‘Promises to fix these fundamental problems are rarely kept’: Trump’s pursuit of a ‘golden age’ jolts Canada to confront its growth problem
U.S. President Donald Trump’s “America First” agenda is forcing Canada to reckon with a future where its neighbour is not only a competitor but a threat to its economic security.
Despite temporarily deferring an all-out trade war, the U.S. President’s destabilizing 25-per-cent tariff threat has given Canadian business leaders a taste of what they despise – uncertainty – and revealed just how vulnerable the economy is to the whims of a hostile U.S. administration.
Mr. Trump’s pursuit of tax cuts and deregulation has also increased the risk of capital flight to the United States, underscoring the need to make Canada more attractive for business investment.
For the Trump administration, tariffs are part of a plan to reshore manufacturing jobs and finance tax cuts on the backs of trading partners. In a speech to the World Economic Forum days after his inauguration, Mr. Trump laid out how he intends to use both carrots and sticks to usher in a “golden age” for the United States.
“My message to every business and the world is very simple: Come and make your product in America, and we will give you among the lowest taxes of any nation on Earth,” he said. “But if you don’t make your product in America, which is your prerogative, then very simply, you will have to pay a tariff.”
Although it’s still unclear whether tariffs will ever be imposed on Canada, federal and provincial leaders say the trade spat is an opportunity to pursue economic growth opportunities beyond the United States. Canada’s competitive concerns became a flashpoint of conversation Friday when Prime Minister Justin Trudeau hosted an economic summit with business, labour and public-policy leaders in Toronto on 48 hours notice.
Businesses have long lamented regulatory hurdles, project approval delays and an uncompetitive tax structure that they say make Canada a less attractive place to set up shop than the United States. Promises to fix these fundamental problems are rarely kept.
However, a belligerent White House has made the cost of complacency steeper.
“The difference that Donald Trump and his tariff threats have made is that we are now, as people often are, quite a bit more energized at the prospect of losing something compared to the prospect of not gaining something,” said William Robson, the chief executive of the C.D. Howe Institute.
There’s little that can be done in the immediate term to offset a trade shock. Emergency supports will help cushion the blow for affected industries and workers, but permanent policy changes will be needed to keep the country competitive.
In many industries, Canada can be a difficult place to invest and get things built, whether that’s expansive energy projects or simple apartment buildings.
Canada ranks well behind most other developed countries when it comes to how long it takes to obtain construction permits, for example. The latest international comparison by the World Bank, from 2020, found it took 249 days to obtain a permit to build a warehouse in Canada, more than three times longer than in the U.S.
Three years ago, investment lawyer Jesse Goldman was in Singapore when he met with representatives from a mining company that had received approval for a mine in Australia in just 36 months. By contrast, the company had been waiting 13 years to get approval for a much smaller project in Canada.
“They’re still waiting. We have all the elements of a good economy to invest in, but then we tie up capital for decades at a time,” said Mr. Goldman, a partner at Osler, Hoskin & Harcourt LLP who specializes in competition and international investment.
The challenges to getting projects built in Canada have made the country overwhelmingly dependent on the U.S. as a customer for its energy products. Almost 96 per cent of Canada’s crude exports flowed to the U.S. in 2024, according to Statistics Canada trade data released this week.
The problem, as Mr. Goldman sees it, is that Canada has no strategy to tackle years of regulatory baggage accumulated by all levels of government.
Mr. Trump’s tariff threats have sparked a reawakening to the problem. This week, the B.C. government said it would fast-track the approval process for a number of resource projects in a bid to diversify the province’s economy away from the U.S. The energy and critical mineral projects are valued at $20-billion and will employ 8,000 people, according to Premier David Eby’s office.
The Quebec government also said this week it’s reconsidering a pipeline project that would transport natural gas from Alberta to the province.
Meanwhile, Canada’s competitive position with the U.S. would likely weaken further if Mr. Trump is successful in his pledge to lower the U.S. corporate tax rate from 21 per cent to 15 per cent.
The tax cut would require approval from Congress, but even if Mr. Trump is forced to compromise on the final rate, it would still leave Canada in a bad position, said Derek Holt, the head of capital markets economics at Scotiabank.
“Canada is already starting at a disadvantage,” he said, adding that there is a strong link between investment and job creation.
The move by Ottawa last month to delay the capital-gains-tax increase until 2026 does little to level the playing field with the U.S., he said, arguing that because Canada is a smaller market with underlying competitiveness issues, “you could make the case that Canada should be undercutting the U.S. on corporate tax.” That was the case prior to Mr. Trump’s first term, when he cut the corporate tax rate to 21 per cent from 35 per cent.
But corporate tax cuts only benefit Canada’s competitive position if the companies receiving them invest the money back into their businesses rather than buy back shares or distribute the money to shareholders as dividends. On that front, corporate Canada has a spotty track record, Mr. Holt said.
He says Ottawa should tie tax relief to investment, as it did in the wake of Mr. Trump’s tax reform in 2017. Ottawa responded the following year by lowering taxes on new investment, allowing companies to write off the value of investments in equipment and machinery immediately instead of over a number of years.
However, that measure was only temporary and began to be phased out last year. In its fall economic statement, the federal government pledged to renew the tax break, but the measure is on hold while Parliament is prorogued. As part of her bid to lead the Liberal Party, former finance minister Chrystia Freeland has said she would reinstate the accelerated investment incentive.
Others are wary about the sudden push to slash corporate taxes in the face of Mr. Trump’s threats. For one thing, Canada’s effective tax rate on investment – which accounts for corporate taxes, accelerated depreciation and other items – is lower than the U.S. rate, said Kevin Milligan, a professor of economics at the University of British Columbia. Although he said the uncertainty around the fate of those measures laid out in the fall economic statement needs to be resolved.
But Prof. Milligan also questioned whether Mr. Trump will actually get the tax cuts he’s looking for, given the Republicans have such thin majorities in the House and Senate.
“It’s better to be a second mover here,” he said. “We do want to maintain our effective tax rate to be competitive with the U.S., but Trump says a lot of things. We ought to take stock of things when we see what passes.”
In the meantime, he said, Canada should consider a more immediate measure to boost its competitive position: create a fund to attract American STEM researchers who have seen their funding frozen or slashed by the Trump administration.
“There are brilliant researchers in the U.S. we should be targeting who would be net additions to the Canadian economy,” he said.
Whether Mr. Trump will be successful in ushering in a “golden age” for Americans will be determined with time. Alan Cole, a senior economist at the Tax Foundation in the U.S., said some planks of the Trump plan would help juice investment. However, Mr. Cole said the administration’s protectionist policies would likely hurt it, given that a lot of investment comes from foreigners who export to the U.S. market and use the U.S. dollars they receive to invest in U.S. companies.
“One of the reasons the U.S. runs a persistent trade deficit is because it’s such an attractive place to invest,” Mr. Cole said. “It would be a lot harder to invest in it if the President made it harder to acquire U.S. financial assets, for example, by making it harder to export to the U.S.”
Meanwhile, those U.S. protectionist policies are a clear threat to the Canadian economy. However, Ottawa’s ability to lead a response is limited with Parliament prorogued and a Liberal Party leadership race under way.
“If we’re rallying here to say we’re going to put our foot on the gas, on the right things, it’s hard to move when you’re in neutral,” said Canadian Chamber of Commerce CEO Candace Laing, who was one of many business leaders attending Mr. Trudeau’s economic summit.
Ms. Laing has called for Parliament to be recalled so MPs can get to work on a multipartisan plan that would make Canada more economically self-reliant. “And then an election could be called,” she said.
This article was first reported by The Globe and Mail
