Chaos in Canada Will Make Trump Tariff Talks Tougher

Blames U.S. “aggressive economic nationalism,” but real story is anemic growth under Trudeau

[The Editors is called The Editors, plural, not The Editor, singular, for a reason. When I launched it, a shrewd friend advised, “it can’t just be you.” I’m delighted to start introducing some additional voices. Today’s comes from Matthew Lau, who is a Toronto writer covering fiscal policy, economic theory, government regulation, and other topics related to business, economics and politics. He has written for the National Post and National Review Online, among other publications.—Ira Stoll.]

“Grave challenge”: Imports from Canada to the U.S., such as these delicious Montreal bagels sold in Newton, Massachusetts, might be subject to a 25 percent tariff under President Trump.

Chrystia Freeland, formerly Canada’s finance minister and deputy prime minister, was set to deliver the government’s fall economic statement on Monday. “Formerly,” because hours before she was to deliver the statement, which is essentially a mini-budget, she quit Justin Trudeau’s cabinet.

In Freeland’s resignation letter, she wrote that in the face of the “grave challenge” of Trump’s tariff threats, the Trudeau government should be “eschewing costly political gimmicks, which we can ill afford.” Moreover, it should be “working in good faith and humility with the Premiers of the provinces and territories,” and Canadians “know when we are working for them, and they equally know when we are focused on ourselves.”

In other words, according to his just-resigned deputy prime minister: Trudeau is playing costly political games, working in bad faith, and it is evident to Canadians that he is working for himself and not for them.

Thus began a day of chaos for the Trudeau government. Without a finance minister to deliver the fall economic statement, the back-up is supposed to be the industry minister, who reportedly refused to do so. The delivery of the fall economic update was therefore postponed to the afternoon. It was not delivered in the usual fashion.

As Don Stewart, a Conservative MP, described it, “The Government House Leader placed the budget document on the Table and ran away. Literally ran away.”

Dominic LeBlanc, who held the public safety minister role, was named the new finance minister. He is a close friend and ally of Trudeau, a description which fits fewer and fewer Liberals these days. At the Liberals’ caucus meeting in the evening, Freeland received a standing ovation; meanwhile, some Liberal MPs publicly renewed their calls for Trudeau to resign.

The economic statement itself — which unlike previous statements was published without a foreword from the finance minister — showed the federal government blew past its previously budgeted “guardrail” of limiting the deficit to $40 billion, reporting a $61.9 billion deficit for the completed 2023-24 fiscal year. The deficit forecast for 2024-25 was increased by another $8.5 billion, from $39.8 billion to $48.3 billion, on a total spending budget of $543.5 billion. (The numbers are all in Canadian dollars, which are worth about 70 U.S. cents.) As a percent of GDP and in nominal terms these figures pale in comparison to U.S. deficits, but Canada’s economy, population, and borrowing capacity are much smaller than America’s.

Not included in the economic statement was the Trudeau government’s previously announced $4.7 billion tax expenditure in the form of $250 cheques to every Canadian who filed taxes last year with income under $150,000. The National Post reported over the weekend that Freeland intended to cancel the government’s blatant vote-buying scheme, which is likely what “costly political gimmicks” in Freeland’s resignation letter referred to.

As for Canada’s fiscal and economic direction, the finance minister may be new, but Freeland’s resignation shows it is the prime minister’s office, not the finance department, running the show. Therefore, little will change until Canada has a new prime minister. The next election is scheduled for 2025.

Despite some of his own MPs and the New Democratic Party leader calling for Trudeau to resign, an early election appears unlikely. The left-wing NDP itself is polling badly, and has twisted itself into knots to prop up the Trudeau government to avoid another election after the Liberals won a minority victory (157 seats out of 338, requiring another party’s support to keep them in power) in 2021.

In the meantime, the disappointing fiscal and economic results the Trudeau government has produced — exploding debt, higher taxes, an economic growth crisis (Canada’s cumulative real GDP per capita growth in nine years with Trudeau in office is 1.7 percent, versus 18.6 percent in the United States over the same period), and declining business investment — are likely to continue.

One thing that is actually likely to get worse with Freeland’s departure: the Trudeau government’s ability to navigate Canada-US relations. In addition to Freeland’s scathing words, what makes her resignation particularly devastating to Trudeau is that she was among his most experienced ministers in Canada-US relations, having played a central role in bringing about the United States-Mexico-Canada Agreement (renegotiation of NAFTA) in 2020. Her resignation letter warned, “The incoming administration in the U.S. is pursuing a policy of aggressive economic nationalism, including a threat of 25 per cent tariffs.”

The Trump tariff threats didn’t cause Freeland’s resignation, but her resignation certainly will make it even more difficult for the Trudeau government to navigate them.