Business
There are smart ways to diversify our exports
From the Fraser Institute
By Philip Cross
The Bank of Canada recently cut interest rates again, with further cuts likely in response to Donald Trump’s threat to impose tariffs on Canadian exports. This continues the Bank’s reflexive turn to lower interest rates to goose growth every time the economy slows that began during the 2008 global financial crisis and reached its apex during the outbreak of the Covid pandemic when rates essentially hit their zero lower bound.
It’s time policymakers in Ottawa stop relying on easy money policies in response to every hiccup in economic growth. Lower interest rates have introduced major distortions into Canada’s economy. They have fueled excessive debt levels in all sectors of the economy, helped to create a housing bubble that will depress growth when it bursts, undermined our consensus on the usefulness of immigration when excessive demand raised the cost of shelter, and led youths to lose hope of achieving the dream of owning a home. Housing’s unsustainably large share of our economy helps undermine our potential productivity, the lack of which Bank of Canada Deputy Governor Carolyn Rogers last year called a “break the glass” emergency. However, the Bank’s own easy money policies spurs the shift of more resources to housing and encourage governments to ignore taking actions that would boost business investment and exports, the two sectors needed to improve our long-term productivity and competitiveness.
There are policy alternatives to just mechanically lowering interest rates and juicing housing demand. The silver lining in Trump’s tariff threats is they drive home to Canadians the twin follies of not diversifying our energy exports from the U.S. market and not lowering internal barriers to trade among our provinces. We witlessly ignored opportunities to move on both fronts for nearly a decade after Trump fired his opening salvo in the trade war with punitive tariffs on our aluminum and steel industries in 2017.
Energy, our leading export, depends on the U.S. market for 93 per cent of its export earnings. Canada has wasted numerous opportunities over the past decade to open overseas markets for oil and gas. The Trudeau government cancelled the Northern Gateway pipeline that would have sent Alberta crude to Asia. The proposed Energy East pipeline to send oil to New Brunswick and ultimately Europe floundered after the federal government complicated the approval process. Multiple proposals for LNG projects were rejected, although the Quebec government is reconsidering its opposition to ship natural gas from an LNG terminal in Saguenay to Europe. Quebec is not reflexively against pipelines: its former Premier Jean Charest boasts how his government oversaw one connecting crude oil imports landing at Levis to refineries in Montreal by clearly outlining the benefits to Quebecers. Restricting our oil and gas exports to the U.S. has depressed their prices, costing Canada tens of billions of dollars of lost revenue and betraying our European allies when they desperately needed alternatives to Russian natural gas supplies following its attack on Ukraine.
Meanwhile, the federal government displayed little leadership in trying to get the provinces to reduce the thicket of regulations and restrictions that impair trade within Canada. The 2017 Canada Free Trade Agreement provided a road map to potentially lower internal trade barriers, but most provinces have been reluctant to tread that path. It is the height of hypocrisy for Canadians to complain about Trump’s threatened tariffs when we tolerate internal trade barriers that are every bit as important and costly to our economy. Statistics Canada, for example, found that trade within Canada moves as if there were a 7 per cent tariff on goods moving between provinces, while trade within the U.S. flows as if there was no effective tariff.
The shock and outrage Canadians are expressing about Trump’s pending 25 per cent tariff on most exports can be channeled to our benefit. Achieving that will require governments to stop our dangerous over-reliance on low interest rates to stimulate housing. Instead, the focus should be improving our access to markets outside the U.S., which are clearly viable and profitable for goods such as oil and gas. Furthermore, if we truly believe our own rhetoric about the benefits of trade, we need to take concrete steps to liberalize trade within Canada.
Philip Cross
MxM News
Quick Hit:
Elon Musk announced he will consult with President Donald Trump on a proposal to issue tax refund checks to Americans using savings from the Department of Government Efficiency (DOGE). The idea, originally suggested by Azoria CEO James Fishback, would involve distributing a portion of the funds DOGE claims to have saved from government cost-cutting measures. While Musk aims to reduce federal spending by $2 trillion, questions remain about the actual savings achieved by DOGE.
Key Details:
- Musk responded on X that he would “check with the President” regarding the proposed tax refunds.
- The plan suggests using 20% of DOGE’s $2 trillion spending cut goal—roughly $400 billion—to provide up to $5,000 per household.
- Reports indicate that DOGE’s reported savings may be overstated, with Bloomberg and the New York Times pointing to discrepancies in the numbers.
Diving Deeper:
Elon Musk’s latest proposal to return taxpayer dollars through a “DOGE Dividend” has sparked discussion on federal spending and fiscal responsibility. The initiative, first floated by James Fishback, argues that savings uncovered by DOGE’s cost-cutting efforts should be refunded to taxpayers. Fishback compared it to a private sector refund when a company fails to deliver on its promises.
Musk, who leads DOGE’s advisory group, has set an ambitious goal of cutting $2 trillion from the federal government’s $6.75 trillion budget. Under Fishback’s model, 20% of those savings—$400 billion—could be distributed among American households, potentially yielding checks of around $5,000 per family.
However, skepticism surrounds DOGE’s actual savings. Bloomberg reported that only $16.6 billion of the $55 billion in savings claimed by DOGE is accounted for on its website. The New York Times revealed a miscalculation in which DOGE erroneously reported an $8 billion saving on a federal contract that was actually $8 million.
Despite legal challenges against DOGE’s authority, a federal judge recently denied an injunction that sought to block the agency’s access to federal databases or its ability to recommend government employee firings.
The concept of direct payments from the federal government has precedent. During the COVID-19 pandemic, the Trump administration issued stimulus checks to Americans, with Trump’s signature appearing on IRS payments for the first time in history. Whether the current proposal will gain traction under Trump’s leadership remains to be seen.
Musk’s willingness to discuss the idea with President Trump signals that the proposal may be seriously considered, though practical and political hurdles remain.
The Canadian Taxpayers Federation is criticizing Prime Minister Justin Trudeau for borrowing billions more for high-speed rail between Toronto and Quebec City.
“Trudeau is only prime minister for another couple of weeks so he shouldn’t be borrowing billions more for a new taxpayer boondoggle,” said Franco Terrazzano, CTF Federal Director. “Somebody needs to take the credit card away from the lame duck prime minister before he puts Canada further into debt.”
The Trudeau government announced a high-speed rail line between Toronto and Quebec City.
“The co-development phase of the project represents $3.9 billion over six years,” according to the government’s news release. “This is in addition to the $371.8 million that was provided in Budget 2024.”
The government estimated a railway line between Toronto and Quebec City would cost up to $12 billion in 2021.
The federal government ran a $62-billion deficit last year. That’s $20 billion higher than its promised fiscal guardrail.
The Trudeau government doubled the debt in less than a decade. Interest charges on the debt are costing taxpayers $54 billion this year. For context, the government is wasting more money on debt interest charges than it sends to the provinces in health-care transfers.
The government already owns a railway company, VIA Rail. The government gave VIA Rail $1.8 billion over the last five years to cover its operating losses, according to the Crown corporation’s annual report.
“The government is running huge deficits and spending hundreds of millions of dollars bailing out its current train company, the last thing taxpayers need is to pay higher debt interest charges for Trudeau’s new train boondoggle,” Terrazzano said. “The government is broke, Canadians can’t afford higher taxes and Trudeau shouldn’t be borrowing billions more while he’s walking out the door.”
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