Oh no, Canada
After Justin Trudeau, Canada faces a reckoning
On Monday, December 16, 2024, Canadian Finance Minister and Deputy Prime Minister Chrystia Freeland resigned from the Cabinet. Despite being fired by Prime Minister Justin Trudeau the previous Friday, she’d been scheduled to deliver the Government’s Fall Economic Statement that afternoon. She walked instead, sending shockwaves through Ottawa and the country.
Freeland had been one of Trudeau’s staunchest political allies. Their split was ostensibly about how to manage the incoming Trump administration, and the possibility of 25% tariffs coming from Canada’s biggest trading partner. But Freeland’s resignation also underscored something else - Canadians profoundly feel like their country is on the wrong track. A June 2023 IPSOS poll found that just 38% of Canadians feel like the country is moving in the right direction. While the next federal election isn’t due for another ten months, it’s looking increasingly unlikely Trudeau and his government will make it that long.
If the election were held today, based on current CBC polling, the Liberals wouldn’t just lose, they could conceivably place fourth, coming in behind the Conservatives, the Quebec-only Bloc Quebecois (BQ), and the New Democratic Party (NDP). While Canadians think their country is on the wrong track and blame Justin Trudeau and the Liberals, the truth is that Canada started drifting long before Trudeau and the Liberals came to power in 2015.
Stuck in second gear
In 1980, whether you lived north or south of the border, life looked a lot alike. That year, Canada's per capita GDP was $11,208, about 89% of the U.S.’s $12,575.
Fast forward forty years and it’s a very different picture. In that time, U.S. per capita GDP grew a whopping 558%, to $82,715. Canada’s, by comparison, grew just 378%, to $53,607. This puts Canada’s average income in the lower tier of U.S. states, about on par with Arkansas and Alabama. The income gap is now wider than at any point in the last 40 years (see graph).
Canada’s growth over the past decade has been lackluster, even controlling for the COVID-19 pandemic and recovery. In the ten years that Trudeau has been in power, the economy grew just over 17%. In the same time frame, the U.S. economy expanded by more than a quarter. This languid pace means that the economy is not growing fast enough to keep pace with population growth, compounding Canada’s already poor productivity. In addition to being poorer, Canadians are also more likely to be unemployed. In August 2024, the U.S. unemployment rate stood at 4.2%. North of the border, it’s one-third higher, at 6.6% (the U.S. last saw unemployment above 6% in May 2021). Before 1980, unemployment rates in both countries tended to be about equal. After 1980, unemployment rates in Canada diverged sharply from the U.S. (by about 2%) and have largely stayed that way ever since (an exception is five years around the Great Recession).
Canada isn’t just slow growing, it’s getting crowded too. Canada has always welcomed large numbers of immigrants, but since 2015 their numbers have ballooned. Throughout the 1990s and early 2000s, the country welcomed 250-300,000 immigrants annually. By 2023, that number increased to more than 400,000. By 2021, out of a population of just 40 million people, some 8.3 million people were foreign-born. That is the largest percentage of foreign-born residents since Confederation in 1867. This influx has put a particular strain on two things that affect people daily: healthcare and housing.
Forget the house, and don’t get sick
In 2000, a house shopper in Vancouver could expect to pay $218,240 for a house. Across the country in Toronto, the typical home was a slightly spendier $243,255. That was roughly 10x Canada’s per capita income at the time. Canadians who believed they felt the pain then have nothing on Canadians shopping for a home today.
Fast forward 25 years, and that house in Vancouver will set you back $1.295M. It’s not any better in Toronto, where $1.2M is needed to buy the average home. That’s about 24x the average Canadian’s income.
There is no one reason for Canada’s housing crisis, but high immigration and bad policy are two main culprits. In 2023 alone, Canada admitted 1.4 million permanent and temporary residents. To house them, it built just 240,000 units— an 8% decline from 2022. Vancouver and Toronto were bright spots— housing starts were up in those cities in 2023— but long planning and approval times throttle the housing market at a time when it needs to be humming.
Canada has also not kept pace in healthcare. In 1980, Canada had a plentiful 6.8 hospital beds per 1,000 people. By 2020, this had plummeted to just 2.6/1,000— a number even below the U.S.’s 2.75/1,000. While some of this decline is attributable to better outpatient procedures and non-surgical interventions, it’s undeniable that Canadian healthcare is in trouble. In 2023, the median wait time between a general practitioner’s referral and treatment was 27.7 weeks— the longest ever recorded and an increase of 198% since 1993. In Nova Scotia, the wait time — at 56 weeks— was over a year. In 2020, the city council in Brampton, ON— population 700,000— declared a healthcare emergency due to overcrowding at its only major hospital.
