Canada in turmoil as finance minister resigns, CEOs worry about fiscal policies

TORONTO (ICIS)–Canadian CEOs and business trade groups are warning about the state of Canada’s fiscal policies.

• Finance minister resigns
• Deficit larger than expected
• Canada struggles to respond to US tariff threat

Chrystia Freeland on Monday resigned as finance minister and deputy prime minister, saying that she was “at odds” with Prime Minister Justin Trudeau over the best way forward for Canada amid the tariff threat by US President-elect Donald Trump.

Trump said on 25 November that as one of his first actions after taking office on 20 January he would impose a 25% tariff on all imports from Canada and Mexico, which would remain in place until the two countries took action on drugs and immigrants entering the US.

The tariffs would have a devastating impact on Canada’s economy, which relies on the US as its largest export market by far.

In the chemicals and plastics industry, nearly two-thirds of Canadian shipments are exported to the US, according to trade group Chemistry Industry Association of Canada (CIAC).

In her resignation letter, Freeland said that Canada needed to take Trump’s threat “extremely seriously” and needed to “keep its fiscal powder dry” to have reserves for a coming “tariff war” with the US.

That meant that the government could not afford “costly political gimmicks”.

Trudeau’s Liberal-led government recently implemented a two-month sales tax holiday for a number of goods, including beer, cider and restaurant meals, and it promised a Canadian dollar (C$) 250 (US$175) tax rebate for 18.7 million “working Canadians”.

The measures, estimated to cost more than C$6 billion, have been criticized by economists.

The Business Council of Canada (BCC) said that it was “deeply troubling” that Freeland believed the government was opting for “costly political gimmicks at a time when federal finances are severely strained.”

The BCC represents CEOs of Canadian-based companies. Members include, among others, the heads of BASF Canada, Shell Canada, and of ExxonMobil’s Canadian affiliate, Imperial Oil.

Canada needed stable and credible leadership that recognizes the seriousness of the significant economic headwinds over the coming weeks, including the looming US tariffs, the council said.

The BCC also noted that despite assurances in the 2024 budget that the government would limit the federal deficit to C$40.1 billion, its latest fiscal update on Monday showed that that number ballooned to C$61.9 billion.

“By not keeping its economic promises, the federal government is sending the message that it can’t be trusted to manage the public finances”, said BCC president and CEO Goldy Hyder.

Another trade group, Canadian Manufacturers and Exporters (CME) said that Canada was facing a “significant economic threat that demands a decisive, coordinated federal response”.

“Canadian manufacturers need political stability, and a government committed to implementing policies that foster resilience, attract investment, and drive growth”, said Dennis Darby, president and CEO of CME.

POLITICAL CRISIS
Trudeau has come under increasing pressure to step down, even from members of his Liberal party.

However, he has said he would lead the Liberals into the next election, which needs to be held by October 2025 but will likely be called earlier.

The minority Liberal government needs the support of at least one opposition party in parliament to hang on to power.

Two parties, the Conservatives and the Bloc Quebecois, want to bring the government down as soon as possible, they have said.

The left-leaning New Democrats have called on Trudeau to resign but have not said whether they would vote to bring the government down.

The Conservatives are far ahead of the Liberals in opinion polls on elections.

The elections and political uncertainties affect investment decisions in the chemical industry, chemical trade group CIAC has said.

The bottom line is that Canada finds itself in political turmoil – at a time when is should be united in the face of the US tariff threat.

Thumbnail of photo Trudeau (left) meeting Trump in Washington in 2019 during Trump’s first presidency; photo source: Government of Canada

(US$1=C$1.43)