Trudeau Must Reconsider Emissions Cap, Other Policies in Wake of Trump Election Win, Former Liberal Finance Minister Says

Former Finance Minister Bill Morneau in a file photo. The Canadian Press/Sean Kilpatrick

The Liberal government needs to rethink several key policies in response to U.S. President-elect Donald Trump’s upcoming administration, former Liberal Finance Minister Bill Morneau says.

Trump vowed throughout his election campaign to protect the American economy by implementing a minimum 10 percent tariff on all imports to the United States. Canada has yet to receive any assurances that it will be exempt from the tax.

Trump’s pledge means Canada will need to do far more than emphasize the importance of the Canada-U.S. trade relationship, Morneau told Vassy Kapelos during CTV’s Question Period on Nov. 10.

Considering which policy initiatives and substantive measures can be developed to align with the priorities that the new president is likely to focus on is essential, he said.

“We should be worried. We need to be on the top of our game and think about what we can do to improve our outcomes,” Morneau said. “We'll need to ask ourselves some hard questions.”

One of those questions, Morneau said, is if Canada is headed in the right direction with its current emissions timelines. He described energy use and security as critical policies for the Trudeau government to consider to prepare for a Trump presidency.

“We’re going to need to think about whether we focus on energy security in a way that makes us clearly an important part of the U.S. sector,” he said. “And that means we have to ask ourselves, is it really the right time for caps on emissions.”

Morneau said Canada’s energy initiatives deserve more scrutiny.

“[Do] we need to be moving really fast on carbon capture and sequestration at the same time?” he said.

Carbon capture and sequestration is the process of capturing and storing atmospheric carbon dioxide to reduce emissions from industrial processes.

The government’s current goal is to achieve net-zero carbon emissions by 2050. As part of that policy, the government plans to implement an oil and gas emissions cap that will see companies in the sector lower their greenhouse gas emissions by 35 percent below 2019 levels by 2032.

Environment Minister Steven Guilbeault said the measures were necessary because oil and gas sector accounts for a third of Canada’s greenhouse gas emissions. Both Alberta and Saskatchewan, Canada’s primary oil and gas producers, say the cap would hurt their respective economies. Alberta Premier Danielle Smith maintains that the cap violates the Canadian constitution and has said her province is “actively” considering a constitutional challenge.

Ottawa has also implemented carbon pricing, which places a tax on carbon-emitting fuels. Introduced in 2019, the tax is billed as a way to encourage Canadians to change their behaviour to reduce emissions by using other energy sources.

Carbon pricing kicked off at $20 per tonne and increased by $10 per tonne each year until reaching $50 per tonne in 2022. The Liberals then set the price to rise by $15 per tonne every year, starting in 2023, until it reaches $170 per tonne in 2030.

Defence Spending

Canada also needs to reassess its stance on its defence spending targets, Morneau said.

All NATO allies, including Canada, renewed their pledge last summer to spend at least 2 percent of the country’s gross domestic product (GDP) on defence. The number of countries expected to meet that goal this year has risen to 23 from 11. Canada is not among that number.

Trudeau announced in July that Canada “fully expects” to reach NATO’s 2 percent spending requirement by 2032. Canada currently spends just shy of 1.4 percent of its GDP on the military and aims to reach 1.76 percent by 2029, according to the country’s updated defence policy.

But that may not be fast enough, according to Morneau.

“We will need to think about how we get to our defence spending targets more rapidly than the government has currently laid out,” he said.

Canada’s approach to meeting its NATO obligation has been heavily criticized by the U.S., with one Republican Congressman saying the country is “riding on America’s coattails.”

A spring survey of Canadians found that 65 percent of Canadians would like to see the federal government fulfil its 2 percent obligation to its military allies if Trump was in the White House.

Dairy Supply Management

Canada should be “looking carefully” at its supply managed sectors and have a plan in place for upcoming discussions with the U.S., Morneau said.

Canadian supply management is a way for farmers who produce milk, chickens, and eggs to control the supply or quantity of their commercial products through a marketing system.

Supply management, particularly when it comes to the dairy sector, will be a key conversation between the two governments, Morneau noted.

Canada and the U.S. have had disagreements in the past about dairy imports.

The dispute centres on Canada’s distribution of its dairy tariff rate quotas—the quantities of certain dairy products that can enter Canada at lower duty levels under the terms of the Canada-U.S.-Mexico Agreement.

A dispute settlement panel launched in May 2021 largely agreed with the U.S. complaint that Canada’s dairy import quota strategy was a violation of the terms of the free trade agreement.

A second settlement panel last year rejected complaints from the U.S. Trade Representative’s office that Canada unfairly favours processors over producers.

The vast majority of Canada’s milk exports are to the U.S. Ottawa says Canada’s dairy sector generated $8.2 billion in farm cash receipts and $17.4 billion in sales in 2022, supporting more than 70,000 production and processing jobs across the country.

Digital Services Tax

Canada may also want to reconsider its stance on the digital services tax (DST), Morneau said. The DST was implemented on June 28 following an order in council by Finance Minister Chrystia Freeland.

The tax, which requires foreign tech giants to pay a 3 percent levy on revenues made from their operations in Canada, has been called “discriminatory” by U.S. Trade Representative Katherine Tai. The Office of the United States Trade Representative has since requested dispute settlement consultations with Ottawa under the Canada-United States-Mexico Agreement.

“Should we really move forward on a digital services tax on technology, when technology is going to be a critical issue for the U.S. to stay in the ascendancy,” Morneau asked. “We need to think about how we align with the US in the technology sector.”

Morneau said all four policies—the digital services tax, defence, energy, and dairy supply—will be key in upcoming discussions with the U.S.

“These are hard policy choices,” he said. “I think they’re the right things to be putting on the table to think about now. It’s not only about having great relationships, it’s also about the substance of what we’re actually going to do to be a good partner to the United States.”

The Canadian Press contributed to this report.