Canada Minute: Issue 26

Canada Minute - Your weekly one-minute summary of Canadian politics.

📅 This Week In Canada: 📅

• Late last night, Canada abruptly scrapped its Digital Services Tax, just hours before it was set to take effect, in an effort to revive stalled trade negotiations with the United States. The tax had been met with strong opposition from President Trump, who had abruptly halted trade negotiations with Canada because of it, but also from many Canadian commentators across the political spectrum. The DST would have imposed an additional 3% levy on major US tech companies like Google and Amazon, retroactively billing them an estimated USD $2 billion. Trump called the tax a “blatant attack” on the US and warned of possible blanket tariffs on Canadian goods in retaliation.
  
  
• Canada and the European Union have signed a new security and defence partnership, deepening transatlantic cooperation and laying the groundwork for Canada’s participation in Europe’s massive ReArm defence procurement initiative. Prime Minister Mark Carney said the deal reflects a shift toward building alliances with “reliable partners” and supports a broader vision of economic and military cooperation beyond just trade tariffs. The agreement includes annual security dialogues, enhanced military mobility in Europe, and expanded collaboration in cybersecurity, disinformation, space policy, and maritime operations. Carney framed the partnership as part of a strategic move to reduce reliance on the US for both defence and trade. European leaders welcomed Canada as a trusted ally and suggested the country will be eligible for joint procurement contracts, pending a second agreement.
  
  
• Prime Minister Mark Carney also announced that Canada and other NATO allies have agreed to increase their defence spending target to 5% of GDP by 2035, a significant jump from the current 2% goal. The new target includes 3.5% for core defence capabilities and 1.5% for related areas like infrastructure and cybersecurity. Carney emphasized that Canada can no longer rely on geography for protection and must adapt to evolving global threats. The proposed increase would raise Canada’s annual defence budget to around $150 billion, with a progress review set for 2029. While countries like Britain, France, and Germany support the new goal, others such as Spain and Slovakia have expressed concern. The agreement is largely seen as a response to US pressure, particularly from President Trump, who has pushed allies to contribute more. Carney suggested Canada will fund the increased spending partly through critical mineral development in partnership with allies. NATO Secretary-General Mark Rutte praised the shift as necessary to strengthen collective security and reduce reliance on the US.
  
  
• The Conservatives are demanding a parliamentary hearing into a $1-billion loan from the Canada Infrastructure Bank (CIB) to BC Ferries for the purchase of four vessels from a Chinese state-owned shipyard. Conservative MP Dan Albas wants Transport Minister Chrystia Freeland and CIB CEO Ehren Cory to explain the loan, particularly given Freeland’s prior criticisms of the deal. Freeland had claimed no federal money would support the Chinese-built ferries and later expressed disappointment in BC’s decision. The controversy has intensified political tensions, with BC Premier David Eby criticizing federal interference and pointing out East Coast ferry services receive significantly more federal support. BC Ferries defended the purchase, saying no Canadian shipyards bid on the project under the cost-focused terms. Critics argue the deal undermines domestic industry and contradicts Prime Minister Carney’s promises to support Canadian manufacturing.
  
  
• Canada's steel producers are warning the federal government that its current tariff protection measures are inadequate and could lead to mass layoffs. In a recent meeting with Finance Ministry officials, industry leaders argued that the new measures fail to address steel dumping from Europe and Asia, which is undermining domestic competitiveness. The Canadian Steel Producers Association reported that over 1,000 jobs have already been lost and more cuts may follow. The government defended its actions as strategic and promised flexibility depending on how trade negotiations with the US progress. Prime Minister Mark Carney has threatened counter-tariffs on US metals if a deal isn’t reached by July 21st. 
  
  
• Canada’s economy shrank by 0.1% in April, with an advance estimate showing a similar decline in May, signalling a slowdown in the second quarter. The steepest drop came from the manufacturing sector, which fell 1.9%, its largest monthly decline since 2021, largely due to trade uncertainty caused by US auto tariffs. Wholesale trade also declined, particularly in auto-related sectors. Although there was strong investment activity and a surge in stock market trading in April, driven by tariff concerns, it wasn’t enough to offset broader weakness. The Bank of Canada warned earlier that the economic impact of tariffs would intensify in the second quarter. Despite some speculation about a technical recession, experts like BMO’s Douglas Porter believe any GDP declines are likely to be shallow. Public sector activity and the NHL playoffs also contributed to growth in some areas. The central bank is expected to respond with further interest rate cuts, with its next announcement scheduled for July 30th.

🚨 This Week’s Action Item: 🚨