Royal Bank CEO Dave McKay speaks at the bank's annual meeting in Toronto on April 6, 2017.Frank Gunn/The Canadian Press
To thrive in a complex global economy, Canada must strengthen its relationship with the United States and deliver more for its largest trading partner, according to the chief executive officer of this country’s largest bank.
Because Canada is a small country that lacks scale, Royal Bank of Canada RY-T CEO Dave McKay worries about being left behind in a global economy that will increasingly reward nations with massive populations, such as the United States, China and India.
Historically, Canada has countered this by being closely aligned with the U.S. and finding ways for both countries to thrive by relying on one another. Free trade gave Canadian companies nearly unfettered access to the world’s largest economy, and the U.S. benefited from easy access to Canadian oil and gas, among other things.
But much has changed in the past 20 years. The U.S. is now the world’s top oil producer, and the two countries’ economic and political integration was challenged by a Trump presidency that wanted to rip up the North American free-trade agreement.
With the federal Liberals looking for outside advice on economic policy, bringing in former Bank of Canada governor Mark Carney as the chair of a national task force on economic growth, Mr. McKay believes a crucial element to our future success is finding new ways to prove our worth to the U.S.
“We have to figure out what the United States needs from us,” he said during a conversation at the Canadian Club in Toronto on Tuesday. “We’re out of sync with the U.S.”
Mr. McKay said he’s talked to senior U.S. officials, who behind the scenes say Canada isn’t delivering. At this point, the relationship is still strong – something President Joe Biden stressed when he visited Ottawa in early 2023 – but it’s time for this country to step up, he said.
“The U.S. needs less rhetoric from Canada and just more getting stuff done.”
RBC’s CEO cited a few areas where Canada can play a major role, including food security and a stronger commitment to Western defence strategies.
“Climate is going the change the ability of the world to feed itself,” he said, adding that there’s no time to waste because fresh water supply is becoming more important and droughts are becoming more frequent in once-arable lands.
Amid these fears, Canada is well-placed: “We’ve got the energy. We’ve got the water. We’ve got the distribution capability,” Mr. McKay said, the latter being a reference to our extensive rail network and ports on coastal waters.
As for defence, Mr. McKay said the country can play a major role in defending the Arctic and also boost its overall commitment to the North Atlantic Treaty Organization.
Despite some recent fear-mongering about the state of Canada’s economy, Mr. McKay isn’t all that stressed: “Things aren’t bad now,” he said. RBC’s stock closed at an all-time high on Monday, and is up 24 per cent this year. “But we’re definitely on the wrong path.”
Mr. McKay is particularly worried about the country’s youth, whom he believes feel shut out from economic success: “They’re disengaging from our economy. They’re worried about climate. They don’t have a job. They don’t think they’re ever going to own a home.”
He also frets about Canada’s Tall Poppy Syndrome, or a propensity to criticize economic and financial achievements: “We’re skeptical of success.”
To this end, Mr. McKay argued that the country’s “recent tax policy is penalizing risk takers” – an allusion to Ottawa’s recent hike of the capital-gains tax, though he didn’t say it by name.
“We have to reward and encourage risk taking.”
Even if the U.S. ends up hiking its own capital-gains tax – something proposed by presidential nominee Kamala Harris – Mr. McKay believes Canada needs a way to stand out to entrepreneurs who can build the next Shopify Inc.
“When you’re small and trying to compete with the big guys, you can’t just match.”