The Canadian federal election is not until April 28, and a lot can happen between now and then, but it would be foolish to bet against the proposition that the Mark Carney led Liberals will form a majority government when it is over. That is certainly the strong prediction on 338Canada.com.

This has been a reversal of polling the likes of which is rarely seen. The federal Conservatives, led by Pierre Poilievre, had a 30 percentage point lead over the Liberals before Justin Trudeau announced on Jan 6 his intent to resign as PM. There is no way to know what the Canadian polls would look like had Kamala Harris been elected US President, so we cannot say how much of this is due to Trump’s actions in the first two months of his administration, and I won’t try. What I am going to write about are what seem to me to be some of the economic issues (other than tariffs) that would be key to how this election turns out in normal times. Then, I’m going to say a (very little) bit about the bloody tariff war.

There is a 10-year track record of Liberal governance (the last years with the cooperation of the NDP, of course) to look at. I am going to use some of the graphs presented in a Globe article this morning titled ‘Ten economic issues that will define the 2025 election’ even though that is a ridiculous title. What does it mean to ‘define’ an election?

First a graph plus two statistics that depict a basic fact about recent immigration in Canada –

Add to this the following from Stats Can:

            “Canada’s [birth] rate has been generally declining for over 15 years and reached a new low in 2023 of 1.26 children per woman.”

Finally, according to World Bank Open Data, Canada’s death rate has gone from 7.6 per 100k population in 2019 to 8.6 per 100k in 2022, the latest year for which they give figures. The result of an overall aging population, no doubt. Old folks are more likely to die than the young.

Thus, with zero immigration one would expect the graph above to show a continuous moderately declining trend in population growth. What you do see is the result of immigration, and in particular the steep increase after 2021 is all due to a correspondingly steep increase in immigration. That is not necessarily a bad thing, Canada, like the US, has been largely built by immigration, but the next graph from the Globe article gives a clear indication of the sense in which it is a problem.

From 2000 until the pandemic, housing construction had roughly kept pace with population growth, with a new house being constructed for each two new Canadian residents. Then, after the pandemic, it shot up to 5 new residents per new house, before coming back down in 2024 as the Liberal government finally backed off on their ‘flood of immigration’ policies.

If there is a Canadian housing crisis, it has many causes, because that is always the case, but in the ‘absence of Trump’ scenario it would have to be true, I think, that a debate would be going on regarding what a reasonable immigration regime looks like. Many other than I have written that Canada’s immigration programs were the envy of the advanced world at one time. You don’t have to be a so-called ‘nativist’ (hell I’m an immigrant) to think the Liberals under Trudeau screwed that up. As it stands, the only story about immigration in this morning’s paper is one claiming that a ‘Can-Am physician recruiter’ is getting 20-30 phone calls per day from US physicians looking to move to Canada. Maybe. We’ll see.

Unemployment

Here’s Canada’s recent history on that score:

I would say that employment recovered nicely after the effects of the pandemic wore off, with the unemployment rate dropping to just over 4% in 2022. There is a question as to how much of that was due to people leaving the work force (that is, no longer being interested in finding work) as opposed to job-seekers actually finding jobs more readily. Leaving that aside, the bad news here is that the rate has been creeping up ever since, to over 6%.

The first few sentences of a story in yesterday’s Globe were these:

“Canada shed 33,000 jobs in March, the worst month for the labour market in three years, as the threat of U.S. tariffs weighed on business confidence and slowed hiring.

Job declines were widespread across industries, and concentrated in full-time positions and private-sector employment, Statistics Canada reported Friday. The unemployment rate ticked up to 6.7 per cent from 6.6 per cent in February.”

That’s the latest bad news, but in that recent period during which the Canadian rate was ticking slowly upward, so was the rate in the US, from 3.5% in July of 2022 to 4.2% this past February, according to the US Bureau of Labor Statistics. So, less of an increase than in Canada, and at every point lower than the Canadian rate. What will happen next is pretty easy to predict, at least in the short term – both those rates are going to go up, perhaps steeply. How much, for how long? I have no idea, nor does anyone else. This is – to sound briefly like a journalist, which I hate doing – ‘uncharted territory’. It is definitely not a good thing to be starting from a high rate, that much seems clear.

I won’t reproduce this graphic from the Globe, but it is also not a good sign that the 12-month moving sum of consumer insolvencies in Canada, which hit a post-pandemic low of 87,055 in mid-2021 (thanks, no doubt, to all the money Ottawa shoveled out the door the previous year) has climbed to a high of 137,00 at the end of 2024. That’s a whomping 57% increase in consumer insolvencies in two and a half years, and is another bad sign regarding the situation in which Canadians find themselves going into this election.

