Freeland, Trudeau disagreement over response to Trump tariffs led to relationship rupture

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Disagreement over how to respond to Donald Trump’s threat of steep tariffs on Canadian goods appears to have led to the rupture of the relationship between former deputy prime minister Chrystia Freeland and Prime Minister Justin Trudeau.

Ms. Freeland, who quarterbacked Canada’s talks with Mr. Trump as foreign affairs minister during his first term in office, thought Canada should hold off big fiscal spending measures in the short term so Ottawa had the financial means to respond to the economic shock a new round of American tariffs could bring.

Mr. Trudeau, meanwhile, was forging ahead with a series of big-spending measures meant to placate Canadians angry at the rise of consumer prices in recent years.

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The dispute followed Canadian discord over its negotiating strategy with Mr. Trump, including two different groups within the Trudeau government that were both supposed to be handling Canada-U.S. relations simultaneously.

This disconnect, described for The Globe and Mail by one Canadian government official and three industry sources on both sides of the border, reached its crescendo with Ms. Freeland’s dramatic exit on Monday.

The Globe agreed not to identify the sources who were not authorized to describe closed-door discussions.

In her resignation letter, Ms. Freeland accused Mr. Trudeau of favouring “costly political gimmicks” and said the country should instead keep its “fiscal powder dry” ahead of the looming 25-per-cent tariffs on all Canadian goods Mr. Trump has promised when he takes office on Jan. 20.

Ms. Freeland had a different outlook from Mr. Trudeau on both how dire a risk the Trump tariff threat represents and what would be required, said the government source. Ms. Freeland considers it to be serious and believes the prospect of these tariffs should be influencing a lot of decisions across government right now, the source said.

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For that reason, the official said, Ms. Freeland was against the government’s plan to send $250 cheques to most working Canadians by April. Such money could be needed later to prop up the Canadian economy in the event of massive business losses, job cuts and reductions in goods and services tax revenue that Mr. Trump’s tariffs would likely entail.

Last Friday, the source said, Mr. Trudeau told Ms. Freeland he wanted her out of the Finance Ministry and instead offered her a cabinet post on Canada-U.S. relations but with no ministries attached. This meant she would not have the powers that the departments of Global Affairs or Finance possess over tariffs and tariff policy, or to manage Canada’s diplomatic network in the United States.

Ms. Freeland also disagreed with some others in the federal government over negotiating strategy with Mr. Trump, said one Canadian and one U.S. industry source. She advocated for holding off on making concessions in the near term out of fear it would simply trigger more demands from Mr. Trump, while others said Ottawa should try to mollify the president-elect before he takes office in hopes of encouraging him not to put his tariffs in place.

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Another Canadian industry source said there were two power centres on Canada-U.S. relations within the government: Ms. Freeland was presenting herself as the person who knew how to deal with the Trump administration even as a separate Team Canada push was being led by Industry Minister François-Philippe Champagne, ambassador to the U.S. Kirsten Hillman and Trade Minister Mary Ng. The situation made it difficult for industry to know who they were supposed to be dealing with, the source said.

Daniel Ujczo, an Ohio trade lawyer and honorary Canadian consul, said the message from both the federal and provincial governments has been unclear: Is Canada, for instance, seeking exemptions from Mr. Trump’s tariff policies or threatening to cut off oil and critical-minerals exports to the U.S.?

“It has not been helpful for the business community to have these mixed messages at all levels of government in Canada. It has been confusing,” said Mr. Ujczo, of the firm Thompson Hine. “We’ll be able to advance the puck if there’s better communication and co-ordination over the next few weeks.”

Laura Dawson, executive director of the Border Futures Coalition, a group working to eliminate trade barriers at the Canada-U.S. border, said Ms. Freeland was skilled at understanding the policy details of the trade talks that led to the U.S.-Mexico-Canada Agreement (USMCA). But such detail work may not matter in the current, heated political atmosphere.

“She was an extremely capable minister,” Ms. Dawson said. “But at this point, there isn’t really much room for an intellectual contest. It’s a public-relations contest between Canada and the U.S.”

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Louise Blais, Canada’s deputy representative to the United Nations during most of the previous Trump administration, credited Ms. Freeland with being “an effective chief negotiator,” but at the expense of burning through her political capital in the U.S.

“She was the bad cop, that was her job. It was in order to get to the result that we got. But I think it came at a price in terms of relationships,” Ms. Blais said. “Her coming back and being the interlocutor for a second mandate was probably not very self-aware.”

Ms. Freeland leaving in itself won’t affect the Canadian government’s negotiating power in the U.S., Ms. Blais said. The dramatic exit, however, could matter by projecting disunity.

“The importance won’t necessarily be the fact that she is personally gone. The way in which she left government will be the focus, the fact that the government is not united, is not going to be operating in a position of strength,” Ms. Blais said.

Jared Kushner, Mr. Trump’s son-in-law who played a key role in USMCA negotiations, made plain his dislike for Ms. Freeland in his memoir. He wrote that Canada’s refusal to concede anything until the end of negotiations was “increasingly frustrating” and mocked Ms. Freeland for speaking with reporters outside the talks “uttering platitudes like, ‘I get paid in Canadian dollars, not U.S. dollars.’ ”

Mr. Trudeau’s reluctance to have Ms. Freeland reprise her role contributed to the final rupture between them, the Canadian official said. The Dec. 13 offer of a Canada-U.S. relations role without control over a government department made her feel she was being marginalized because she would not have the ability to marshal a government response to the tariffs.

It appeared that Mr. Trudeau wanted to take prime responsibility for managing the U.S. relationship, the source said, and not share it with Ms. Freeland as he did in 2017 at the start of the past Trump administration.

Mr. Trump has shown no signs of backing off his Nov. 25 announcement of 25-per-cent tariffs on all Canadian and Mexican imports unless both countries stop illegal migration and smuggling of the opioid fentanyl into U.S. territory.