Canadians who can afford it increasingly look south. A 2024 IPSOS poll found that 42% of Canadians were willing to seek care in the U.S. and pay out of pocket.
Canada in foreign affairs: the long kiss goodnight
The Canadian fade to black isn’t just economic and social, it’s evident in military and foreign policy too.
The 21st century brings unprecedented sovereignty challenges to the True North. Russia and China are adversaries, and climate change will open the Arctic to geopolitical hijinks on a global scale. Russia is already an Arctic power, and China is keen to be one too. Canada’s response to these unprecedented challenges in its natural sphere of influence has been a collective shrug. Policymakers in Ottawa aren’t even making the pretense of preparations to meet these threats and fail to grasp the urgency of the moment.
In defense spending, Canada has never punched further below its weight. Its miniscule defense budget is an embarrassment. It has the lowest defense spending in NATO, barring four countries, two of which are barely big enough to have militaries. Only Slovenia, Spain, Luxembourg, and Belgium spend less, and none of these countries have vast claims in the Arctic or share a line of friction with Russia. While Canada regularly asserts its interests in the Arctic, it is wholly unable to defend them.
As a naval power, Canada is less capable than Australia, a country barely half its size. The Canadian Navy’s backbone is its fleet of 12 frigates, none of which can operate in the Arctic. As I write this article, just two of the 12 frigates are at sea. Its four Victoria-class submarines were bought surplus from the U.K. and are between thirty and forty years old. Like the frigates, they also cannot operate in Arctic ice. Australia, meanwhile, is about to build a next-generation fleet of nuclear submarines under the AUKUS agreement.
If you came of age in the 1990s, you probably remember Canada as a staunch supporter of the UN and human rights. From Somalia to Bosnia-Herzegovina, Canadian peacekeepers helped enforce the peace. No more. Today, there are just 59 Canadian soldiers on UN duty, down from a high of 3,825 personnel in 1992. It’s a dramatic climb down for a country that once prided itself on sticking up for its values abroad. For a country that under-values its NATO commitment, no longer values an international one, and is seemingly nonchalant about the threats to its sovereignty, under-resourcing the military seems obvious. What’s the point?
“The world needs more Canada”
Canada is a great nation. It is the world’s tenth-largest economy, rich, diverse, tolerant, welcoming to newcomers, and highly educated. It’s one of the few places on earth people are clamoring to move to, not away from. It cherishes democratic freedoms and is a sensible blend of European social democracy and U.S. unregulated free market capitalism. But the current sourness that Canadians feel about their government is well-founded. All political parties have contributed to Canada’s 21st-century slide.
Canada needs to prioritize growth—and fast. A widening income gap with the U.S. isn’t good for either country. Many Americans would like to live and work in Canada, and vice versa. Canada should lobby the incoming Trump administration for the free movement of people and capital as part of any new trade deal. For economies as integrated as the U.S. and Canada, any agreement should be about removing barriers to growth, not raising them. Preventing any new tariffs should be priority #1. Canada also needs to jumpstart technology innovation and get serious about diversifying the economy away from an over-reliance on natural resources. This reliance, and swings in commodity prices, are one reason growth has been so sluggish.
Immigration is, in itself, a secular good for the economy. Immigrants are entrepreneurial and additive to any economy. But no economy can absorb newcomers on the scale that Canada has seen over the past decade. The government awoke to this reality this year when it pumped the brakes. In October 2024 the government announced a reduction in immigration targets to below 400,000 new immigrants per year.
Internationally, Canada consistently punches far below its weight in military and foreign affairs. If it wants to be relevant in a multi-polar world, it must take its NATO commitments seriously and meet the 2% defense spending floor now, not in 2032 as Trudeau has committed. It also must take the threat in the Arctic as existential, and develop warfighting capabilities that can operate in the high north. As a Pacific power, Canada needs to prioritize modernizing and expanding its navy to meet the looming threat from China. The Navy wants 12 new submarines and 15 new frigates. Even that is unlikely to be enough.
These changes will take will and political resolve and involve telling Canadians hard truths (e.g., yes they need to spend a lot more on defense, no they are unlikely to see lower taxes). Their economy is in second gear and risks falling behind Europe in income and productivity, not to mention the United States. The Trudeau Government has belatedly started making tough decisions. It will likely be up to someone else to keep going.
IMHO, the destabilization of the US/CN relationship is ab economic opportunity that COULD result in a stronger and more independent CN. But someone needs to lean in to the Fight with Trump and stand up.