Good morning. A dizzying day of threats, policy changes and name-calling between Canada and the United States (they started it) is likely what we can expect over the next four years. Today, we aim to peer beyond the ever-evolving headlines for a view into how businesses and policy-makers can safeguard the country against outside shocks.
In the news
Investment: Ottawa is changing its foreign-investment rules to guard against “predatory” acquisitions amid the tariff battle. (See: The next bullet point.)
Looking for buyers: Canadian gas-station giant Parkland Corp. is putting itself up for sale.
Economy: Germany is set to scrap the debt brake that helped to turn the country into an economic zombie. Trump gave Berlin no choice, Eric Reguly writes.
Tariff tracker
- U.S. President Donald Trump is granting automobiles assembled in Canada or Mexico a 30-day reprieve from the steep tariffs he imposed on both countries this week.
- Linamar Corp. executive chair Linda Hasenfratz said in an earnings call last night that the North American auto industry needs a permanent reprieve from U.S. tariffs to avoid a shutdown. In Windsor, auto workers are feeling whiplashed as Trump flip-flops on tariffs. In the Motor City, the mood is more: Meh.
- Homeowners are facing a risk of higher insurance premiums as tariffs put pressure on building material costs.
- The parent of Jack Daniel’s said that Canadian provinces taking American liquor off store shelves is “worse than a tariff” and a “disproportionate response” to levies imposed by the Trump administration. There’s a very relevant but very boring country song here somewhere.
Modest mouse innovations
A genetically engineered 'woolly mouse' features mammoth-like traits, including longer, shaggier fur and curly whiskers. Scientists at Colossal Biosciences say it’s a key step in their broader effort to recreate the woolly mammoth’s cold-weather adaptations using gene editing techniques. Ethics aside, I would rather encounter these in my basement than our much less furry visitors.The Associated Press
In focus
Working through the shock
Amid a flurry of headlines about tariffs, Canada’s labour productivity struggles might have slipped out of the spotlight.
Still, a report from Statistics Canada yesterday highlights why economists have called the country’s productivity gap a crisis – and perhaps one of the economy’s most vital lifelines.
Canada’s labour productivity edged up in the fourth quarter of 2024, marking its first increase in a year. While the 0.8-per-cent growth might seem like good news, economists are cautioning that the broader picture remains bleak, particularly compared with the United States.
These labour productivity challenges are made even more acute by the whipsaw of U.S. trade policy, which threatens to undermine confidence, stall business investment, and amplify Canada’s vulnerability to external economic shocks.
The Trump administration seems to be employing uncertainty as a trade strategy. By that measure, it seems to be working: Canadian banks warned yesterday of looming layoffs and stalled expansions; the NHL commissioner said the sinking loonie would be “painful” to the league; B.C. lumber producers are reaching for safety but running into red tape; and concerns are growing that the country’s EV sector will be sapped of energy even if the levies are short lived.
Whatever its goal, the whirlwind of the last few days underscores just how sensitive Canada is to the whims of the White House – making the work of addressing underlying domestic challenges such as flatlining productivity all the more urgent, economists say.
An economy at risk
Shelly Kaushik, senior economist at BMO, said Canada’s productivity gap with the U.S. could worsen as trade tensions mount. But improving productivity could also be one of the country’s best tools to protect its economy over the medium and long term, she said – providing a buffer against trade uncertainties and helping to drive sustainable growth.
“Both the tariffs and the broad uncertainty are weighing on economic activity and could put Canada at risk of a recession,” Kaushik wrote in an e-mail. “Given that backdrop, it’s important to note that productivity growth can support broader economic growth and allows incomes to rise without pressuring inflation.
“That last part is particularly crucial since tariffs also raise inflation risks.”
The Canadian and U.S. flags pictured this week in front of a bridge. Wither that bridge?Getty Images
Corporate Canada has been slow to invest in new technologies and has done a poor job of retaining skilled workers or spending on the right tools and training to boost output. U.S. businesses, meanwhile, have ramped up investments in artificial intelligence and other technologies, further widening the productivity gap with Canada.
Market watchers have been sounding the alarm about Canada’s productivity struggles for years. They’ve been doing this for so long, in fact, that they worry policy-makers are at risk of tuning out. (I have the same worry about the number of times I’ve typed “tariff” in the past five months.)
I asked Kaushik how she overcomes this hurdle with productivity: “What I usually do is point to the divergence in U.S. and Canada growth outcomes coming out of the pandemic – a big reason why the U.S. has outperformed while bringing inflation down from recent highs is its decent run of productivity growth.”
That’s a message that risks falling off politicians’ radars in the coming federal election, which will be fought over who can best stand up to Trump and protect Canada’s economy.
“Continuing to ignore productivity growth risks keeping Canada on track for underperformance, which is something the economy can ill afford in a tariff world,” Kaushik said.
💡 Recommended reading: You cannot possibly process every piece of data related to your finances in a trade war, Rob Carrick writes, so forget about even trying. Instead, try taking a periodic look at these five essential numbers.
Charted
Stocks since Trump’s inauguration
A historic global trade war, a proposed $1.2-trillion European fiscal bazooka and the emergence of China as tech-race leader are upending global flows of money, marking a potential turning point for investor capital away from the U.S.
Bookmarked
On our reading list
On the bookshelf: The Canadian publishing sector is pinning its hopes on a tariff exemption.
From the vineyard: Whether they aim to inspire trust or thirst, wine labels influence by design.
In court: Ontario’s securities watchdog alleges a Torontonian misappropriated at least $70-million of $500-million raised from investors for film and TV projects, in part by making loans to a real-estate developer.
Morning update
Global markets were mixed with sentiment turning lower as investors asses trade war winds and ahead of the European Central Bank decision on interest rates. Wall Street futures were in negative territory after markets rallied yesterday on the auto tariffs pause. TSX futures followed sentiment lower.
Overseas, the pan-European STOXX 600 was down 0.46 in morning trading. Britain’s FTSE 100 slid 0.93 per cent, Germany’s DAX gained 0.51 per cent and France’s CAC 40 gave back 0.47 per cent.
In Asia, Japan’s Nikkei closed 0.77 per cent higher, while Hong Kong’s Hang Seng jumped 3.29 per cent on hints from Beijing of new policy support.
The Canadian dollar traded at 69.62 U.S. cents.