MNI INTERVIEW: Trudeau Cabinet Disarray Fuels Trump Trade Risk
MNI (OTTAWA) - Justin Trudeau's efforts to encourage Donald Trump to lift the threat of a 25% tariff have been set back by the resignation of his finance and housing ministers, Canadian Federation of Independent Business Vice President Corinne Pohlmann told MNI.
"It's time for the governments, both provincial and federal, to come together and figure out a plan to offset what could potentially be coming down the road, given the inauguration coming in a little over a month from now. And hopefully whatever's going on will be quickly cleared up," said Pohlmann. The CFIB represents 97,000 firms and often meets with ministers and lawmakers to discuss the economy.
Deputy Prime Minister and Finance Minister Chrystia Freeland quit cabinet Monday just hours before she was due to present a budget update, which she said in a resignation letter had turned to fiscal gimmicks instead of focusing on the risk of a U.S. trade rift. She had served as a key trade envoy during Trump's first term when Canada moved the U.S. away from threat to rip up the Nafta trade pact.
Freeland's announcement came as another official known for strong communication skills, Housing Minister Sean Fraser, said he would step away from federal politics for family reasons. Freeland and Fraser have been named as potential future candidates to replace Trudeau, who polls show is bound for defeat in an election due by next fall and may come sooner if oppositions parties force a nonconfidence motion.
WHERE IS MARK CARNEY?
Pohlmann praised Freeland's move but also questioned the timing. "You have to admire someone who stands up for her principles. But it did come at a very interesting time," she said. Trump posted on social media overnight that Freeland was "not at all conducive to making deals which are good for the very unhappy citizens of Canada."
The CFIB shares some concerns in Freeland's resignation letter around fiscal policy and need to prevent a trade disruption with the country that buys 75% of Canada's exports. Freeland said the government's fiscal distraction would undermine trust in Canada's trade talks. (See: MNI INTERVIEW: BOC Faces Recessionary Risk On Tariff Hit: Lane)
The budget plan showed the deficit for fiscal year 2023-2024 at CAD62 billion, breaking the CAD40 billion "guardrail" set in April and the biggest dollar value in history outside of the pandemic. This fiscal year's deficit projection grew to CAD48 billion from the initial CAD40 billion. That's partly because of a recent tax holiday on what Trudeau has called "essentials" such as beer and video games. (See: MNI Trudeau Deficit Unlikely To Fix Canada's Vibecession)
After Freeland quit economists and journalists were barred from the advance budget reading for almost four of the usual six hours. Dominic Leblanc, known more for once serving as Trudeau's childhood babysitter than market experience, was sworn in as finance minister just as the update was presented in Parliament. Reports Trudeau was bringing Mark Carney to shake up the economic message never materialized.
SIGNIFICANT IMPACTS
"There doesn't seem to be any real plan to get back to a balanced budget and that is something that's extremely important to our membership," Pohlmann said.
After Trudeau met with Liberal lawmakers for an emergency meeting Monday night, one emerged to say he should quit. An hour later the Prime Minister spoke to major donors and asked them to come back recharged after the holidays to continue working for Canadians struggling with the cost of living. He never specifically mentioned his cabinet losses.
Business leaders are left to wonder who will prevent trade penalties. "About 50% of our members import from the U.S., and 25% export to the U.S.," Pohlmann said. "Anything that increases costs will have significant impacts."