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FINLAYSON: Carney should fix problems in Canada’s own backyard to spur trade and investment

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Faced with an erratic U.S. president who demonstrates a fondness for coercive and protectionist trade policies, Prime Minister Mark Carney is determined to lessen Canada’s heavy dependence on the huge American economy. To that end, the prime minister has set goals to double Canada’s non-U.S. exports by 2035 and forge stronger commercial and political ties with countries in Europe and Asia. At the same time, his government is pushing to attract hundreds of billions of dollars of private-sector investment in infrastructure development, the energy and natural resources sector, and other export-focused Canadian industries.

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No one can dispute the desirability of boosting Canada’s economic connections with non-U.S. jurisdictions. The problem is that trade diversification takes time. Even after a full year of Donald Trump’s chaotic tariff war, Canada continues to rely on the U.S. for about three-quarters of our exports; the U.S. is also the biggest source of Canadian imports. These deep trade linkages reflect geographic proximity, a shared language, similar business practices and the regional free-trade architecture that’s evolved in North America over the past four decades.

FINLAYSON: Carney should fix problems in Canada’s own backyard to spur trade and investment Back to video

In recent months, Prime Minister Carney has visited multiple foreign capitals in a bid to expand trade and investment. While this work is important, it risks overlooking key aspects of the domestic policy environment that have hindered investment for many years. Addressing these homegrown impediments to greater prosperity doesn’t involve jetting off to foreign capitals or pursuing new trade agreements; instead, it requires attending to problems in our own backyard.

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Two such problems stand out: 1) Canada’s increasingly uncompetitive tax system, which deters private-sector investment and complicates efforts to attract and retain the senior-level business and professional leaders needed to grow our economy; and 2) deficiencies in Canada’s transportation system and supply chain for shipping goods — both exports and imports.

On taxes, many economists recognize Canada has lost its previous business tax advantages relative to the U.S. and some other foreign rivals over the past two decades. The tax burden imposed on new business investment is higher here than in leading competing jurisdictions. In addition, Canada’s high income tax rates on the most productive segments of the work force make it harder to attract and retain top talent. These features of the tax system work against the Carney government’s stated desire to make Canada the best-performing G7 economy and double non-U.S. exports in the next decade.

Supply-chain challenges

Equally important is coming to grips with the transportation and other supply chain weaknesses that needlessly increase shipping costs for Canadian businesses, hurt our global reputation as a reliable supplier, and stand in the way of the government’s trade diversification agenda. To take one example, according to a recent World Bank report, three of Canada’s four busiest ports rank in the bottom quartile globally on measures of efficiency. A similar concern was voiced by the National Supply Chain Task Force in its 2022 report, highlighting the economic damage done by frequent work stoppages and labour relations instability along the Canadian supply chain. More recently, Saskatchewan-based potash giant Nutrien’s decision to choose a U.S. location for a new billion-dollar export terminal also speaks poorly of Canada’s supply chain brand.

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Tackling these issues may be less appealing than visiting foreign leaders to discuss how to expand trade. But the Carney government’s trade diversification goals will be impossible to meet without a parallel commitment to overhaul domestic policies that undermine Canada’s competitiveness.

Jock Finlayson is a senior fellow at the Fraser Institute.

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