The following piece, by ICBA Chief Economist Jock Finlayson and consulting economist Ken Peacock, first appeared in Business in Vancouver on October 27, 2025.
When it became clear that Mark Carney would succeed Justin Trudeau as Liberal leader and Prime Minister, the sighs of relief were audible across corporate Canada. The previous Prime Minister inspired little confidence in the C-suites and boardrooms of the nation. Canada’s descent into economic mediocrity during Mr. Trudeau’s long tenure was striking. As we entered 2025, there was hope that Mr. Carney would bring some much-needed gravitas to the job and – unlike his predecessor – demonstrate a willingness to tackle the country’s deep-seated economic problems, all while navigating the trade storms unleashed by Donald Trump.
Almost six months after an election that yielded a solid Liberal minority government, the verdict on Mr. Carney is still being formulated.
In our judgement, he has capably managed Canada’s weak hand in dealing with the overtly mercantilist Trump Administration. The decision to stand down from tit-for-tat trade retaliation is sensible in light of Canada’s limited negotiating leverage and the fact that the main effect of retaliatory tariffs is to compound the damage to our own economy from Trump’s scattershot levies. As Desjardins Economics observed in a mid-October briefing note, “the elimination of Canadian counter-tariffs on many imports from the U.S. is expected to spur growth while reducing inflation.” More economic growth and lower inflation are just what the doctor ordered for an ailing Canada. Moreover, while a geopolitical colossus like China may possess the economic firepower and internal political cohesion to force the U.S. to back down, Canada clearly does not.
Job one for the Carney government should be to preserve as many of the advantages Canada enjoys under the Canada-U.S.-Mexico trade agreement (CUSMA) as possible. That doesn’t mean the pre-Trump status quo — in terms of Canada-U.S. economic and security relations — can be fully restored, as the Prime Minister himself has recognized; but it does suggest that Ottawa should aim to forestall a full-scale dismantlement of the CUSMA framework. This is the playbook that Team Carney appears to be following. Time will tell whether it’s possible to arrive at an acceptable “deal” with the notably erratic American President.
This brings us to the non-trade elements of the evolving Canadian economic policy agenda. Here, we are less positive about the early directions charted by the Carney government.
On fiscal policy, the government seems to be setting the stage for an eye-watering deficit of as much as $100 billion in the November 4 budget. That is at least twice as much red ink as in the last Trudeau-era budget. We doubt that business community enthusiasts for the new Prime Minister were anticipating such an outcome. Mr. Trudeau acquired a well-deserved reputation as a preternaturally undisciplined spendthrift; it would be a shame if Mr. Carney continued down the same path. That said, the commitment to dramatically boost defence spending is a new fiscal parameter that inevitably will slow progress on deficit reduction.
Turning to economic growth and the imperative to kick-start chronically lagging Canadian business investment, the signs are mixed. Finance Minister Francois-Philippe-Champagne insists his upcoming budget will “crowd in” private sector investment – into machinery and equipment, advanced technologies, new production facilities, infrastructure assets, and housing. That’s a tall order given the steady erosion of Canada’s overall competitiveness in the last several years – to say nothing of the impact of President Trump’s tariffs in prompting Canadian companies and investors to channel capital to the United States.
At a minimum, the first Carney budget needs to feature bold tax policy changes to stimulate business investment, encourage entrepreneurial wealth creation, and arrest the alarming slide in productivity. It’s also critical to improve the “hosting conditions” for Canadian-based SMEs to temper the exodus of fast-growing companies, corporate head offices, and ambitious entrepreneurs to the U.S.
Strengthening the underpinnings of prosperity also requires taming the excesses of the ever-expanding “regulatory state” and scaling back Ottawa’s presence in policy fields that mainly lie within the jurisdiction of the provinces. In Bill C-5, the Carney government gave itself enhanced powers to expedite a handful of “nation-building” projects. While arguably better than nothing, this approach risks sidestepping the harder task of overhauling federal laws and regulatory frameworks that have stymied investment – particularly in the energy, mining, manufacturing, transportation, and infrastructure sectors. At no fiscal cost, federal policymakers have the ability to address legislative and regulatory barriers to building a more productive and competitive Canadian economy. We remain hopeful the Carney government will take up this challenge in 2026.