Anyway, conventional wisdom, whatever that is, would suggest that all of the above would make it very hard for the Liberals to win a majority government this month. Canadians are not in great shape, economically, and the Liberal government itself pretty much admitted it had overdone immigration when it drastically cut it last year. But, the Trump factor trumps this, so far, it seems, so I will close by noting two trade-related graphs from the Globe story that do seem to me relevant to what happens next.

First, here is a graphic indicating to what countries Canada has been sending its exports in recent years. It surprised me, I admit.

What’s interesting to me is that since the pandemic Canadian exports to the rest of the world have indeed gone up, but our exports to the US have increased at a much greater rate. It would be useful to understand what caused that, as it is no small part of what makes the Trumpian tariff regime as economically damaging as it is likely to be. If we knew why it happened, it might be easier to figure out how to reverse it. And, it seems to definitely have been a pandemic-related occurrence. Note that exports to the US dropped a good bit during the pandemic, while those to the rest of the world did not. Why? What happened? Enquiring minds want to know.

Second, a graph that did not surprise me, but which seems important when Canada’s government thinks about how to respond to the Trumpian tariffs.

The US’s imports of crude oil from the rest of the world have been declining while those from Canada have been increasing, so that now the US gets more than half its imported oil from Canada.

So, you want to hit back at Trumpian tariffs in a way that really stings the US? Put an export tax on oil going to the US. Danielle Smith will holler, and with some justification, so maybe you have to do something to put salve on that wound, but the only way to get US legislators’ attention (I don’t know that it’s possible to get Trump’s) is to hit them so it hurts. As I have written elsewhere, if you are bound to get in a fight with a pig, you have to expect to get dirty.

A closing note on the same theme. I can’t find exactly the right graph, but Statista says Canada is the largest producer of potash in the world, and I believe the US gets something like 90% of what it uses (and it is the largest user in the world) from Canada. So – export duty on potash. Saskatchewan will howl.

There are likely other products. Trump will be furious. Again – pig, dirty, inevitable.

I have been thinking about this since the Canadian federal election campaign kicked off all of six days ago, but Andrew Coyne’s opinion piece in this morning’s Globe, titled ‘Canada’s existential election has very quickly become unserious’ has pushed me to write it up. Coyne focuses on the income tax cuts promised right out of the gate by both Carney and Poilievre. Carney promised first, a one percentage point cut in the lowest rate, from 15 to 14 percent. Not to be outdone, Poilievre said he would cut it by more than two percentage points, to 12.75.

As Coyne says, this does nothing to incentivize anyone to work more. It means that everyone who earns anything up to the top of the first income tax bracket gets the same tax reduction. You get that no matter how much harder or longer you work, or don’t, and on top of that, those Canadians who earn so little that they pay no income tax at all – nearly 40% of all filers – get doodley from this.

Yea, this is bullshit, not at all serious policy for serious times, as Coyne says, but jeez, it is sure Canadian. I mean, Doug Ford just won a new majority government in Ontario immediately after sending all Ontario taxpayers a $200 cheque. Why should either of the major party leaders not think this tax gimmick, which has been set up to be different from sending out cheques only in its minor details, won’t help them get re-elected?

One must never forget, Mr Coyne, that Job Number One of every politician is to get elected. Canadian experience suggests this is how they do that. Carney’s predecessor as PM would have also mailed us all cheques had he stayed in office long enough.

However, things are rather worse than Coyne’s article suggests. Poilievre has also said he will allow seniors to earn some $30k per year free of income tax. There’s the weapon we need to deal with DJT, more old people working without being taxed. The Conservative leader is also going to remove the GST from sales of homes of less than $1.3million. Nothing like an army of richer real estate agents to meet the Trump threat, yewbetcha.

In his interview by Jordan Peterson, back when he seemed sure to be the next PM, Poilievre said that the Trudeau Liberal government had partied for 10 years, and he was going to have to pay for it. I thought that was an accurate remark, Trudeau’s budget deficits certainly ran up Canadian debt, but so far no word from Mr. Poilievre on how that ‘paying for it’ will happen. Discussions of debt are such a downer.

On the other hand, Carney has the advantage of actually being the Prime Minister for the moment, so he has done more than make promises. According to the Globe:

“Ottawa is waiving the one-week waiting period before collecting employment insurance; allowing workers to collect before they have exhausted severance pay; and making it easier to access this support. The federal government will also temporarily allow companies to defer corporate income-tax payments as well as remittances of the goods and services tax and harmonized sales tax.”

