The Real Cost of Tariffs and What Comes Next for Canada

[00:00:01] This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger The Canadian Investor Podcast. Welcome into the show. My name is Braden Dennis, as always joined by the iconic Mr. Simon Belanger.

[00:00:25] Dude, what happened? You and I, we hop off the mic for like a week and a half and a year of new... Remember all that AI craze and stuff? That was a whopping four days ago, Simon. It's just this news cycle here at the end of January 2025, we're recording this now in February, has been a whirlwind.

[00:00:49] Yeah, it's been crazy. And just the fact that our schedules have been crazy for recording between me moving to a new place, you traveling all over the place and Dan Kent going to the US for a golf tournament. It's just been pretty crazy. And then all this news comes up and I've had people asking for an emergency pod with the tariffs.

[00:01:12] Not quite the emergency pod, but at the end of the day, I think it's good that we waited because since the announcement came on Saturday, a lot of stuff happened since, right? So yeah, yeah, so much. So I mean, maybe that's a good place to start. But you have a nice little announcement here for the listeners of the pod first. Yeah, exactly. So you've known for a little bit, I've been thinking about it, but I will be doing the podcast full time at the end of March.

[00:01:39] So focusing on the business, growing the podcast here, I just couldn't make it work, working part time and trying to do the podcast, all the notes, doing a lot of the operation stuff as well, extra content. So it'll give me some more time to do some growth initiatives that you and I have in mind, some more content for people, probably some content on YouTube that we're looking at too. So look for that in the spring, early summer, some new things coming online.

[00:02:08] I'm pretty excited about it. It's a big plunge, but I think it was time because I just couldn't end up doing both and not sacrificing time with my family. Well, I applaud you, brother. And congratulations on making what I call the leap. The leap, exactly. And you are now, congratulations, which might not seem like a compliment, but it is.

[00:02:33] You are now officially unemployable because once you make the leap and you get a taste, you are officially unemployable. Unemployable. And you know what? It's a great feeling. Okay. It is a great feeling to be unemployable. Yeah, I'm pretty excited. To me, it's just the liberty or the extra, I'm not quite sure how to put it, but flexibility of being able to manage your own time.

[00:03:00] That's something I definitely cherished and not having to work that nine to five. Obviously, you still have to get the stuff done, but you can do it a bit more on your schedule. There's clearly still some deadlines, but there is a lot more flexibility when you're the boss and not reporting to anyone. Well, you and I have been talking a little bit about this, about what's next for the podcast.

[00:03:23] And I really want to start like an entrepreneurship podcast, more business-y focused and stuff because, of course, I'm deep into that now. I have 22 employees with FinChat now. I wouldn't be surprised if it's closer to 35 or 40 by the end of the year here. And, you know, investing in public equities like we talk about is an amazing way to get rich slowly.

[00:03:48] It is like the sure path for the people who want to have a good savings muscle and be patient. It is the most brilliant, most effective path to, you know, you're not having to be bound to time and equals money, like working, you know, exchanging time for money.

[00:04:12] However, I think so many people get caught up and they lose that patience factor because they want to be rich quickly and rich now and rich within a few years and not rich within 25 years. I say to them, okay, you have to start a business then. You have to start and own equity in some sort of upstart to go from zero to rich quickly.

[00:04:38] I'm talking about like not overnight success, but like less than five years. Yeah, I was going to say within five years is probably. Within five years. It's not going to be overnight. But, you know, so many people want to just invest and then they go down gambling on options. They go super far down the risk spectrum because they go 25 years. I'm not waiting till retirement to be rich. I say, okay, you must start a business then. And I encourage many people to try.

[00:05:06] It's, you know, the odds are against you, but, you know, you only got one shot at this life. And so I'd rather live with no regrets and try and fail and maybe try and succeed. Yeah, no, that's well put. So stay tuned. We will have some announcement throughout the year. There's definitely a lot of projects that we have in mind. Not sure we'll do all of them. There might be some that are worthwhile or not.

[00:05:32] And I know you've thought about having that extra podcast for a while, but stay tuned. There's going to be more stuff. But now let's talk about that. Just what I need on my plate. More stuff to do here. Yeah, I think you'd go crazy if you didn't have enough on your plate. So knowing you like I do. Yeah. And I think there's some congratulations in order for you as well. Oh, yes. Yes. Thank you, Sam. Congratulations on getting engaged. So it's the first time we actually talk face to face.

[00:06:00] I know you texted me the night of, but I still had my like nighttime notifications off. So I'm like, oh, look at Braden posts on Twitter and doesn't text me. And then later on, I saw you texting me. So yeah. Yeah. Scumbag move, eh? No. Well, thank you. Thank you very much. Yes. My now fiance and I got engaged in Barbados like a week ago-ish now. So thank you. Okay. So enough of the housekeeping.

[00:06:29] Let's talk about tariffs. Now, I wanted to do a quick recap and also go down and explain how tariffs works just because I've heard a lot of information on tariffs, a lot of stuff on Twitter, which I think people just don't really understand how tariffs work. And frankly, I'm not quite sure our government fully understands how tariffs work, the way they're talking. So I'll do an overview of that, but just a little bit recap so people remember.

[00:06:55] At the end of November, Trump posted about his plan to impose a 25% tariff on Canada and Mexico. A few days later, Trudeau went to Mar-a-Lago to meet with Trump. Obviously, Trump had been trolling him on, I guess, his Truth Social platform, but which is typically posted back on Twitter as well about Canada becoming the 51st state and stuff like that.

