TRUMP’S THE WORD — The 2024 race is heating up south of the border with 288 days until E-Day and just under a year now (!) until Inauguration Day, and the first primary right around the corner. Trump is the favorite heading into Tuesday’s New Hampshire Republican primary, commanding a 19-point lead in one poll. Former United States Ambassador to Canada BRUCE HEYMAN, who said he intends to work hard to get JOE BIDEN reelected, tells Playbook that if “red flashing lights and alarm bells aren't going off in Ottawa and Mexico City on the potential of a Trump administration, they should be.” Playbook has been considering the hypothetical of what a round two of Trump running the U.S. would mean for Canada. — Time to ‘batten down the hatches’: “Only your imagination is the limit to what is potential under a Trump administration pt. II,” Heyman warns. “He says the quiet part out loud, so if you don't think he's going to do radical things, you aren't listening to him at all.” — Recall: Not so long ago, he notes, Trump threatened Canada with steel and aluminum tariffs on the basis of U.S. national security and shocked Canada’s auto industry with tariff threats. — America, ‘first and alone’ in the world: Heyman says he’s “deeply concerned” about whether the scheduled 2026 USMCA trade agreement review would take place, given what Trump has said about Mexico, border walls and drug trafficking, and labor and environmental standards in the revised trade pact. “He has used language about putting a tariff on all imports into the United States, and that will be a challenge under the existing NAFTA agreement. But if he immediately says it's not working, it might give him leeway to find pathways to putting that in place.” — Hit to institutions: “The multilateral organizations that we have been partners in together, putting NATO right at the top of that list, will be under Trump threat. Now the U.S. Congress has tried very hard to protect that with the last defense authorization, but I'm sure Donald Trump will find ways to revisit that issue.” — Message to Americans in Canada: Heyman said swing border states, such as Michigan and Wisconsin, could play a key role in determining the election. “Americans who are living in Canada and concerned and horrified about the prospect of a Trump presidency—just being there and complaining on the sidelines is not going to be enough to be effective at all.” — The flip side: But LOUISE BLAIS, former consul general in Atlanta in 2016, is not so worried. She told Playbook a Trump-wins scenario “may not be the end of the world for Canada,” pointing out Republicans normally tend to be “extremely” friendly to Canada. “Trump 2 would not necessarily be all bad for Canada,” the former diplomat said, adding that she’s not advocating for any particular candidate. She joined a long list of pundits who often point to the USMCA to say that, while the process was rocky, Canada ended up with a better deal in the end. “I think Trump will not be focused on Canada,” she said. “He will have a lot of domestic issues that he'll want to get done, and so I think we just are less likely to see this kind of industrial policy that came out of the Biden presidency that was far sweeping, enormous and had an impact on Canada. Look at the amount of incentives that we've had to shell out to match the IRA [Inflation Reduction Act] in order to attract investments.” — Flashback: Ottawa responded with some C$80 billion in clean tech tax credits — something CHRYSTIA FREELAND has noted wouldn’t have been as big were it not for the IRA. NAIMUL KARIM reflected on how the IRA has challenged and changed Canada back in August in the Financial Post. — Trade bluster buster: Blais said it would be “really odd” for a president who has campaigned on the success of renegotiating the trade pact to “turn around and say, 'Well, it hasn't worked, so we're not going to renew,' because he is the author and signatory.” “I think he understands that, but I could be wrong.” ALL EYES ON TIFF — The Bank of Canada’s next rate and policy update is on the agenda for Wednesday. Pretty well no one expects the bank to dramatically shift to making cuts this week. — Tone-setting quote: “It’s far too early for the [central bank] to take a more dovish tone,” writes BMO macro economist BENJAMIN REITZES. “There’s no denying there’s been progress on bringing inflation lower; however, it’s also clear that there’s still plenty of work to do in order to get back to 2%.” That means two other things will be under the microscope. — Word of Gov: First, there will be intense interest in dissecting the words of central bank Governor TIFF MACKLEM, especially with respect to figuring out his timeline for rates. CIBC Capital Markets’ deputy chief economist, BENJAMIN TAL, writes that one problem in evaluating where things are heading is that the number of inflation indicators the bank watches has ballooned over the years. “At this point following any CPI release, the Bank and the market have to look at no less than 30 inflationary numbers to come up with a narrative,” he said in a lookahead note. “The tone of Governor Macklem’s press conference will become increasingly more important than any new data releases because, at the end of the day, the Bank can always find an inflation number to fit its narrative.” — The other watchword: The other thing keen observers will track is whether the bank will send signals on what it’s planning with its quantitative tightening program. That’s a choice that could expose it to the political firing line. “The Bank of Canada has been allowing the bonds it purchased during its quantitative easing (QE) program to mature and roll off its balance sheet. But since October, there have been some signs that policymakers might need to tap the brakes on [quantitative tightening],” ROYCE MENDES, Desjardins’ head of macro strategy, writes in a similar note. “It would mean that the Bank of Canada’s purchases of Government of Canada bonds were not temporary after all, opening the institution up to criticism that it had financed the federal government’s massive COVID deficits.” — Key numbers: Current interest rate: 5 percent. December inflation: 3.4 percent. Days from now until the next next rate update: 44. | 
