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As Mark Carney settles into his new role as prime minister, analysts say his cabinet choices show a clear focus on steering the Canadian economy through the significant challenges poised by the trade war with the United States.
Even before US President Donald Trump launched his tariffs against Canada, the economy was fragile. Now, with a prolonged cross-border spat with the country’s largest trading partner threatening key industries like automobile manufacturing, the economy is on the verge of recession.
Carney’s crisis-era cabinet comprises experienced ministers in key economic areas, including finance, Canada-US relations, internal trade, and foreign affairs. Analysts see an emphasis on reviving the domestic economy while strengthening trade with countries other than the US. In addition, building on Carney’s background as a central banker, they see him being closely involved in economic decision-making.
“The cabinet he has implemented has been streamlined,” says Ben Jang, portfolio manager at Nicola Wealth, referring to how Carney trimmed the cabinet from 37 minsters under Justin Trudeau to 28. “It indicates his intent to closely oversee economic and trade policies,” Jang says. “His approach reflects a departure from traditional political delegation, emphasizing his personal involvement in steering Canada’s economic direction during this critical period.”
The Cabinet Reflects Fiscal Urgency
Carney has major ambitions for Canada’s economy, reflected in his selections, according to Jack Manley, global market strategist at JP Morgan Asset Management. His cabinet is made up of “industry veterans, relative newcomers, and individuals with direct relationships with their counterparts in the Trump administration,” he says.
Manley says near-term measures may include reducing interprovincial trade barriers and diversifying exports (especially energy) away from the US. He stresses that “trade talks and the economy are policy priorities for Carney and his new cabinet.”
As Canada seeks to bolster its economy amid sweeping US tariffs, calls to remove interprovincial trade barriers have been gaining momentum.
Making good on a campaign promise, Carney is also expected to make significant changes to immigration policy, “aimed at tightening the labor market and reducing strain on the housing supply,” Manley says.
Dustin Reid, chief fixed-income strategist at Mackenzie Investments, says one sign Carney is serious about kickstarting the economy is that he’s retained François-Philippe Champagne as finance minister. “He is getting someone who knows numerous federal government portfolios and how to conduct policy,” Reid says. However, he adds that the federal budget will play a larger role in driving growth and productivity than cabinet appointments. The Carney administration recently postponed the budget from spring to fall to allow time for broad consultations.
Confronting the US Trade War
Through various public statements, Carney has made it clear that resolving the US trade issue is a top priority. That’s reflected in his appointment of Dominic LeBlanc as minister of international trade and intergovernmental affairs. LeBlanc “has experience across Canadian governments negotiating with Trump policymakers, most notably US commerce czar Howard Lutnick,” says Manley.
In his victory speech, Carney declared that Canada’s old relationship with the US was over. “Coupled with post-swearing-in commentary about addressing significant domestic economic challenges, [this] suggests that trade talks and the economy are policy priorities for Carney and his new cabinet,” says Manley.
Known for his diplomatic acumen, LeBlanc’s appointment is seen as a strategic choice to navigate the complexities of US-Canada trade relations amid tensions with the Trump administration, notes Jang. “While Carney’s administration is prepared to confront US trade challenges, it also seeks to maintain diplomatic channels” he says. “LeBlanc’s rapport with US officials positions him as a key figure in balancing assertiveness with constructive dialogue.” Jang argues that this dual approach aims to protect Canadian interests while fostering a stable trade relationship with the US.
However, Manley cautions that a mutually aggregable trade deal may remain out of reach for some time. “If Carney does indeed run with a ‘wartime’ mandate, as his campaign suggests, negotiations with the US may be prolonged,” he says. He expresses a mixed short-term outlook for the Canadian economy. “Certainly, Carney’s ambition to be the strongest economy in the G7 sounds like an admirable goal, but the path there may see Canadian growth lower and inflation higher,” he contends.
Domestic Playbook: Spending Less, Building More
One of Carney’s campaign promises was that his government will spend less but invest more in a bid to balance the budget. “Carney has pledged to reduce government spending growth from 9% to 2% annually, aiming to balance the operating budget within three years,” says Jang. Still, stimulus measures—including a middle-income tax cut, infrastructure and housing investments, and a budget delay—signal a focus on revitalizing the economy.
Under Carney’s leadership, key sectors are expected to take priority. The new Liberal government has pledged nearly C$130 billion in spending across infrastructure, defense, housing, internal trade, resource development, and more. Jang highlights the appointment of former Goldman Sachs banker Tim Hodgson as minister of natural resources to emphasize that “there will be a renewed focus on Canadian energy and natural resources to develop Canadian resources.”
The Carney administration also plans to boost housing supply through direct government projects. It aims to catalyze the industry by providing over C$25 billion in financing for innovative prefabricated home builders, and another C$10 billion in low-cost financing and capital for affordable housing developers.
Carney also seeks to strengthen Canada’s role in the green mobility supply chain by capitalizing on the automotive sector. “The EV supply chain will also benefit, as the government is promoting the development of a domestic battery supply chain, particularly in Quebec, to support the EV industry,” Jang notes. “This includes attracting investments from global players in battery manufacturing and related activities.”
Defense and aerospace are also likely to be key priorities. Carney has pledged C$30.9 billion in defense spending over the next four years. The investment would help Canada reach its NATO defense spending target of 2% of GDP by 2030, two years ahead of schedule. In addition to boosting Canada’s defense sector, the move will “create jobs and stimulate growth in the aerospace industry,” says Jang.
Central Bank Stays the Course for Now
As a two-time former central banker, Carney is expected to support the Bank of Canada’s independence. Reid says the new cabinet will likely have minimal influence on the Bank’s monetary policy or interest rate trajectory this year. “The Bank will continue to be an independent decision-making body,” he says. Any cabinet impact on monetary policy would be indirect, though analysts concede that strong fiscal stimulus could reduce pressure on the Bank to cut rates.
Reid says the full influence of fiscal policy on the central bank will become clearer once the budget is unveiled. In the meantime, higher inflation and slower growth will be the primary drivers of monetary policy. “As a result, the Bank of Canada’s job remains complicated and their path forward delicate, though I do still believe they are biased toward cutting rates. The question is by how much, and over what period of time,” says Manley.
Carney’s technocratic background was a central theme of his election campaign. He positioned himself as a steady hand amid economic volatility. Now Jang expects Carney to “play a highly active role in shaping Canada’s economic policy, leveraging his extensive background in global finance and central banking.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