[00:07:20] But still, Trump, after that, said that he would implement those 25% tariffs on his first day in office. Once he took office, he said that they would be implementing them on February 1st, which was last Saturday. And then Trump signed an executive order imposing 25% on tariffs on Canada and Mexico, with the exception of Canadian energy products, which would see a 10% tariff.

[00:07:46] Now, later on that day, Trudeau announced and Canada announced a slew of retaliatory tariffs. On Monday morning, he came into agreement, Trump came into agreement with Mexico to pause the tariffs after the Mexican government committed to send 10,000 troops to the southern border and to tackle illegal immigration, but also, I think, illegal drugs coming in.

[00:08:11] Later on Monday, a 30-day pause on tariffs against Canada was also announced. In exchange, Canada committed to a $1.3 billion border plan, additional personnel to enforce the border, a 24-7 eyes on the border, and a phantalon czar, which that term is just like every time I hear it, I start laughing. But it must be a term that Trump likes, because there's that David Sachs, right? He's like the AI in crypto czar.

[00:08:41] AI czar, yeah. I'm like, he must like that term and probably asked Trudeau that he had to put that or tweet that in order to have the deal, something stupid like that. Yeah. Yep. That's the latest, the 30-day pause. The 30-day pause. And obviously, Mexico also got that 30-day pause. Anything you want to add there? Because what I'll do now is just go over a bit how tariffs actually work, just so people

[00:09:09] get a good understanding over all these headlines that we've been seeing. Yeah. I'll start with the bad. And you're going to talk, I'm sure this will be a long conversation, but I'll start with the bad, which is, of course, there's this 30-day pause now. But say this is in effect tomorrow. Canadian manufacturing, it's been really tough sledding for a long time now. You know, it's kind of a shell of itself of what it once was on the Canadian manufacturing side.

[00:09:37] It's been really tough policy-wise for the energy sector, more so than a unit economics sector, unit economics perspective. But either way, exporting has not been great. This would basically be awful for a few select sectors and a few select companies that are exporting to the US, of course.

[00:10:06] Catastrophic, if not, if anything. Especially for, I think, of like a Magna or a Linamar that has so many plants in Guelph, Ontario. Terrible. Especially how many times those parts have to move across the border. It makes no sense for the US OEMs and also the Canadian manufacturer. Terrible across the board. So there are many businesses that this would be very catastrophic for. Now, the positive is coming out of this.

[00:10:32] So I tweeted this the other day, which is, Canada has lost its freaking identity and needs a major kick in the ass, a major shakeup. And frankly, we deserve this kick in the ass. I mean, let's call a spade a spade. We certainly deserve this kick in the ass. And I guess that's kind of the silver lining here.

[00:10:57] I have not seen Canadians rally like they have around this in a long time. Like, I don't even know, remember, I can remember when it's felt like this. And so we've all known we need this kick in the ass going into this election year. It's been really bad for a long time. It's been horrible for 10 years. I'm going to talk about some statistics after this and what we need to do.

[00:11:22] So I'll finish with the silver lining is we deserve this, honestly, to say, hey, give your head a shake. You can do better. And maybe that's just what we needed here. Maybe. Or maybe that's just me trying to cope. I'm not really sure. It's one of the two. Yeah. And I think it probably shows that we also need to embrace what we have in terms of advantage. And a lot of it is our resources. Let's be honest.

[00:11:51] Like, it's a big, big advantage. We're lucky to have these resources where a lot of countries don't have those. There's probably a handful of countries around the world that are as fortunate as Canada, the US included, that have a lot of natural resources that would be envy of a lot of countries in Europe, for example, that don't have that. So I think we need to embrace that a bit more. And it's not just fossil fuels.

[00:12:18] I mean, think of the uranium deposits for nuclear. Think of the amount of moving water for hydroelectric. I know I'm talking a lot about energy, but we do have a lot of resources. And I think people, when they hear that, they think of like oil and gas, which we certainly have a lot of as well. But we have a lot of natural resources. And it is maybe just the kick in the butt we needed, to be honest. Yeah, it could be.

[00:12:49] So just to go over what tariffs are exactly. Like I said, I've seen a lot of nonsense written over the last week. So I thought it was important to just give a primer here. So the tariff is paid by the importer, the company that imports the goods into the country. From what I've seen is that these tariffs would only be on goods. So not on services. The tariff is paid at the point of entry. And that's critical. That's very important.

[00:13:15] The tariff revenue goes to the government imposing the tariff. So in this case, it would go to the US government. So for example, and I know I use a lot of bike example just because I know. And it's a bit of a passion of mine too. So Trek, which is a pretty big buy company in the US, imports aluminum. Produced by Alcoa in Canada to make bike frames. Trek pays a 25% tariffs on the aluminum that imports to the US.

[00:13:42] Now, let's say that Trek only imports the aluminum for the bike frame. Every other component of the bike is fully made in the US. The total increased costs of the tariff, assuming that Trek passes that on to the customer fully, and there's no currency changes just to keep things simple, will be much less than 25%. And I think that's important because a lot of people are seeing the 25% and will freak out.

