Economic policy's new battleground
THE CANADIAN PRESS/Ethan Cairns
Conservative Leader Pierre Poilievre on Saturday held a “Canada First” rally in downtown Ottawa to mark the 60th anniversary of the national flag in an event that signaled a pivot in messaging toward a more patriotic tone and economic self-sufficiency.
Meanwhile, the Liberals—after four years of introducing costly, 1960s-style social programs—are now racing to rebrand themselves as stewards of economic strength.
Both parties seem to have absorbed the old lesson about generals fighting the last war, where clinging to outdated strategies in changing times can be fatal. Canada’s economic debate appears to be at such an inflection point.
Since the 2021 election, affordability has dominated the political narrative. The Liberals sought to address cost-of-living pressures by spending heavily, while the Conservatives emphasized tackling root causes—deficits and taxes.
But with Donald Trump threatening Canada’s economy and sovereignty, the ballot question is shifting: Who can best defend Canada against rising U.S. economic aggression?
I won’t delve into the politics of this shift—others can do that better. Instead, I’ll unpack what it means for economic policy and how to make sense of it more broadly.
The New Reality: Disruption
While it has only recently hit home for Canada, Trump’s threat is just the latest—albeit the most extreme and disruptive—example of a broader global trend that has been unfolding for some time.
We live in an era of perpetual disruption. Over the past few years, the world has lurched from one crisis to another: the pandemic, war, economic fragmentation, AI-driven technological upheaval, extreme weather events and more.
Weirdly enough, Canada has experienced one of the sharpest increases in policy uncertainty over the past few months, according to a widely cited gauge developed by three American economists.
In this environment, voters—overwhelmed by the speed of change—are going to be looking for policies that reduce vulnerabilities. This has far-reaching consequences.
For one, policymakers can no longer focus solely on affordability—or even economic growth. National security, supply chain stability, industrial capacity, technological adoption, and even training and education are all taking on new urgency.
More resiliency also means investment has to be at the forefront of policy—whether in infrastructure, defence, or innovation. The political question, “How do we stand up to Trump?” is really a question of how to make Canada’s economy more resilient.
This dynamic is playing out in real time. When we indicate we’re prepared to hit the U.S. with retaliatory tariffs, we’re signaling that national interests can outweigh affordability concerns, given we’d be driving up our own cost of living.
Affordability won’t go away as an issue—geopolitical instability, demographic shifts, decarbonization, and high debt levels mean we will probably live in a world of more persistent inflation than we had been accustomed to before the pandemic. But its political potency may fade as resilience—the ability to anticipate, absorb, and recover from shocks—takes center stage.
Rise of resilience
So what does this all mean in practice?
Resilience means fostering a diversified Canadian economy to ensure we can produce critical goods. It means reducing our over-reliance on the U.S. market for energy. It means investing in infrastructure—transportation, energy, trade and communication networks —that can withstand disruptions. It also means prioritizing rural communities, which are central to Canada’s resource sector, food production and energy transition.
This framing accommodates policies across the spectrum. Liberals can use it to justify industrial policy. The Conservatives can leverage it to repackage core ideas such as resource development and rural prosperity, investment, tax cuts and fiscal prudence.
But resilience-focused policies come with risks. They tend to redistribute resources from consumers to producers, driving up costs. They can also complicate Canada’s leadership on climate issues.
These trade-offs are already surfacing.
Fighting old wars: Telecom tensions
A good example of this tension is the CRTC’s push to increase competition in high-speed internet.
The telecom regulator is pushing to implement sweeping changes that will allow major incumbents to access each other’s fibre networks for the first time. But critics worry it will reduce investment in broadband infrastructure. Even the federal government has expressed concern.
Last week, the CRTC effectively punted the issue back to cabinet. That means, given the current political landscape, the decision will fall to the next government. In the meantime, the industry is in limbo, with Bell Canada already cutting billions in planned investments.
Ironically, the new policy could also limit future governments’ ability to open the telecom market to foreign competition. No policymaker wants foreign firms entering Canada by piggybacking on existing networks rather than building their own.
It’s a classic case of fighting the last war—prioritizing affordability without fully considering the consequences for investment.
Balancing trade-offs
Another example of competing priorities surfaced this week when Canada’s banking regulator, OSFI, scrapped plans to impose stricter capital requirements on commercial banks.
The new rules, meant to align Canada with global banking reforms, could have forced banks to shed up to $270 billion in assets by 2026. But other countries weren’t moving ahead, and Canada’s economy is in desperate need of investment.
The decision pits banking resilience against broader economic resilience. While individual banks may now hold lower capital reserves, freeing up capital for investment strengthens the overall economy—and, in turn, the financial system itself.
These examples highlight a fundamental shift: Canada is moving from an era dominated by affordability concerns to one where resilience—economic, industrial, and strategic—takes precedence.
It’s no longer just about the cost of living—it’s about whether Canada can withstand the next crisis. The emergence of a belligerent Trump 2.0 has made that clear.