Ain’t none of that free, Mr. Carney. As a nation, we have no rainy day fund to use in meeting the current crisis, thanks to 10 years of free-spending, and so far no candidate has indicated they understand, or hell, will even acknowledge, the implications of that. So one must imagine that whichever party ends up forming a government, and whatever goodies they actually hand out, they will again borrow to finance them. How long can a country whose growth is being hampered by the Trumpian tariff (and Canadian counter-tariff) regime borrow at reasonable rates on the international market? Looks like we’re going to find out.

When I was maybe 6 years old, my dad worked part time at a service station. There was a parade through the Polish section of town on some holiday or other – right down Lagrange Street, I recall. Eager for the advertising, the service station put their tow truck in the parade, with me and my dad in the cabin, throwing bubble gum out the window to the folks watching the parade. It was great fun for a six-year-old.

That’s pretty much how a 21^st century Canadian election campaign works. Except….I doubt the service station borrowed the money to buy the bubble gum.

I write this on the morning when the headline on the Globe and Mail website is US Triggers Trade War, with the sub-heading Canada retaliates Tuesday morning with levies on $30billion worth of goods.

I will undoubtedly spend the day editing and re-writing it, in hopes of being as clear about this as I possibly can.

The reason I’m writing this piece is a conversation I had with a good friend of mine yesterday. She had heard a report on the radio purporting to lay out what Trump might be up to regarding imposing tariffs, and she asked me, the ex-economist, if said report made sense. I listened and said ‘it does’, and then resolved to lay out the same argument here. This angle is not new, I expect it has been written about by others, but the fact that my friend found it to be a new idea suggests it has not been the dominant theme in the discussion of Trump’s tariffs, at least in Canada. Most of what has been written up to now is about the border, immigration, fentanyl and retaliation, rather than what I will lay out below.

A simple statement of this idea is that what Trump is trying to achieve in imposing tariffs on the USA’s biggest trading partners (Canada, Mexico and China) is to get manufacturing plants to move back to the US. Making this happen was certainly something he talked about in his campaign. What I will lay out is the logic behind that idea; I am not claiming it is a good (or bad) idea, nor even that it will work. This is just the logic behind that strategy. I am not even claiming that this is really what he is up to. I have no more ability to peer into that man’s mind than anyone else, and his own statements are all over the place. Again, if (a big if) this is what he is trying to do, here is the logic of that strategy, stated as simply as I can manage. I will speak here only of the tariffs imposed on Canada, to keep things as simple as possible.

A US tariff on goods imported from Canada is just a tax, and like any such tax on a product, it will raise the price paid by US consumers of those goods. A 25% tariff on an imported good will not necessarily raise the price by 25%, it could be less, depending on how the Canadian producers of the good as well as the US importers of said good respond to the imposition of the tariff. Either of them might lower the prices they charge in response to the tariff, thus making the ultimate price increase less than the full 25%.

However, whatever those folks do, the tariff will reduce the profits of the Canadian producers of those goods on two counts. One, the higher price to consumers will reduce US demand for the products, and two, any price reduction taken by the Canadian producers will cut into their margins on those goods. How big are either of those two effects depends on a lot of things, but those two effects will happen in some measure, without a doubt, and so will cut into Canadian producers’ profits.

Thus, the two groups of people hurt by such tariffs are the US consumers of the tariffed Canadian goods, and the Canadian producers of those goods, and their workers and owners/shareholders. [The US-based importers/resellers of the Canadian imports may be hit, too, of course.]

Why would Trump hurt those people? What is he hoping to accomplish? That’s the question, here is one answer.

If you are a firm in the business of selling any product in North America, you have to decide where to locate your production facilities. If you are going to locate them anywhere on the continent, you have two choices – the US or Canada.

With a US tariff on Canadian imports, you can locate in Canada, and see a tax imposed on the goods you ship to a market of 300 million consumers, but not on the market of 33 million consumers in Canada. Or, you can locate in the US and see a tax (if Canada imposes retaliatory tariffs, see below) imposed on the goods you sell to the 33million but not on the ones you sell to the 300 million. It is clear which way the US tariff will push you, other things equal (I will return to that clause below), if you are deciding where to locate your plant – toward a US location.

Moreover, if you already have a plant in Canada, built in the era of essentially zero tariffs, this same effect might push you to close it down and build a new plant in the US. Or, if you have plants in both countries, as do most auto producers, the tariff might induce you to move production from the Canadian to the US plants. Note that I am not claiming this will force any producer to do anything, plant location decisions are highly complex and depend on many factors; but the US tariff is one factor pushing plant locations toward the US and away from Canada.