[00:14:07] That's because only part of that bike is actually tariff, not the full bike. And I think it's important because a lot of people are not making that nuance. And that goes both ways though, because on the other hand, and I know you talked about that and you referenced Magna, the tariffs can be massive on other products because if you take cars that are being built in Canada, in the US, mostly Southern Ontario with Michigan,

[00:14:34] the cars will actually go back and forth multiple times between both countries. And they would face potential tariffs every single time that they cross over to that country. Obviously, it could be both ways if there's retaliatory tariffs as well. So I think it's just something I wanted to clarify because it doesn't necessarily mean that it is 25% increase for the US consumer for US tariffs.

[00:15:00] It depends on the quantity of the finished products that is actually tariffs. And in a lot of cases, it might not be the whole product like I just mentioned here. Yeah, I mean, the auto is a great example because the supply chain is an absolute nightmare to manage. It's so messy. And there's tier one, tier two, tier three suppliers. Mexico is a huge manufacturer of auto parts. I look at Magna has like 50 plants in Canada, like 80 to 100 in the US

[00:15:28] and another 80 to 100, if I recall correctly, in that ballpark in Mexico as well. This is a massively important supply chain for every single part. And it's moving. It's really just being assembled by the OEM. The OEM is only making a few handful of things. They're really a designer and an assembler of these vehicles. Yeah, very similar to the aircraft manufacturers, right? Airbus and Boeing, that's what they do.

[00:15:57] They assemble the aircraft. The parts come from hundreds. They do the engineering, the design, and the assembly. Exactly. Now, some key points about tariffs. Historically, most of the costs would be passed on to the consumers. So if the US imposes tariffs, those costs would be passed on to US consumers. If Canada does counter tariffs, the costs would be passed on to Canadian consumers.

[00:16:21] However, in the example I gave from Alcoa and Trek, you could potentially see company absorb some of the increased costs with lower margins if they're very profitable. And that's a big if, right? If the company has razor-thin margins, probably not because it's the… It's just an immediate pass-through. Exactly. Because then that's the difference between being profitable and not profitable. The lack of groceries, low margin. Yeah. Yeah.

[00:16:47] And currency changes can also either absorb or increase the magnitude of those tariffs. So if the US dollar straightens, then it makes the Canadian goods cheaper and can offset some of the impact. So a lot of people may be wondering, okay, so why is Canada freaking out since the additional tariffs would be passed on to US consumers? Well, that's where the US is in a very… in a position of strength here.

[00:17:15] We're… yeah, we're definitely fighting Goliath. And I'm not sure we would qualify as David, but let's just say David and Goliath. More than 75% of Canada exports go to the US. On the other hand, Canada is one of the major exporting countries for the US. So the US exports a lot to Canada, but it's still only 17% of their exports that go to Canada. That's based on 2022 US government data.

[00:17:43] So the idea is that if the US imposes tariffs across the board, it will make Canadian companies less competitive or businesses that operate in Canada. It would then likely result in lower sales, lower profits or potential losses and then potential job losses, which would put a drag on the Canadian economy. And the problem here is that the Canadian economy was not doing well to begin with.

[00:18:12] So it would be one thing if the US imposes it and the Canadian economy is growing at 3%, 4% or 5% a year. That's not the case. We're barely growing. So the potential impacts of tariffs would be pretty significant. Everything I've seen from economists, even though no one really knows and anyone who tells you that they know what the impact would be, they don't know. They're just making some assumptions and projections. But this is very novel.

[00:18:40] So yes, there's been some historical example, but we don't know exactly how this would play out. But the consensus seems to be that you could see GDP contract of between 1% and 3%, depending on the impact. And another issue here is with counter tariffs. So one of the issues with it is you risk escalating the trade war.

[00:19:03] So if you put on counter tariffs, if you're Canada, you just risk that the US will say, well, okay, we'll just increase the tariffs like Trump has threatened Canada. Canada has more to lose than the US. Our economy, as it stands, is doing worse than theirs. We are much more reliant on the US as a trading partner than the US is on us. It risks raising inflation while the economy is in contraction.

[00:19:27] And that's a major risk because if the economy slows down and because of the US tariffs, but then Canada puts counter tariffs, it will increase the price of a lot of the items that have been counter tariff. And one of the things that I thought was incredibly stupid by the Canadian government, and I'm not mincing my words here. I think it's no secret that the people that have the lowest income in Canada have been struggling the most.

[00:19:56] And the fact that they would put counter tariffs on fresh fruit, frozen fruit, vegetables and things like that. Like in what world does that help the most vulnerable people in Canada? I understand they want to stand up for Canada, but and you know, you want to do counter tariffs. That's fine.

[00:20:18] But especially if you put on top of that a weaker Canadian dollar, can you imagine if you're like scraping by how devastating this would be? Yeah. I mean, it's highly inflationary. That's why the markets reacted the way they did. Mm hmm. Exactly. And it's just the food part is what I have a big problem is because you and I will be fine. Like we can absorb that cost. We won't be happy about it, but we can absorb that cost.

[00:20:47] But people that most of their income goes to lodging and food, the vast majority, they can't afford those increases. So that's where I think it's ill advised. And I do hope that they at the very least reconsider that because it will hurt people that are the most vulnerable in the Canadian society.

[00:21:07] It feels like most developed – well, globally, people have been running this treadmill against inflation since like the post-COVID M2 money supply just dumps the entire float of currency onto the markets. Everyone's been kind of running this treadmill to get out of it. This is highly inflationary.

[00:21:31] And to your point, you have an increasing wealth gap between the top earners and the non. And wages have not kept up with inflation. And so you get an election like just happened in the US, an election like it's about to happen in Canada. It's like why are the markets so up if people feel so bad or if there's so many recessionary fears?

