OTTAWA – Finance ministers from across the Canadian federation were gathered Tuesday in the national capital to explore a number of challenges weighing on their economies – with a particular focus on the intensifying trade dispute with the United States.
The twice-yearly gathering of finance chiefs began just days before Canada is set to impose retaliatory tariffs on U.S. products. The federal government’s move, a tit-for-tat response to the Trump administration’s stinging tariffs on steel and aluminum imports, will take effect Sunday.
READ MORE: Justin Trudeau heads to NATO summit on the heels of trade fallout with Donald Trump
The federal, provincial and territorial governments have maintained a common front in dealing with U.S. Donald Trump’s protectionist policies, which includes the difficult renegotiation of the North American Free Trade Agreement.
It’s important for Canada to stand its ground and to speak with one voice on the tariff dispute, said Manitoba Finance Minister Cameron Friesen. But when it comes to retaliatory measures, he’s urging the feds to proceed cautiously.
WATCH: Bill Morneau says Canada ‘stands behind’ businesses impacted by tariffs
“I think that if I had a message for the federal government today it would be look before you leap in terms of retaliatory measures,” Friesen said prior to the meeting.
“We must make sure we are not unduly exposing those in our own jurisdictions to risks.”
READ MORE: Hurry up and buy? How Trump’s auto tariffs could affect car prices in Canada
Quebec Finance Minister Carlos Leitao said he’s keen to discuss possible fiscal measures governments can introduce to support businesses affected by the U.S. tariffs and to reassure firms that Canada is a safe and profitable place to invest.
“The key issue in this possible trade war is investment decisions,” Leitao said. “Firms are delaying or postponing investment decisions.”
The finance ministers were also scheduled to hear a presentation from David MacNaughton, Ottawa’s envoy in Washington, about the current state of the Canada-U.S. relationship
For weeks, Canada and the U.S. have been engaged in an increasingly ugly trade fight that deteriorated into a highly unusual exchange of words between Trump and Prime Minister Justin Trudeau.
Trudeau has called the U.S. steel and aluminum tariffs “insulting” because they’ve been applied on a premise he rejects – that Canada poses a national security risk to the U.S.
Get weekly money news
The prime minister’s words earned him a personal rebuke from Trump and a pair of the president’s top advisers following the G7 summit in Quebec.
READ MORE: Trump threatens ‘reciprocity’ against U.S. trade partners who impose tariffs
There are concerns Trump could retaliate against Ottawa’s countermeasures. The president has repeatedly warned he could apply tariffs on autos – which some fear could be a much bigger danger for the Canadian economy.
The tariff dispute, along with the unknowns tied to the challenging NAFTA negotiations, have created significant uncertainty for Canadian businesses that, on its own, could have a painful economic impact.
The worry is that companies will choose to delay investments or simply make them elsewhere.
Ahead of Tuesday’s meeting, Morneau said the U.S.-Canada issues would be a central focus for the ministers.
“We’ll talk about the relationship between Canada and the United States – our current challenges around trade,” Morneau said.
The ministers were also scheduled to hear from Bank of Canada governor Stephen Poloz about the state of the economy. And to get a broader perspective, they will be joined at the meetings by chief financial officers from 10 leading Canadian organizations.
WATCH: Canada to retaliate in trade war with U.S
Morneau said the discussions would also focus on Canadian competitiveness. The country is facing still-unknown impacts connected to substantial U.S. corporate tax cuts earlier this year.
Business associations have warned the U.S. tax changes could end up hurting the Canadian economy more than would the possible termination of NAFTA. Many have urged Morneau to respond quickly by cutting Canada’s corporate tax rate.
READ MORE: Trump’s tariffs on Canadian lumber are pricing Americans out of the U.S. housing market
But before introducing any changes of his own, the federal finance minister has said he’s taking the time necessary to carefully assess the possible consequences of the U.S. reform for Canada.
There are many other issues expected to emerge during Tuesday’s talks.
Several provincial finance ministers said they would convey their concerns over the contentious formula behind Canada’s long-divisive equalization program.
Finance ministers from some so-called “have” provinces – those that don’t receive equalization payments, which are financed through federal tax revenue – said they would call for changes to the formula.
WATCH: Morneau says U.S. tariffs not helpful, defends Canada’s tariffs
Newfoundland and Labrador, Saskatchewan and Alberta all said they would push for an update to the calculation, even though Ottawa has already passed legislation that locks in the current formula for another five years.
The $19-billion program is based on a highly complex calculation and it’s designed to help poorer provincial governments provide public services that are reasonably comparable to those in other provinces.
On tax policy, Friesen and Saskatchewan’s Donna Harpauer have said they will press Morneau on a controversial change he first announced last year that’s related to passive investment income held by incorporated individuals.
Each province must choose whether to implement Morneau’s tax change. Friesen and Harpauer want to know how complicated it would be if they ultimately decided not to follow Ottawa’s lead.
The federal government has argued the tax change on passive investment income will only affect the top three per cent of the wealthiest incorporated individuals – but critics have warned it will unfairly pile on significant costs for small business owners.
Comments