(Bloomberg) -- President Joe Biden will make his first trip to Canada since taking office on Thursday, meeting with Prime Minister Justin Trudeau.
The encounter is expected to present a show of unity among close allies who mostly agree on the war in Ukraine, trade, climate and security issues. Still, there are points of friction and disagreements that the two leaders will likely confront.
Here are six things to watch.
Banking Concerns That Cross Borders
Biden and Trudeau are set to discuss the turbulence in the banking industry, which has shaken financial markets and threatens to create a heavier drag on the economy. It’s a major concern for Canada, which relies on the US as its key export market. And several of its banks have large American operations.
Treasury Secretary Janet Yellen and Canadian Finance Minister Chrystia Freeland have been discussing the financial system, a Canadian official said, speaking to reporters on condition of anonymity before the visit.
Biden’s visit begins one day after the Federal Reserve raised its target for the federal funds rate by a quarter percentage point to a range of 4.75% to 5%, the highest since September 2007 — a calculated risk that weaknesses in the financial system can be contained. The Bank of Canada has paused its rate increasing cycle, for now.
Chaos and Violence in Haiti
The Biden administration has pressed for an international security mission in Haiti, which is suffering from widespread gang violence and civil unrest. But the US has also made it clear that it doesn’t want to lead any such effort and is looking to Canada, which has a large Haitian diaspora, to take the reins.
US National Security Advisor Jake Sullivan said in January that Canada has “expressed interest in taking on a leadership role.” But Trudeau and his senior officials are also wary that an extensive commitment could turn into a quagmire, and so far the prime minister has stuck to bringing down sanctions and providing armored vehicles for Haitian police.
Trudeau has insisted that there must be a political consensus among Haitian leaders before any international mission can go in. Yet the longer the situation drags on, the more the US administration is likely to encourage Canada to take action.
Trade Matters: Chips, Minerals and Batteries
Biden’s landmark chips law and climate package are the foundation of an industrial policy meant to animate US electric vehicle and semiconductor manufacturing. Other countries, including Canada, are rushing to ensure that their own industries can remain competitive.
Canada fears losing out on billions of dollars of investment because of American subsidies now in place. Freeland’s next budget, to be released March 28, will see Canada respond with its own incentives for clean energy and manufacturing.
Trudeau’s government and International Business Machines Corp. will seal a high-level agreement on expanding semiconductor cooperation during Biden’s visit, a Canadian official said.
At the same time, the US is looking to Canada to supply the critical minerals and rare-earth elements needed to make electric vehicle batteries, as the Biden administration tries to reduce dependence on adversaries like China for crucial raw materials.
The US and Canada are also competing for plants. Transportation Secretary Pete Buttigieg, in an interview earlier this month, demurred when asked if a recent announcement of a new Volkswagen AG battery plant in Canada is a sign that Biden’s policies are misfiring. The plant is to be built about two hours northeast of Detroit.
“Obviously we favor jobs on US soil, but my favorite new word that I’ve learned in the last year is Secretary Yellen’s term ‘friend-shoring,’” Buttigieg said. “We’re certainly also leaning into policies that can tell the difference between something coming from Canada and something coming from China.”
Migration Across the Northern Border
The Biden administration’s attention has been consumed by Republican attacks on its handling of migration at it border with Mexico. Yet there are problems at the northern border, too. A recent increase in illegal crossings between the US and Canada has caught the attention of some lawmakers.
The situation could increase pressure on Biden to renegotiate a 20-year-old agreement with Canada that requires migrants to apply for asylum in the first country they reach. Some migrants are using a loophole in the system to cross at Roxham Road, a dirt thoroughfare that runs from Quebec into New York State, and then apply for status in Canada.
The Biden administration has not shown much willingness to entertain changes to the Safe Third Country Agreement, a 2004 treaty for handling refugee claims. The White House’s focus remains on the more pressing issues at the southern border.
On Thursday, the Canadian Broadcasting Corp. reported that the US and Canada have agreed to an approach to allow for the the closing of Roxham Road.
Air Defense in the Age of Suspicion
Since the 1950s, the US and Canada have patrolled the continent’s skies under the North American Aerospace Defense Command. Yet many Americans and Canadians knew of Norad chiefly because of its “Santa tracker” that appears at Christmastime.
That changed in February when military jets shot down multiple flying objects, including an alleged Chinese spy balloon, over US and Canadian airspace.
US Air Force General Glen VanHerck, the Norad commander, said the objects flying at high altitude exposed a “domain awareness gap.” The episodes heightened the sense of urgency to update the system that detects aerial threats to the continent and pushed it onto Biden and Trudeau’s agenda.
Last year, Trudeau’s government promised C$4.9 billion ($3.6 billion) over the next six years to modernize continental defense. The leaders’ discussions will likely focus on where that money is being spent and whether it’s enough.
Domestic Tempest and Trump Snub
Biden’s visit comes at an awkward time for the prime minister, who is getting bogged down in a scandal over alleged Chinese interference in the last two Canadian elections that returned his Liberals to power. A Toronto-area lawmaker resigned from the governing party’s caucus on Wednesday as a result.
Canada is also customarily among the first allies a US president visits upon taking office, an informal tradition that dates to Ronald Reagan. But Donald Trump broke that streak. His condemnation of the North American free trade pact, and of Trudeau himself, left little desire for in Ottawa for a meeting.
Biden has praised Trudeau and restored the so-called Three Amigos summit of US, Mexican and Canadian leaders after a Trump administration hiatus. Biden and Trudeau have appeared in lockstep on issues ranging from climate change to sanctioning Russian oil and providing military equipment to Ukraine.
It’s for those reasons that the decision to wait until Biden’s third year in office to visit the Canadian capital has not gone unnoticed — and many will look to see how the two leaders paper over any hard feelings.
(Updates with deals on chips and migration, adds mention of China influence scandal.)
©2023 Bloomberg L.P.
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