[00:21:55] And you have had such an inflationary environment that affects the lower income that are not getting wage increases as much as the currency has debased. And you get this just huge mismatch in wealth concentration into the select few. And I'm not here to say capitalism is bad or there's some sort of better option out there.

[00:22:22] But this is the answer to why you see markets rip, climb that wall of worry and people feel generally, anecdotally, feel so bad. And so then you get something like this, right? You've ran this treadmill of inflation to get it into a place where it's not like you're buying power and you're purchasing power is getting completely destroyed every year. And then you see this and it's very inflationary.

[00:22:49] That is why you see markets panic the way that they did for a day. Like that is why if you're wondering like, you know, the Americans are like, oh, yeah, this is great for America. Why is the stock market down 3%, 4%? It's like that's why it's inflationary. Yeah, exactly. And businesses will be put in a tough spot because there's different outcomes that can happen. Either people, maybe people will keep spending.

[00:23:17] They'll have to spend more on items that they need. But they may forego some purchases that are discretionary because they just don't have the money to pay that additional cost. And this would impact businesses in time. And there's other potential impacts. The first one is maybe this is a wake up call we needed, the Canadian provinces needed to remove some of the trade barriers within Canada. So that's been a big call.

[00:23:45] I think I've seen the CEO of Shopify even mention that. What's his name? I'm drawing it. Toby. Toby. Toby. He mentioned that. I think that would be a great potential outcome of all of this is if you start removing that. I think technically, don't quote me on that, but obviously I live in Ottawa. Anyone familiar with it? It's very much on the border with Quebec. And a lot of people will go and shop in Quebec or in Ottawa and vice versa.

[00:24:14] And I'm pretty sure technically it's illegal to go and buy alcohol on the Quebec side and bring it back to Ontario. Although they don't enforce it. So this is just... There is Supreme Court precedence on that, by the way. Oh, is there? Okay. There is Supreme Court precedence of a, I believe, New Brunswick man who was doing booze runs for cheaper alcohol across province.

[00:24:37] And he lost that battle in the Supreme Court about the taxation here. So how stupid is that if you ask me? Like most people... Idiotic. Idiotic. Most people wouldn't even do it. Like that's the thing, right? And do police really enforce that? Like that's the other thing. They probably don't. They don't really care. So that's the kind of thing that it just creates extra red tape, extra regulation that's not really needed. Now for businesses considering...

[00:25:08] And this is really a side effect. Opening offices or operation or expanding in Canada. They may reconsider that if the US is a large export market for them. Even if tariffs never materialize. Because just a threat of tariffs creates uncertainty. And Brayden, you know as well as I do, businesses hate uncertainty. So if they have to choose, they may reconsider expanding or an opening an office in Canada and instead doing it in the US.

[00:25:38] So that is something to consider even if the tariffs never materialize in the near future. Yeah, that's well put. I mean businesses hate uncertainty. Markets hate uncertainty. It's a dirty word. Yeah, exactly. I mean it's hard to run a business to begin with and to have that extra uncertainty is definitely not great. Now it may make countries, not only Canada, and this is a potential side effect, a downside for the US. I don't think they fully considered.

[00:26:09] Countries may get reluctant to sign trade deals with the US. Because think about it. Trump is the one who signed the US-Mexico-Canada, so the US-MCA free trade agreement in his first term. The agreement I think is up until 2036 but is set for a joint review in 2026. Despite this agreement, Trump still threatened tariffs with its two closest trading partners.

[00:26:35] And you could argue allies because they're so close in terms of countries and neighbors. And he did this by using the International Emergency Economic Powers Act. And at the very least, it will likely provide an incentive to countries. And I hope Canada is doing that to diversify their trade away from the US. So yes, you can still keep the US as a major trading partner. But it's good to maybe not be as reliant on the US because you never know what will happen.

[00:27:05] And that's, I think, something that Trump and his team may not have fully thought out of. Sure, they want to encourage companies to come back and build in the US and manufacture in the US. But when you start doing that, people take notice. And it's the same thing. And I've been consistent on this ever since the war between Ukraine and Russia. Russia invaded Ukraine.

[00:27:29] I said, look, whatever your stance is on the war, and I still keep the same words today, is that the fact that US weaponized the financial system was a big mistake. Because it did, it provided notice to countries around the world that may be on good terms with the US now. But be careful having too many US denominated or US dollars or US treasuries because

[00:27:58] you never know what will happen 5-10 years down the line and we could decide to freeze your asset. So this is a move that could, I think, backfire a little bit on the US that they're not fully thinking this part out because countries will act in their best interest. And if this is a fear of other countries, they'll start making arrangements outside of the US. You have to think about this from a... I completely agree what you're saying.

[00:28:28] I guess I'll counteract it with Trump is in his first two weeks of office and is on a... Feels like it's been more than that. Yeah, right? Is on a, one, take credit for a bunch of stuff that was already happening mission. And two, how can I let the people know who voted for me that I am putting America first, right?

[00:28:53] You have this country that is, it's hugely unpopular how much money they're sending abroad, namely Ukraine. It's hugely unpopular how many migrants have moved into their country. It's hugely unpopular to not be America first in this campaign that he put forward together, right? Yeah. And so he's doing everything he can, whether it's smart or dumb to send that message.

