History won’t remember Justin Trudeau as an economic saviour, but he isn’t to blame for all of Canada's economic ills.Adrian Wyld/The Canadian Press
Things started to go very wrong for the Canadian economy around the same time the Justin Trudeau era began.
When you scan the economic data, 2015 emerges as a pivotal moment. It was roughly then that the nation’s fortunes took a nasty turn across a range of indicators from business investment to economic output per capita.
It makes for an easy story: Mr. Trudeau broke the Canadian economy. He came into office promising to remake the economy “from the heart outwards,” and instead orchestrated a lost decade for investment in Canada.
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If it were so simple, unleashing Canadian potential would be a matter of removing the barriers to growth. Cut the red tape and get capital flowing.
“Canada is emerging from an unprecedented capital recession,” said a Royal Bank of Canada report that caused a bit of a stir a couple of weeks ago. “The renewed interest comes after a decade of weak business investment, stalling productivity and stagnating living standards.”
The reality is much more complex. The current narrative glosses over two major shocks that hit the country around the same time Mr. Trudeau was first elected prime minister – the oil price crash that began in 2014, and the breakdown of the U.S. trade relationship starting in 2017.
Macro forces are as much to blame as bad policy. Fixating instead on Mr. Trudeau as the economic Antichrist distracts from what needs to be done to course-correct.
The energy industry is perhaps the best example of the disconnect. In much of oil country, Mr. Trudeau’s climate agenda is seen as single-handedly ruinous to energy development.
While it’s true that investment capital for oil and gas projects dried up over the past decade, this was not just a Canadian story. The same thing happened on a global scale.
The world was awash in oil in 2014, first from explosive growth in U.S. fracking, then from the Organization of Petroleum Exporting Countries deciding it would no longer be the world’s swing producer. Instead, OPEC opened its taps to defend its market share against U.S. shale oil.
Oil prices fell for nearly two years afterward, taking the U.S. crude oil benchmark from a peak of US$110 a barrel to as low as US$26.
Up to that point, the Alberta oil sands were booming. Over two decades, enough capital flowed in to establish an unconventional oil industry comparable in size to the entire Canadian manufacturing sector.
“The Canadian investment numbers before 2014 were boosted by this huge run-up in investment in oil and gas,” said Stephen Gordon, an economics professor at Laval University.
When the oil market turned, the investment boom ended almost overnight. Oil sands investment dropped by more than 70 per cent over the next five years. So large was the industry by this point, its capital recession dragged down business investment levels on a national scale.
“You can’t really blame Trudeau for that,” Mr. Gordon said.
Nor can we let him off the hook entirely. New regulations hopelessly bogged down the approval process for major projects. Shifting policy signals deterred investors. And the layering of climate policies, such as an emissions cap for the oil and gas sector on top of the carbon tax, further muddied the waters.
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All of which is in the process of being undone. But it’s hard to imagine turning Canada into an “energy superpower” will be quite so simple. Will the industry be willing to risk obscene amounts of money on new pipelines that could just get bogged down in court challenges? None are yet on board.
Plus, investment fled the sector for reasons that go well beyond policy friction. The economics of the industry shifted permanently a decade ago.
As did Canada’s relationship with the United States – the second tectonic shift that coincided with Mr. Trudeau’s tenure.
Donald Trump fundamentally changed North American geopolitics during his first term, when he first threatened to cut Canada out of the continental trade pact, and later imposed tariffs on Canadian steel and aluminum on national-security grounds.
Here, too, we can see the shock waves ripple through the Canadian economy. Since 2016, employment growth in Canadian industries that cater to U.S. consumers has flatlined – just 2.8 per cent, compared with close to 20-per-cent job growth across all other industries.
“That really speaks to the uncertainty around Canada’s trading relationship that led to a drop in activity, a drop in investment, a drop in hiring,” said Trevor Tombe, an economics professor at the University of Calgary.
We can’t really lay that on Mr. Trudeau’s shoulders, either. While business investment suffered mightily on his watch, forces beyond his control were mostly to blame. “My view is that most of the investment weakness came from external factors, like commodity prices and trade uncertainty,” Prof. Tombe said.
History won’t remember Mr. Trudeau as an economic saviour, but he isn’t to blame for all the economic ills of the nation. And undoing his legacy won’t make them go away.