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Author: Berhane Elfu, Lecturer in Finance, Northern Alberta Institute of Technology
Original article: https://theconversation.com/mark-carney-won-here-are-the-key-economic-priorities-for-his-new-government-255477
The Liberal Party led by Mark Carney has secured a fourth consecutive term in government. This victory has come at a time when Canada is facing an unprecedented threat to its economic security and sovereignty from United States President Donald Trump.
In an election defined by concerns over Trump’s erratic tariff policy and talk of making Canada a 51st state, voters decided Carney was the leader best equipped to deal with these challenges.
Carney previously served as governor of the Bank of Canada, where he guided the country through the 2008 global financial crisis. He later became the first non-British person to head the Bank of England, helping guide the United Kingdom through Brexit, one of the biggest shocks to the British economy in decades.
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Now the world is facing similar financial shocks from Trump’s trade war. The on-again, off-again nature of Trump’s tariff policy could inflict significant damage to the global economy — even more to the American economy — and cause irreparable damage to its reputation as a rational entity in international trade.
In the face of the ill-advised and self-defeating U.S. tariffs, the new Canadian government should take prudent, urgent and bold steps to strengthen the nation’s economy. Here are major and important economic priorities for the government to reshape the economy and spur much-needed economic growth.
Stabilize and strengthen the national economy
As a primary act, the new government should stabilize the Canadian economy from the tariff shocks. It must continue to develop carefully calibrated retaliations to Trump’s tariffs.
The revenue raised from the tariffs should be used to compensate those directly affected by them, using a multi-pronged mechanism that includes training, increased employment insurance benefits and additional transfers to low-income households to reduce the impact of tariffs on food costs.
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Currently, a series of provincial regulations restrict the goods and services that cross Canada’s provincial borders daily. The new government should urgently remove longstanding interprovincial trade barriers.
According to a report by the Canadian Federation of Independent Business, removing these impediments could boost the economy by up to $200 billion annually. Similarly, a study by the International Monetary Fund indicates the effect of these barriers is equivalent to a 21 per cent tariff.
Removing interprovincial trade barriers would significantly offset the negative effects of Trump’s tariffs on the Canadian economy, and provide a boost to the “Buy Canadian” movement.
Carney seems to have made this a priority already, which is promising. In March, he said he aims to have “free trade by Canada Day” among provinces and territories.
Streamlining natural resource projects
Canada is a natural resource superpower. However, for natural resources and critical minerals to be extracted efficiently, regulatory processes need to be streamlined by cutting red tape and duplicative assessments.
The federal government and the provinces should agree to a single environmental assessment that meets the standards of both jurisdictions.
Additionally and importantly, respectful, genuine and meaningful consultations must be undertaken by project proponents and governments with the relevant Indigenous communities to address their concerns, respect their rights and safeguard their economic well-being in the development of the natural resources projects.
Carney has said he will uphold the principle of free, prior and informed consent when it comes to initiating resource extraction projects and make it easier for Indigenous communities to become owners of said projects.
A similar approach should also guide the construction of infrastructure projects such as pipelines and ports, which play a crucial role in facilitating Canada’s exports.
Boost Canada’s productivity through innovation
A country’s ability to raise living standards for its people mostly depends on its capacity to improve its productivity. Economist Paul Krugman once stated, “productivity is not everything, but, in the long run, it is almost everything.”
Canada’s productivity is lagging, according to the Organization for Economic Co-operation and Development.
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The new Canadian government should take steps to boost the nation’s productivity by increasing direct expenditures on research and development. Additional funding should be allocated to higher institutions of learning, and incentivizing businesses to spend more on research and development through significant tax credits.
Although research and development spending continues to grow in Canada, as a percentage to GDP, it is the second lowest among G7 nations. Boosting investments will drive innovation, spur economic growth and ensure Canada remains competitive on the global stage.
Dealing with U.S. tariffs
One of the government’s primary tasks will be preparing meticulously for trade negotiations with the U.S. to address the threat of tariffs and reach a “win-win” trade deal. Given Trump’s highly unpredictable nature, negotiations will not be easy.
Although Trump could have withdrawn from the Canada-US-Mexico Agreement (CUSMA), he has not done so, and zero-tariffs remain in effect for products that are certified as being North American origin under the CUSMA rules. This could be a solid starting point for future trade negotiations.
At the same time, Carney and his team must work to stabilize the Canadian economy against the unprecedented threat of Trump’s tariffs by strengthening the domestic economy, diversifying Canada’s exports and reducing the country’s dependence on the U.S.
Pulling away from the world’s largest economy will not be easy for Canadian businesses, given the deep integration of Canada’s economy with that of the U.S.
Still, expanding trade with the European Union, the U.K., Africa and the Association of Southeast Asian Nations — and exploring other opportunities to reducing trade barriers with nations in Asia, the Middle East and Latin America — will enlarge Canada’s export market.
By doing all this, Canada can not only prepare for a tough round of U.S. trade talks but also position itself as a stronger, more self-reliant global trading partner.
Berhane Elfu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