[00:29:23] And let me tell you, it is hugely popular in America what he is doing right now. And so I see what you're saying. You're taking that 10,000 foot view, but why would we expect he does anything else, right? Like it would be insanity to expect that he wouldn't do anything else. And you know what? He's gaining popularity from this, not losing popularity. The people who already hate Trump will hate what he does regardless.

[00:29:50] And the people who are in the middle who are like, I'm tired of not being in America, America first, the same way Canada is now rallying around this, you know, buy Canada first, buy Canada first. Let's not rely on anyone else. They feel that to an extreme measure and they think that it's actually possible to have, you know, complete not dependence on some of these trading partners and namely China. Yeah.

[00:30:16] So I think expecting anything else and expecting change on that mission, especially in his first three, six months in office would be just foolish in my opinion. So we have to kind of expect this moving forward, at least his first year in office. Yeah, it has been quite the rallying cry. It's true because I've had friends that know I have an investing podcast. I text with them on other subject all the time.

[00:30:43] And I've had a few that were asking me about tariffs if I was doing like a special episode on it. So it just tells you and it's people that I know they're not that interested in this kind of stuff. So I think I totally agree with you. It's not just in the business economic, you know, enlightened folks. It is on everyone's timeline, whether it's LinkedIn or Instagram, it's like rallying around

[00:31:10] this like Canada, like, you know, if they're saying, okay, America first, like, well, we should be too. And that's why I started the show with, hey, maybe this is the kick in the ass we needed because we are sitting in an amazing position, natural resources was. Yes. And it feels like we've just blundered it for so long. So maybe this is the kick in the butt. Yeah. And probably just to wrap this up the way, I don't know how this will play out.

[00:31:39] And obviously what I was saying in terms of the impacts, it's more long term, right? Where countries may start making other agreements. I think you're totally right. Short term, he wants to show people who have voted for them that he's, you know, promises are have been kept and look what I'm doing on the border, even though I don't, I think it's debatable to what extent Canada is actually a big problem there in terms of the stats I've seen. But again, it's whatever he promised to his base that he wants to show that he's getting stuff done.

[00:32:08] Look, Canada is sending people at the border. Mexico is sending two. So we're not paying anything for this and we're reducing the amount of people coming into the country and the amount of drugs. So that's what he's able to say. But I think when it's all said and done, I think Canada and Mexico will be fine. I think they'll be fine if we look at two, three, four years down the line. There's probably going to be some economic terms that will be renegotiated.

[00:32:36] I think that's inevitable. But I think you're going to see a regional fragmentation around the world. So I think you're going to see the US, Canada and Mexico work closely together, even though, yes, you have the tariff threats. But I think he's just using that as wielding the big stick and trying to get some concessions on the things that are important that are not even economically related right now. They may become.

[00:33:05] I know he has other gripes about some different trade deals and the terms. For example, I know dairy products is a big a big issue. That that is one thing. And that might be renegotiated with the US. But I really think that you'll see down the line almost a closer partnership between the three countries. That's my prediction. And more restrictions on other countries around the world.

[00:33:31] So I think that's what we'll see is you'll see more protectionism almost as a block in North America against the rest of the world. Not just China, Europe included. That's my prediction. Maybe I'm wrong, but that's where I think things will head. Maybe this is a good way to go to our next segment. I got two things here. The fight that is worth fighting for them is the big news of last year, which is of last

[00:34:00] week, which is the deep seek AI open source Chinese model that came out. This is shattering and sent a wild market cap shed of some of the biggest tech companies in the world losing hundreds of billions of dollars in market cap in one day. Nvidia lost 600 billion in market cap in one trading day. That is more.

[00:34:26] That is more than the market cap of RBC, Shopify, TD, BMO, and Scotia combined. More. Like another 50 billion in one day, right? Just, you know, boom, here's another 600 billion off the valuation. The fight that they need to go after if we're talking about trade is this. And you mentioned the all in podcast. They shared a nice little Finchat chart on the podcast, which is nice. It's obviously a huge podcast. Oh, did they?

[00:34:56] Yeah. Nice. They did because, you know, we break down the segmented level data. No one else is doing it. And in Nvidia statements, they share where revenue comes from. Okay. 22% as of their latest quarter of revenue from Nvidia is Singapore. Yeah. Okay. Singapore. Okay. Singapore, wonderful country. I was there not long, but I was there in 2019.

[00:35:24] It's beautiful, very futuristic, awesome place. I think it's great. It's worth going to. They are not buying tens of billions of dollars of chips from Nvidia H100s per quarter. They're not. There's no way. There is absolutely no way. And so where is that going? This is the investigation.

[00:35:49] If we're talking about trade, that the US, a fight that they should go down is where are billions of dollars of H100s going that are so allegedly Nvidia is selling to, air quotes, Singapore. I think we can probably make a good guess that those are back channeling to China. You don't have to be a journalistic accountant to figure out that those are not all being filled in Singapore.

[00:36:18] There's just no way. We're talking about an obscene order volume, 22% of Nvidia's revenue per quarter going to Singapore. You have up a map here of Southeast Asia. Yeah, just so people kind of know where Singapore is related to China. So it's very close. And it's a major trading hub. I would say I'm not sure.

[00:36:45] I don't have the data, but I would say it's probably kind of taking over for Hong Kong in terms of trading hub ever since Hong Kong has gotten back into the hands of China. I don't have data, but that's my impression. It's kind of like a new – I don't know. To me, it felt like the New York City financial hub. Like all the banks are there of Southeast Asia.

