A little over two years ago, in the Speech from the Throne following the prorogation of Parliament in August 2020, the Trudeau government declared that it could count on low interest rates for “decades to come”. Obviously, this assertion was somewhat presumptuous. With inflation hovering around 7% in Canada, we cannot predict how far the Bank of Canada will push its key interest rate hike or how long it will maintain its grip by applying a restrictive monetary policy.
In her latest economic statement, Finance Minister Chrystia Freeland predicts that the country will enter a period of anemic growth, which is consistent with the scenario put forward by Bank of Canada Governor Tiff Macklem when he proceeded to a 50 basis point hike in the key rate last week. This is the scenario that will prevail if all goes well. For good measure, the Minister made a point of presenting a pessimistic scenario that points to more persistent inflation, more prolonged monetary tightening and a “mild” recession. In fact, the portrait of Canadian public finances and the Canadian economy is nonetheless reassuring in the circumstances.
It is fortunate that the Minister of Finance has not given in to the temptation to announce new initiatives that are costly in the short term, necessarily inflationary, against the current of the action of the central bank. The economic statement sticks to the elements contained in the last budget, which means that it is relatively neutral with respect to monetary policy. In the wake of the last budget, Chrystia Freeland praised her government’s “robust industrial policy”. This policy, focused on the transition to carbon neutrality, includes new tax credits for “clean” technologies and the production of green hydrogen. We will have to see what that really means for a country that remains oil-producing. As reported The duty, this aid will not be used to finance the construction of hydroelectric dams, as envisaged by the Legault government. It will be made available for small hydro, but also for small modular nuclear reactors, included in the “clean” category.
In her foreword, Chrystia Freeland spoke about the resources the country has, including potash and critical minerals and metals, and the food it produces for the planet. “And what is essential is that Canada is the democracy that has all these resources in abundance. The Minister of Finance reconsidered the new policy she announced regarding foreign affairs and international trade. “The global economy is at an important turning point,” she argued. It is entering “an era of shifting production to allied countries—a time when our democratic partners and their most important companies seek to move from dictatorships to dependent democracies.”
This is why the Biden government has abandoned its “Buy America” policy on critical materials and electric vehicles in favor of the purchase of North American products, argued Chrystia Freeland, which has allowed the signing in Canada of agreements with world-class car manufacturers and battery manufacturers.
“Our allies are counting on us,” she continued. It’s funny, but we learn more about Canada’s foreign policy from Chrystia Freeland than from Prime Minister Justin Trudeau or Foreign Minister Mélanie Joly.
In our pages, Jocelyn Coulon, researcher at the Center for International Studies and Research at the University of Montreal (CERIUM) and a former To have to, warned against the “idealized but dangerous world” of Chrystia Freeland, a world in which Western democracies would cut ties with authoritarian regimes such as Russia and China without knowing what relations they would have to maintain with countries which, without being dictatorships strictly speaking, are certainly not democratic models, like Turkey and Hungary. Several experts call on the West to give up changing the behavior of states and not erect new walls.
This change in foreign policy implies a profound reconfiguration of international trade. And since it is a question of inflation, there is reason to wonder what effect this grouping of developed and democratic countries in a watertight economic bloc would have on the standard of living of the populations. The question arises when we know to what extent the West benefits from the cheap labor of countries subject to authoritarian regimes, starting with the Chinese giant.