So, as I said to my friend, this is not illogical. There are perfectly good economic arguments behind this strategy, it relies on no voodoo or lies.

Will it work?

How well might this work for Trump, again assuming that is what he is trying to do? I cannot possibly predict, but I can lay out some important issues.

One, producers have to believe that these tariffs are in place to stay. You don’t locate plants or re-locate plants on the basis of conditions that are likely to last for no more than a year or so. Given Trump’s apparent randomness, it remains to be seen how effective the US administration can be in convincing firms they intend to keep these tariffs in place. I will return to this when I discuss ‘retaliation’ below.

Plant location decisions do depend on many factors, including the general environment for doing business in a country. It is very early in the Trump administration, but once again his reputation for randomness may work against him. There are already signs that the US economy, particularly the consumer sector, is faltering a bit. Whatever one thinks about Trump’s efforts to slash the Federal government’s spending, massive layoffs are not going to be good for consumer demand in the US, and China’s retaliatory tariffs on US goods not helpful to US manufacturing and therefore consumer incomes, either. But the more basic point is that business does not like uncertainty, and Trump’s administration has so far delivered up a fair bit of that.

A key – I suspect – example of this right off the bat, lies in the US/Canada auto industry. All accounts I have read say that cars and auto parts currently cross the US/Can border many times in the course of auto production. That suggests that possibly these tariffs are going to wreak havoc on that very large industry. Adjusting to this new regime cannot possibly happen quickly, and in the meantime – a lot of uncertainty. I am predicting nothing specific here, just pointing out facts that are relevant to answering the ‘will it work?’ question. The real answer will unfold over time, and I am not a seer. I hasten to add, neither is anyone else.

If it Works

I see no way to avoid the conclusion that to the extent that this tariff strategy does push firms to locate production in the US rather than Canada, it is going to be bad for Canadians’ income and employment prospects. To be sure, there are plenty of products for which this is not going to be an issue, because Canada’s other advantages are too great to be overcome by any tariff. As an obvious example, Canada has plenty of natural resources that US manufacturers need, and that production can simply not be relocated to the US. (There may well be other countries that produce the same things, but they must be farther from the US and hence more expensive to purchase.)

However, that still points toward a future in which Canada’s economy goes back to being based on ‘hewing wood and drawing water’ (or extracting oil and potash, in the modern version). Conventional economic wisdom says you can’t do well as an economy if your production is focused on such low value-added activities.

I hasten to add that there may be productive activities in Canada, or that could be located in Canada, even in the face of US tariffs, that do represent high value-added production. I simply don’t know about them.

Canada’s Response

As the Globe sub-headline says, Canada’s government’s immediate response so far has been to retaliate with tariffs on US imports into Canada.

Good idea? I wrote about this already in a previous post here. I hope it was clear there that my answer is ‘No’, and that that answer has nothing to do with any threats to make the US tariffs bigger if Canada retaliates. The problem is that US imports are a big part of what Canadians consume, but Canadian imports are a very small part of what US consumers buy, whereas goods exported to the US make up a big chunk of Canadian production while US exports to Canada make up a small part of US production. Thus, US tariffs hurt Canadian producers a lot but American consumers only little, while Canadian tariffs hurt Canadian consumers a lot but American producers only little. It is not an even fight.

Better the Canadian government say ‘Mr President, Canada does not impose pointless taxes on its citizens as you are doing to yours’.

That’s not gonna happen, of course. Canada’s response is, unfortunately, about posturing for Canadian voters, and about standing up to an asshole. I get that, but it is going to hurt Canadians even if Trump does not carry out his threatened escalation.

And, I admit that I want to get back at Trump, too. The question is, how? More precisely, how might Canada respond in a way that might cause Trump to re-think this strategy.?

If there are particular US imports into Canada that can be targeted because tariffs on them will harm US producers who have some clout with the Trump administration, then I say go for it. I simply don’t know what those might be.

Moreover, I fear there are no such products, simply because I see no reason to think Trump can be dissuaded from this course by anybody if it is indeed the course he is on. Remember that he is a lame duck president, in his constitutionally-limited last term in office. He has no reason to give a fig about his popularity, nor has there ever been any sign he cares about whether the president who follows him is a Republican. I fear he’s going to do what he wants no matter how much complaining there is from anyone in the US – if indeed there is any that he lets himself hear.

If the auto industry is upended, and other sectors of the US productive economy are harmed, either by Trump’s own tariffs or those imposed by Canada, Mexico and China in response, and the stock markets head downward, complaining there will be, I expect. However, he is not someone who has ever shown much willingness to admit that he was wrong.