[00:37:10] And it rhymes a lot with the discussions around TikTok, right? The CEO of their headquarters there are in Singapore, not China, which I think is very tactical from ByteDance, right? Saying, oh, we're not CCP. We're actually here in China. Our CEO sits in Singapore. I'm Singaporean, not Chinese. And it's kind of like a smoke bomb, right? Like ByteDance is a Chinese company.

[00:37:40] Let's not kid ourselves. It is a Chinese company. It's not a Singaporean company. And it rhymes a lot like the TikTok conversation with 22% of NVIDIA's H100 GPUs going to China that are definitely building super clusters. They're definitely building super clusters there with NVIDIA chips. No question. I think that you'd be insane not to suspect that they are.

[00:38:06] And so that is the fight they should be going down if they really want to be the leaders in AI. Yeah. No, I think that the whole deep seek definitely opened a lot of eyes. And as someone who uses AI for FinChat, what's your take on that? Have you guys started looking at deep seek, at the model potentially? Because Dan was asking me like, oh, like how's Brayden viewing this? I'm like, oh, I haven't talked to them.

[00:38:32] But I would think it's probably a good thing for them because it could potentially reduce costs because it's not cheap in terms of computing credit. But, you know, feel free to enlighten me if I'm completely off track here. So there's been multiple different consensus around where the value accrues with AI. And it's changed multiple times down the stack with multiple iterations. And it'll change again.

[00:39:01] That's the nature of this business. But for a while, people thought, oh, wow, these closed LLMs, how's anyone going to compete with? Because they're raising hundreds of billions of dollars from like the Microsofts of the world. And, you know, this project Stargate or whatever. They're raising all this capital. That's going to be the real moat. No one's going to be able to compete with these LLMs. Okay. Boom. Shattered with this idea from DeepSeek.

[00:39:31] Now, I don't believe that everything I hear out of them in terms of what it costs. Yeah. I do not believe them. I just know. I know what even lower end NVIDIA GPUs trade for. Like they are not cheap either. So, I think that that's a lot of smoke and mirrors.

[00:39:47] But I do believe that there is a world where open source competitors, even with what Zuck is creating with Llama, there is a world where there's immense competition at the LLM layer and it gets commoditized. That's not new news, by the way. That has been my opinion for well over a year now. Okay. So, then people think, okay.

[00:40:10] So, application layer and cloud are the ones that, you know, where all of these workloads are being run on, the actual infrastructure layer, the NVIDIAs of the world, and the application layer benefit all from this. Now, people are thinking, does this change the thesis on the GPU infrastructure? Do you need the most advanced two nanometer chip? Do you need that ASML ultraviolet lithography?

[00:40:39] Do you need TSMC to be the only manufacturer of this type of technology? So, that is now evolving as well on that layer. So, now the only consensus is, okay, cloud is still the big beast. And two, application layer continues to get more and more valuable who touches the end user. So, that's where we exist. We touch the end user on the application layer. People have gone from thinking, oh, we're just a rapper, a chat GPT rapper. That's a load of shit.

[00:41:07] We're just using infrastructure from these large language models. And those things are going commoditized to zero. So, here's the stats, Simone. Our API cost 24 cents token last year at the beginning of the year. We finished the year at 3 cents. This is what we charge our customers. We kept the same margin the whole time. But that goes to tell you how much cheaper it got last year. This is just an acceleration of that.

[00:41:35] So, maybe 3 cents goes to 1, goes to half, goes to a penny. You know, so it goes to a fraction of a penny. That is the trend that we're on right now. Yeah, and one of the things I mentioned with Dan, and I like your take on that, is my sense is that there's going to be a need for compute. So, those GPUs. The demand for it may be a little different.

[00:42:00] So, it may take a bit more time or maybe companies will reevaluate in the short to median term whether they need to spend as much. Or maybe they will start looking at alternatives. And I mentioned an AMD, which had always been right behind NVIDIA in terms of GPU ever since they bought Radeon years and years ago.

[00:42:21] So, I can see them even if they're not at the forefront, even if their GPUs are just 80-85% of what NVIDIA is. But they cost, let's say, less than half. Or it makes a whole lot more sense for these companies. They're so far behind on the software layer though, Simon. Yeah. Like, it's not even close. Yeah.

[00:42:42] But that isn't – was I offside reading that Deep Seek was able to do all of that without using CUDA language? There are some elements of – It's a legitimate – yeah, a legitimate question. There are some elements of their white paper that are interesting and some that I just don't believe. I don't know. Like, I – but this could just be my, like, CCP bias.

[00:43:11] No. Well, the reason I'm saying that is because as new alternatives become and especially if it requires – it's less compute intensive. I can see companies trying to shift to, you know, options that are not as expensive that may not be as good whether it's 80% but they're just a fraction of the cost. That's more my main argument that I'm saying. And NVIDIA, I think their margins have peaked.

[00:43:39] That is the one thing I will say is that my prediction is I think their margins have peaked. And that's where I disagree with a lot of people when it comes to NVIDIA who are saying, oh, this doesn't change the thesis or anything like that. Maybe not. But the fact that – You're selling hardware at 76% gross margins. Exactly. I mean, it's hard to argue with what you're saying. I mean, like, that's – that is absurdly high. Yeah.

