The Canadian economy is grappling with persistent stagnation, and the root causes extend far beyond the well-publicised trade tensions with the United States. While many point to tariffs and trade wars as primary culprits, a closer examination reveals deeper issues that have been festering for years, calling for urgent and innovative policy responses from Ottawa.
Trade Tariffs: A Distraction from Deeper Issues
In a recent discussion on CBC, I faced criticism for not condemning former U.S. President Donald Trump’s trade policies. However, it’s essential to clarify that Canada’s economic malaise predates the start of the tariff war in spring 2025. Politicians seem to be using these trade disputes as a convenient scapegoat, shifting the focus away from the structural problems that have long plagued the Canadian economy.
From a global perspective, Canada has not been hit as hard by Trump’s trade actions as one might expect. The Canada-U.S. trading relationship, while significant, is not the sole barrier to growth. There is a pressing need to address interprovincial trade barriers, an issue that has been raised repeatedly since the mid-1980s, yet remains largely unresolved.
Economic Policy: Slow Progress and Stagnation
Last year, I assigned a B- grade to Ottawa’s budget, acknowledging some positive supply-side initiatives, such as streamlined regulations for natural resource development and pipeline projects. However, progress in these areas has been painfully slow. The belief that Canada can significantly diversify its economy away from the U.S. is optimistic at best, given our geographical proximity, affordable transportation, and access to a vast consumer market.
While forging trade agreements with non-U.S. countries is a commendable goal, it is unlikely to catalyse substantial economic growth. Such diplomatic efforts may look good on paper, but they do little to alter the fundamental dynamics of the Canadian economy.
The Tax Competitive Crisis
One critical area where Canada has faltered is in maintaining tax competitiveness. The U.S. slashed its top marginal corporate tax rate from 35% to 21% in late 2017, a move that went largely unchallenged by Ottawa. This shift represented a significant setback for the Canadian economy, which now faces a blended top rate of 26.5%.
The Canadian government has been quick to respond to trade fluctuations but has remained silent on the pressing need for tax reform. This lack of action has resulted in a major negative shock to our economy, yet it often goes unnoticed in public discourse.
Lessons from Ireland: A Model for Success
Ireland offers a compelling case study in achieving a competitive economic landscape without resorting to political upheaval. The country has established itself as a global tax haven, with a corporate tax rate of just 12.5%, all while maintaining a strong public healthcare system and enviable economic performance metrics. Ireland’s unemployment rate is significantly lower than Canada’s, and its real per capita GDP growth far outpaces ours.
Canada’s continued election of leaders who overlook these critical lessons is disheartening. Rather than blaming external factors like U.S. tariffs, we must confront the self-imposed limitations that have stymied our growth.
Why it Matters
The ongoing stagnation of the Canadian economy is a pressing issue that requires immediate and innovative solutions. By focusing on internal reforms—such as tax competitiveness and interprovincial trade barriers—Canada can create a more conducive environment for growth. The time has come for policymakers to take bold steps that prioritise long-term economic health over short-term political gains. Ignoring these foundational challenges not only hampers progress but also threatens the prosperity of future generations.