This leaves as the only useful response for Canada a strategy of looking for other markets for our products. That is a worthy endeavour, but I can’t say my confidence is high that our current crop of leaders is going to be good at it. Or, to be more accurate, finding new markets is pretty much a job for Canada’s private sector, and I have little faith that our political leadership will actually not get in the way of their doing that. Getting in the way has been the one apparent talent of Canadian government for some time now. Further, to the extent that exploration for new markets does happen in Canada, it is not going to have any impact on the Canadian economy for some time, maybe years. I am thus sadly left to conclude that the Canadian economy and its citizens are going to take a hit from Trump’s tariff strategy, with little hope for relief for some time. That’s a bleak picture, to be sure, but I write that here with no great confidence. As I indicated previously, the world is much too complex to have any faith in such a prediction if that is Trump’s true plan, I am not in any case sure that it is, and even if it is, Trump is much too volatile a person to have any faith that he will stick to it.

The only thing of which I am certain is uncertainty.

Ontario Premier Doug Ford persuaded Ontario’s Lieutanant-Governor to dissolve the 43^rd Parliament of Ontario today, resulting in an election to be held across Ontario to elect a new Parliament on Feb 27. Two indisputable facts are the following. One, the Progressive Conservative Party led by Ford held 79 of the 124 seats in the 43^rd Parliament, with the NDP, as His Majesty’s Loyal Opposition, holding 28. In simple language, the PCs had a massive majority. Two, the current Parliament, elected on June 2, 2022, could have run until June of 2026 without an election, except in the highly unlikely event of a vote of no confidence in the current government.

The National Post, to its credit, yesterday published a Comment column by the Premier in which he makes the case for calling this snap election. Credit also to Mr Ford for having the chutzpah to make his case in print.

The case in general that Ford makes is that he needs a strong and long mandate from the people of Ontario to fight for them against whatever tariff or other policies the new Trump administration might enact. That a 25% tariff on Canadian imports into the US would be a serious matter for Ontario’s economy no one can doubt. The column is full of rhetoric about being ‘clear-eyed’ about the danger from these possible US actions, and features plenty of combative language. One quote:

“Make no mistake. Ontario won’t start a fight with the US, but you better believe we’ll be ready to win one.”

And,

  “With the trust and support of Ontario voters, we’ll be prepared to give this everything we’ve got.”

And so on. The thing is, and this is in no way an original thought by me, another way to see Ford’s snap election call is as political opportunism, on two fronts. One, he wants to get a new election and new mandate before the looming Federal election, as it is traditionally better for the Ontario PCs to run when the federal government is led by the Liberals. In 2026 it is very likely that the federal Conservatives will be leading a majority federal government. Second, if the US shit does hit the fan, no matter what ‘fight’ Canada puts up, things are likely to not be going well in the Canadian economy in 2026, not to mention the Ontario economy in particular. No government wants to go into an election with the economy on a downswing.

So, what to believe? Doug’s deep-seated desire to be in a position to fight effectively for we Ontarians against the Trump threat, or political opportunism?

This somewhat less combative quote also comes from the Premier’s column, and I find it telling:

“At a time when the federal government has left Canada drifting, exposed and vulnerable, President Trump will use every day he’s in office to exploit any weakness he can find.”

Ford’s take that PM Trudeau has left Canada drifting by his prorogation of Canada’s Parliament until March 24 is fair, I think. I have written as much, myself.  Dougie’s response is to dissolve the Ontario Parliament for a month so all the MPPs – including Mr. Ford – can go electioneering. That is a month that includes the next (possible) date for the imposition of US tariffs, Feb 1. It does not appear that Mr. Ford regards that inescapable fact as a weakness Mr. Trump might exploit.

I’m coming down pretty hard in favour of ‘political opportunism’ here.

So, how do I vote in the Ontario election? My riding was won handily by the NDP candidate in 2022, and for reasons I have stated elsewhere, I simply cannot check that box. The PC candidate came in second in my riding last time, but Dougie has made it very difficult to check that box, also. I would feel like I was rewarding his behaviour, and that would not feel good.

I dunno, maybe the Libertarians will run a candidate in my riding. No chance of their winning, of course, but how else is a citizen to make his disappointment known?

Last point: turnout in the 2022 Ontario election was at an all-time low. Will our Premier’s call for a strong and long new mandate cause that to go up? I think he better hope so. Some of us remember David Peterson’s call for a snap election in Ontario in 1990.

Postscript: I was out and about in the afternoon after I posted this, and when I came back home this evening, there in my snailmailbox was a cheque for $200 from the Ontario Ministry of Finance. Now that is some impressive timing.

I do hope the Libertarians run a candidate in my riding…….