
That's all for this edition of World Business Report.
I'm Sam Fennec.
Thanks for listening.
