Hugh Mackenzie is taking a break. This is a guest commentary by Dave Wilkin on Listen Up!
On Wednesday, President Donald Trump’s trade war went global, as large “reciprocal” tariffs hit more than 180 countries. With a stroke of the pen, he not only upended the global trading system but undermined long-standing US partnerships and allies, damaging trust and US leadership around the world. Global markets have reacted negatively, signalling their strong disapproval.
Canada was mostly spared in this latest round of tariffs, but tariffs from a few weeks ago remain in place, so we are far from out of the woods. It may be a small sign that there is more room for trade negotiations for the US’s bordering neighbours and largest trading partners, but no one really knows.
This sets the stage for the most consequential election in generations. The top issues for Canadians remain cost of living, the economy, healthcare, and housing, but how to deal with Trump and US relations is now at the top of the list.
Here are some relevant background on the challenges we now face:
- The Canadian economy is not in good shape. GDP growth per capita, productivity, and business investment have all lagged behind most wealthy countries, and our total gross debt has risen substantially over the past decade.
- Three-quarters of Canadian exports remain US bound. Oil and gas represents over 20% of our exports, almost all of it is US bound.
- The Canada-US pipeline network is highly integrated, and almost all of Ontario’s and Quebec’s oil flows through US-based pipelines. Almost half of Ontario and Quebec’s natural gas is US sourced.
- US defence spending is about 30 times ours, and most of our military purchases are US sourced.
Looking forward now, it’s all about where to focus and getting meaningful results. This leads to some key, interrelated questions:
- How do we rapidly strengthen our economy?
- How do we improve, diversify & expand trade?
- How much and where should limited government program spending be targeted?
Here are some thoughts on these questions.
Beyond the clear need to eliminate interprovincial trade barriers, trade diversification and expansion is crucial. It will require significant infrastructure investment, especially for oil & gas, meaning new pipelines, including to our east coast. For other key sectors, especially mining, forestry, automotive, and agriculture, it means expanded rail and port infrastructure. The total capital spending needed could exceed $100 billion. On top of that, existing infrastructure is aging, and it’s an impediment to economic growth, making it a top priority to address. Cost estimates are in the $150 billion to $1 trillion range.
Such significant capital spending needs will require more private sector participation, but for that to happen, excessive and restrictive federal regulations built up over the past decade will need to be reduced or eliminated, creating a more attractive environment crucial for private sector capital investment. This is especially true for our natural resource sectors.
On natural resources, the Liberal government’s 2050 net zero emission imperative and related policies, which PM Carney wants to accelerate, must end. Claims that the costs, in the $100 – 150 billion annual range, will be more than offset by the economic growth it creates is unrealistic and most untimely, as it will drive energy costs and inflation higher, undermine industrial competitiveness, and compromise our energy security. The Canadian & US financial sectors, and even green leading Europe, are realizing this.
Government spending needs are expanding too. Top among them are:
- Support for workers and businesses impacted by Trump’s tariffs. Many billions likely needed, but amounts are currently unknown.
- Reaching the minimum 2% of GDP NATO defence spending target would likely require an additional $40 billion annually.
- Health Care, Social Services & Housing. An expanding, aging population continues to stress services and supply, and rising costs continue to outpace economic growth. Maybe another $50 billion annually is needed.
Other pressures on government budgets now include an uncertain economic growth outlook and the need for tax cuts to help struggling Canadians and to stimulate business investment.
With so many large needs and provincial deficits nearing limits, demand for the federal government to do more is understandable and reasonable. However, everything can’t be done, which means it’s even more important for policy proposals to include sufficient details and expected costs so Canadians can make a well-informed decision on who to vote for. It should also be noted that with the current federal deficit at around $50 billion, the opportunity to balance the budget in the near term looks unlikely.
Canada has such great potential, but to get through the immediate crisis and to put us on a better path going forward requires a competent government and strong leadership. A government that can be counted on to build on our advantages and strengths, and to deliver on the things that matter most to Canadians.