[00:44:04] And I think that's where the price of perfection, like we've mentioned, I think that's where people are missing a lot of the point and people say it's overdone. And I'm not saying that the business is cratering or anything. But even if there's a slight deceleration in the growth rate when you're priced so expensively, I think that's where you start getting an issue in terms of returns if you're an NVIDIA shareholder. It's not the fact that the company – I'm not saying the company is going to zero.

[00:44:33] It'll probably keep growing. But it's price like – Those revisions are going to start trending down on Finchad. If you look at the estimates, they're going to start trending down because it's just euphoria that – the estimates that were out there. I mean, it's not euphoria if you think that the current thing continues to accelerate. It's not euphoria.

[00:44:54] But it is if there is massive disruption or change to the thesis around you must use NVIDIA H100s. Yeah. And keep in mind, too, when a company is super profitable like NVIDIA is, you encourage competition. Other companies see that and they look at these fat margins and say, you know what? If we can get half of those margins, we'll be happy.

[00:45:22] Let's get into this and try to develop even if we need to put a lot of money, a lot of investment in it. And that's the other thing that I think a lot of NVIDIA bulls are missing. The point is the fact that it's so profitable encourages competition. Yeah. I just – I don't know. I don't know where I sit on that because it's really hard to compete with them. Like, I agree with you, but it's not easy.

[00:45:46] Like, AMD is so far behind on like the full stack layer that it's hard. But we'll see. Yeah. You know? Yeah. We'll see. You and I both don't have a position outside of the fact that, you know, we are making the bet on with ASML that you're going to need the most advanced lithography possible.

[00:46:11] And that it is going to become weaponized by the Western world that you can't get that type of technology in China, which already exists, by the way. You cannot buy EUV in China. Yeah. Yeah. So, anyways, this all comes back to do you really believe Singapore? Let me just figure out what that number is. Hold on. I'm going to pull up on FinChat. Wasn't it 20% or – Yeah. I want to know the nominal value in terms – just for a scale of revenue. Which is another risk for NVIDIA, by the way.

[00:46:41] Yeah. Because if the U.S. starts putting pressure – If they crack down on this. Exactly. On Singapore, that's a big risk for them too. 7.7 billion last quarter. Out of – 7.7 billion last quarter to Singapore. We don't believe that, do we? I don't. I do not believe that. It's a lot for a small country, that's for sure. Or a small city-state, sorry. Yeah. A small city-state. I mean, where would they all put those is the question. Yeah.

[00:47:11] They have data centers, but not that many. All right. Can I pivot to my last thing about back to Canada? Yeah, let's do it. Okay. So, there's been the Elon Doge Department of Government Efficiency in the U.S. And again, another thing that is very popularly supported on both sides of the aisle. I wouldn't say Elon is popularly supported on both sides of the aisle at this point,

[00:47:37] but the idea of the taxpayer getting better value. For what they pay for. And that is very popular in the U.S. right now, as it should be. You know, I like small business, capitalism, and small government. That's what I like. And Canada has blown up our public sector employee base.

[00:48:03] The public sector since 2014 has grown 26% as of the 2024 numbers from Stats Canada. Government employees have grown 26%, okay? Self-employed is flat to like a negative 1%. Private sector is up 15%. Now, if we get this on the back of how much our population grew during that time,

[00:48:31] we've funneled a massive amount of what I think is trying to hide a really poor unemployment number into the public sector. And Canada needs a doge of our own. We don't have to make it Elon, Musky, Trump, bro thing, but we do need some common sense to the public sector right now.

[00:48:56] I believe that 25% ballooning in public sector employees could be slashed and no one would notice. Here's where I'm going to get kind of savage. I used to work in public sector, okay? Out of university. It was whinier and lazier than I could have ever imagined. That's why I got out of there. I seriously think you could slash 25%.

[00:49:23] I know many people listening to this statistically are public sector workers. I know that there are many that work very, very hard. And those same people listening also know that many of them don't. And it is just a fact. I think you could slash 25%. And if you are one of those people listening right now that are hard workers, guess what?

[00:49:48] We should package people up and let them go just like the US is doing. Because the smart, motivated people that can go repurpose themselves in the private sector or with entrepreneurship are going to be the ones that take that package and go make a leap like you and I did. And we'll actually go make something productive for this country. So I believe 25% should be slashed right off the top. No one will notice. Package them up. They'll get pushed to other more useful things.

[00:50:15] The very motivated, good employees will take elsewhere. Okay? Next. That number is then going to get slashed again down to 50%. I think the government should be 50% of its current employees tomorrow. Tomorrow. And those people will adjust. They'll learn to do more with less. I know this sounds savage. I used to work in the public sector. I think half of them could go immediately.

[00:50:43] And I know I sound very Elon Vivek Trump right now. But there needs to be a serious department of government efficiency in this next administration in Canada. Canadian entrepreneurship is very sad state. Okay? Canadian entrepreneurship has declined massively. There's 121,000 fewer entrepreneurs today than there was in 2000. Think of how much the population has grown.

[00:51:12] How is that possible? We have less nominal entrepreneurs in the country than the year 2000. And look how much the population has grown ballooned to like 40 million people. Three things. Why? One, very non-existent early stage venture capital, which is from a long list of reasons. Over-hiring of public sector employees, which I just mentioned. This is where ambitious dreamers turn into pensioners for life. This kills motivation.

