Canadian economists believe there may be an unusual solution to the problems besetting the G7 economies. It’s President Donald Trump’s return to the White House.
The next US president has already threatened to impose a 25% blanket tariff on all exports from the country’s northern neighbor, which may have played a role in Finance Minister Chrystia Freeland’s resignation this month.
But some believe a second term for President Trump could be the push Canada needs to address deep structural problems that have left it lagging behind the United States in productivity, growth and wages.
William Foster, senior vice president in Moody’s Sovereign Risk Group, said President Trump’s “stress test” is an opportunity to realign Canada’s economic focus. “The resources are there, it’s just a matter of figuring it out,” Foster said.
Socio-economic indicators across Canada show that large segments of the population are being left behind.
According to the NGO Food Banks Canada, in March 2024, the number of visitors to food banks in Canada will exceed 2 million people, the highest number ever. This is a 6 percent increase compared to 2023 and a 90 percent increase compared to 2019.
Unemployment is rising at around 7%, and Canada has the highest household debt in the G7, making it particularly vulnerable to recession.
Canada’s wages and salaries are now lower than all 50 U.S. states due to weak productivity and exchange rate fluctuations, according to an October report from the Vancouver-based Fraser Institute think tank.
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Robert Asselin, a former government adviser now with the Business Council of Canada, said the country’s economy is “structurally weak” because it relies primarily on consumption and real estate.
When announcing another rate cut last week, Bank of Canada Governor Tiff Macklem said there were “mixed signals in the data,” adding that population growth and public sector spending were keeping Canada’s GDP up.
Inflation is now within Canada’s 2% target range, down from 7% in 2022, but when Freeland resigned on the day the fall economic statement was scheduled to be released, Angus Reid The institute’s poll found that 38 per cent of Canadians believe inflation is holding steady. They said the situation is worse now than it was 12 months ago.
“While this is the lowest figure since 2021, it is still much higher than the data ARI has been tracking for 14 years,” the pollster said.
Alex Whalen, director of policy at the Fraser Institute, said Canada’s problems stem from an “investment crisis.”
“We need an improved investment environment, including measures such as reining in government spending, wide-ranging tax reform, reversing recent capital gains tax hikes for large profits on asset sales, and phasing out accelerated depreciation,” he said. ” he said.
Productivity and innovation, two pillars that have helped the U.S. economy compete ahead of G7 countries in recent years, have hurt Canada.
“An innovative, productive and competitive economy will result in higher wages and better job opportunities for Canadian workers,” Asselin said.
Canada was the 18th most productive economy in the OECD in 2022. In 1970 it was 6th place. Labor productivity this year is 1.2% below pre-pandemic levels and has declined in 14 of the past 16 quarters.
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Jonathan Garbutt, a Toronto-based tax lawyer, said Canada has not cultivated a competitive innovation sector, despite lots of government funding for research and development.
“When young entrepreneurs in Canada come to me and ask me for the best tax advice, I say go somewhere down south where entrepreneurship is valued and people who take risks are rewarded.” he says.
While the United States’ impressive growth may be envied in Canada, the country has benefited from a centuries-long trade relationship with its southern neighbor worth about C$1.3 trillion (about $910 billion) a year. Ta.
About 80 per cent of Canada’s exports go to the United States, with relationships centered on the auto industry, oil and gas, steel and critical minerals such as uranium.
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If President Trump makes good on his threat to scrap the North American Free Trade Agreement, or USMCA, with Canada and Mexico when he returns to office on January 20, it would eliminate one of the remaining strengths of the Canadian economy and cause economic damage. likely to fall into a setback. .
Ms Freeland and Prime Minister Justin Trudeau resigned after four years as prime minister after disagreements over how to respond to what she called Trump’s “aggressive economic nationalism” did.
Her resignation letter comes as Ottawa “faces significant challenges” from the next U.S. president, with many of Trudeau’s pre-election proposals including tax-free Christmas trees and C$250 checks to nearly half the population. was criticizing the present.
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Elections must be held by October, and conservative opposition leader Pierre Poièvre has a significant lead in opinion polls.
Poilievre, a 45-year-old career politician, slammed Trudeau for the struggling economy, using slogans such as “abolish taxes.”
Regardless of who wins the next election, Mr Trump’s victory in the US was a “wake-up call”, said Jim Thorne, chief market strategist at Wellington Altus Private Wealth.
“We are witnessing a significant deterioration in the Canadian economy since World War II, and Ottawa and Bay Street have not yet fully realized its rapid decline.”