Dave Wilkin is a professional Engineer, with a master’s degree in Electrical Engineering from the University of Toronto. His career spans over 40 years in Information Technology, banking, energy, and consulting. A former resident of Huntsville, Ontario, he now lives in Burlington but still spends time at his Huntsville area cottage.
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Thanks to Mr Wilkin and Mr Holland for your thoughtful research and comments. This is an existential moment when we must lean into our deeper values for the future of our families and the kind of responsive diverse communities we want to live in. There will not be an easy consensus about all the costly energy decisions arising, but more can be achieved with coordination and cooperation, not ignoring security of clean water, and environmental integrity. We can learn from the Indigenous people who have lived here through much political change. I hope we are remembering that Canada can be smart and can make things and provide services and not just continue to be a kind of colonial outpost harvesting natural resources for others.
Excellent analysis Dave. We have some complex and difficult decisions ahead.
We have all seen the recent and growing manifestations of climate change in destructive tornados floods, unusual snow and ice storms, and wildfires across North America, Africa etc. Navigating thorough climate change is like steering a ship through icebergs in an ever-changing fog. To avoid turning our planet into the next Titanic, we must keep focused on the long-range goal of total green energy, but steer around the icebergs as new situations and new information arise.
Example # 1 – In 2003, 25% of Ontario’s electricity came from coal. That was reduces to 0% In 2014. Long-term, we must steer towards total green energy but using the new BC Coastal Gas Link to help China replace coal with our west coast natural gas is a helpful interim step that could generate an estimates $7 billion in annual revenue and help cut China’s emissions from 1,050 grams of CO2 per kwh with coal to 443 grams of CO2 per kwh with natural gas.
Example #2 – Canada and the US will still need diminishing quantities of Alberta oil for some time, but an achievable cap on oil field emissions can help reduce Canada’s single biggest source of emissions as we transition to electrical energy from solar, wind, hydro, geothermal, and nuclear. Geothermal and small nuclear can co-generate both electricity and industrial heat for Alberta.
Example #3 – With a friendly US neighbor, indigenous communities on the path through Ontario and Quebec saw the Energy East Oil Pipeline as an unnecessary environmental risk, but the new possibility of the US interrupting our oil supply through Michigan changes the risk calculation. Energy East could be built as an interim measure to secure our energy supply and to shore up our oil export revenue for as long as oil is needed. But at the same time, we should be electrifying Ontario and Quebec ASAP. Those biggest populations are in the best position to electrify now. Electric vehicles and mobile equipment, and electric heat pumps can reduce energy demand by 60%, making it much easier to secure the energy supply. (China is already leading on this) Smaller populations in Western and Atlantic provinces are already self-sufficient with oil and can electrify later. Full oil security via an Energy East pipeline may require new refinery capacity near Montreal, and a reversal of Enbridge pipelines 9 and 7 to feed Ontario. A net 20-year cost less benefit analysis is needed.
Dave – good Commentary as usual.
With the Trans Mountain Pipeline complete and heavy crude supertanker port already open, the next step and is in the works to complete the supertanker port in Kitimat for LNG.
Currently the Premier of Quebec has warmed up to extend the eastern pipeline thru Quebec to the Bay of Fundy where another LNG tanker port is being sited. Unknown until now, long term contracts have been put into place for heavy oil and LNG with Japan, China and other Asia countries. The selling of LNG to the EU is actively under way to remove Russian dominance of supplying our allies in Europe.
The same activity has been underway to provide lumber and precious minerals to partner nations both east and west.
Obviously this should have been part of a dual strategy many years ago in part to stop the discounting of a substantial discount of fuels headed to the U.S. and partly to not be so reliant on a single market.
It is time for Canada to grow up and become a fuel and minerals superpower to the world.
Ross Maund
Great analysis.