The trade crisis is a wake-up call to how uncompetitive Canada is

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Darryl White February 06, 2025 Research & Strategy

This first published in The Globe and Mail on Feb. 5, 2025, authored by Darryl White, CEO of BMO Financial Group.

The past week was a wake-up call for Canada.

Tariffs have been postponed, avoiding, for now, the tragic destabilization of the world’s most successful bilateral relationship. But the challenge has been put plainly before us.

In every client conversation I’ve had in the past week, their message is clear: Trade wars run counter to growth, introduce uncertainty, and distort efficient uses and allocation of capital. This 30-day reprieve, while welcome, must not yield complacency.

The will is there. Across the Canadian economy and political spectrum we’ve seen the emergence under fire of a new economic consensus of resilience and independence – and a greater ambition for Canada.

It is imperative that our political leaders deliver on plans to strengthen borders and combat organized crime.

But this moment is much deeper – it’s about responding to longstanding neglect of our economic competitiveness. We are uncompetitive on tax, on regulation, and on tone. And all levels of government – federal, provincial and municipal – must improve our competitiveness that underwrites our quality of life.

This week’s crisis coincides with the exit of an incumbent prime minister, the introduction of a new one, and the imminent election of a new House of Commons.

Canada is held back by a range of issues that a trade war would exacerbate.

Productivity, for one, is a major weakness. Canadian productivity has been in a prolonged slump, while the U.S. continues to rise.

Over the past 30 years, U.S. productivity in the business sector has grown more than 2% per year, while Canada’s has lagged at just over 1% per year. Compound a 100% gap over three decades and that creates a massive difference in growth per worker and prosperity for families on both sides of the border.

There are many positives of which we should be proud. Canada has one of the world’s most highly educated workers, excellent schools and public health care. Our communities are safe, we have an abundance of energy and a world-class agricultural sector. We can boast of innovative researchers, robust manufacturing, strong and stable banks, and globally significant natural resources in strong demand.

And, when our North American trade partners are aligned, our complementary regional assets make this continent a beacon of economic strength.

For our highly educated workers to thrive, they need public policy and taxation that rewards smart risk-taking, and regulation that incentivizes business formation and growth.

Capital craves certainty. Political volatility, trade disputes, and confusing and counterproductive tax policy drive uncertainty.

Reducing corporate and capital taxes can ensure that Canadian and international investors have a stable, lower-cost pathway to growth and more capital to create jobs and more powerful paycheques. These are good policies and strong signals to the world.

Other governments understand this signalling imperative: the chorus of “growth-friendly” overtures from Canada’s competitors are music to the ears of global businesses and investors. And it’s not just American music. The U.K.’s Labour Government recently directed regulators to “regulate for growth, not just for risk”; a concept all levels of government who are setting policy and approving the ambitions of businesses and their workers should consider.

Capital gains taxes punish the most productive contributors in our economy: entrepreneurs and small- to medium-sized businesses. The federal government’s delayed implementation of its proposed increase is constructive; but it should be outright cancelled and reduced instead.

Accelerated depreciation for productivity-enhancing equipment supports small and medium-sized enterprises as they innovate to compete. Keep the definitions of eligibility broad and let entrepreneurs have more say, not Ottawa, in what delivers the most value. Then reward it.

Success of businesses, small, medium or large, should be celebrated, not chastised. Every day Canada competes for capital and talent with other countries. Why would these resources come to Canada if the tone is unwelcoming; they have too many options.

If businesses aspire to refine our natural resources into products for export, we should lift them on our shoulders and guide the way. To realize the full benefit of our resource abundance we must capture more of the supply chain value within our borders. This includes domestic refining, processing and manufacturing, in an environmentally conscious way that includes First Nation, Inuit and Métis Peoples.

On trade, Canada has done an exceptional job opening new markets through free trade agreements, but more Canadian businesses need to generate value from them. This requires more state capacity and strengthening our foreign service to aggressively champion Canada’s private sector abroad.

Finally, it’s tough to be the true north strong and free when we can’t trade freely among ourselves. When it’s easier for European Union nations to trade with each other than it is for Canadian provinces, we have a problem. The good news is momentum on interprovincial trade is as strong as I’ve seen it. We must finish the play.

This week, Canada received a postponement of a shock. But a reprieve can’t become a replay; we must answer this wake-up call. In just a few days we’ve seen how Canadians can rally. Let’s keep momentum strong and advocate for growth-friendly proposals from campaigning politicians. Let’s not waste a moment.

Research & Strategy February 06, 2025

Darryl White Chief Executive Officer, BMO Financial Group

Darryl is Chief Executive Officer of BMO, the eighth largest bank in North America by assets, serving over 13 million customers across Canada, the United States, an…

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Research & Strategy February 06, 2025

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