[00:51:42] Complete over-hiring of the public sector. Slash 50% and they need to go. And three, atrocious capital gains tax policy. Atrocious capital gains tax policy. The so-called one-time lifetime event of a capital gains policy. Oh, it's not going to affect that many people. It's not going to affect that many people. That is true.

[00:52:04] But it destroys the incentive to build businesses here when they can go avoid all of that anywhere else. Not anywhere else, but a long, long list. Even in the US, there's just not enough friction for the smart people to go there. And so those three reasons have been terrible for entrepreneurship. You need to incentivize the few people who will create massive amounts of jobs.

[00:52:29] There needs to be a longer list than just Shopify on the TSX that has created tremendous value for this country. And so that's end of rant. Canada, oh, Canada. We need to fix some things. So I'm going to be a bit more nuanced, but definitely share a lot of your thoughts there. So obviously, I live in Ottawa. I know a lot of people that work for the government. My part-time job, I try to keep that separate from here.

[00:52:57] But it's kind of a crown corporation without going too much in detail. But it's a very different culture than most government kind of jobs. So I'll just leave it at that. But I did work for the city of Ottawa before this one about 10 years ago. And what I've noticed is similar to what you're saying is, yes, there's some very good employees.

[00:53:20] But it gets very frustrating if you're a good employee because you see probably one out of four that is not pulling their weight. They're just messing around, not doing much, barely working. And the way I see things is, look, whoever is in power, you have to balance the budget. That's the way I see it. So you balance the budget and you decide what programs are important, but you have to make it work in the budget.

[00:53:48] And if that means that you have to reduce the workforce to be able to do so, if it means you have to cut some programs to be able to do so, that's my main preoccupation is you balance the budget because the path we're on right now will have some really bad consequences, probably in the next five to 10 years, maybe even before that. And that's where I stand from.

[00:54:13] But again, I think there is some room to make that more efficient and make sure that, yes, like you said, maybe some good, you offer some packages, you get some employees that say, you know what, I'll take it. I'll start my own business. It creates new entrepreneurs or maybe some people that are like, you know what? I hate my job. I don't do a good job. I know I'm not a good employee. You're giving me a year, year and a half severance, whatever. Sure, I'll do that. And then, you know, I'll retire early and good riddance.

[00:54:43] Like that's the kind of... And by the way, they might be close to their pension meeting their annual salary. Yeah, they're on. Well, it's not quite, but with take-home pay, probably, because then you adjust for you're no longer making pension contributions and all that stuff. So yes, that's the take-home pay. What I'm trying to say is it's not too big of a jump mathematically to take that package if you're thinking about calling it quits retirement-wise.

[00:55:13] And moving on and not having that, you know, ever, you know, not having that bigger liability for the taxpayer. Like to what you're saying, right? Like they have a fiduciary duty to serve the taxpayer. And so we need to start acting accordingly. Yeah, I think to me that's the biggest thing. And you have to properly evaluate employees too in the government.

[00:55:37] You have to make sure that they are doing a good job and that if they're not, I mean, eventually there's discipline and follow the proper process. But at some point, if you're not doing your job properly, you should not have that job. You should be let go. So it's that simple. 100%. But again, I think we steered away from that with a lot of government agency, whether it's federal, provincial, municipal, doesn't matter.

[00:56:04] But that's the way I see it is whoever's in place, balance the budget. I don't really care how you make it work. You decide what programs you think are the most important and then you make the budget fit. That's my perspective on it. Yeah. Yeah. So just to recap here because I don't want to whine with no suggestions here, even though my suggestions are kind of ruthless and savage. The math is simple.

[00:56:30] More than 25% public sector growth since 2014. So over the last 10 years, 2014 to 2024, you had 25, 26% public sector growth and only 15% private sector growth and flat to negative self-employment. So that's that entrepreneurship piece. That those numbers cannot, cannot continue to trend that way.

[00:56:57] Absolutely cannot contend to trend you, especially when you consider that private sector number is kind of rebounded off COVID, this big hiring, and it's basically been flat since. While the public sector government employee number continues to climb. That cannot continue to happen. You cannot say, oh, employment is down because they've just been thrown into a liability for the taxpayer to take on. That absolutely cannot continue.

[00:57:21] We need to have some sort of massive overhaul into the public sector employee base. It is just the reality here. And then two, we need to seriously think about how we can parlay that into the ambitious dreamers that are in that pool of employees. How do we turn them from pensioners to ambitious again? Because there's a lot of them. You know them. You've met them.

[00:57:50] I was one of them. There are people out there that I was working with. How do we get them from that 25% into actually creating something productive, creating other jobs, making things here in Canada? That would be my number one priority if I was, you know, making the decisions.

[00:58:12] That would be – I don't think of anything more important right now because it does a lot of other things for the country, including going towards that balancing the budget. I don't have anything else to add to that. So I think it's a good spot to wrap it up. Thanks for listening to the podcast, folks. We really appreciate you. This feels like a Dear Canada type episode. Maybe that should be the title, Dear Canada, dot, dot, dot. We really appreciate you listening to the podcast.

[00:58:39] I mean, the listenership is, I think, 95% Canadian based on the analytics. That's not right, Simon? Yeah. Yeah, that's about right. Well, 90 plus. It varies a little bit, but 90% plus, yeah. All right. So, you know, everyone's rallying around to support Canada. Hey, support the show. A little five-star review goes a long way. We appreciate you very much. I'll be back in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be construed as investment or financial advice.

[00:59:08] The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions. The Canadianiends of Ireland Subacağım