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(Bloomberg) — Prime Minister Mark Carney is expected to plunge Canada into an election campaign on Sunday, as US President Donald Trump’s trade war sharpens the focus on fixing long-standing problems that have hindered the Canadian economy.

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Carney and his chief rival, Conservative Leader Pierre Poilievre, each will seek to persuade Canadians he’s the best person to protect the country from Trump’s threats to use “economic force” to transform it into the 51st state.

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That means the Canadian politicians must attack problems that have held the country back for years — over-reliance on the US as an export market, internal trade barriers between provinces, stagnant productivity and weak business investment. 

No matter who wins the election, the economic strategy of the Justin Trudeau era — based on an expansion of government, higher taxes on upper-income earners and rapid population growth — is finished. 

“It’s a time where we want to take risk,” Carney, 60, said Friday before announcing a raft of measures to remove roadblocks to cross-country trade and speed up energy project approvals. “We have to do things that we hadn’t imagined possible before, at a speed that we haven’t moved before.”

Carney is expected to announce an election call on Sunday, with voting day to be April 28 or May 5.

The former central bank governor rocketed to the country’s top political office just eight days ago, after the governing Liberal Party selected him as their new leader to replace Trudeau. Some polls place Carney’s party a few points ahead of the Conservatives, a stunning turnaround from earlier this year when the Conservatives led by more than 20 percentage points.

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To Poilievre, 45, the Liberals’ sudden attention to the economy is rather rich. He points out the party has been in power for nearly a decade and has failed to speed up development of mining and other resource projects — in some cases blocking them altogether — while relying on increased immigration to juice growth. The Conservative leader has pledged to cut taxes and regulation, which he described as “devastating” even before the US tariffs, but now represent “economic suicide.”

The Conservative leader’s criticisms have had an impact. In his short time as Liberal leader, Carney has tried to pushed the party closer to the center while walking away from some of Trudeau’s more unpopular policies. Carney scrapped a planned increase to the capital gains tax inclusion rate and cut to zero the consumer carbon tax, which applies to a wide range of fossil fuels. 

While demands to spend more on defense and infrastructure may still require the power of the government balance sheet, the expansion of social programs, such a big part of Trudeau’s legacy, is likely over for now. 

Here are the key economic issues that are set to define the race:

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Trade Tensions 

Trade with the US represents nearly 70% of Canada’s total exports and imports. The US trade deficit with Canada is an irritant to Trump, who calls it a subsidy. But it’s largely driven by the boundless American appetite for Canadian oil and gas. Excluding energy, the US has a trade surplus with Canada. 

Crude from Alberta is sold to refineries in midwestern US states at a discount to West Texas Intermediate crude due to Canada’s limited access to other buyers. The country has one oil pipeline to a marine terminal that can serve Asian markets. An expansion to a maximum capacity of 890,000 barrels a day was just completed last year at a cost of C$34 billion ($23.7 billion). 

Both Carney and Poilievre have pledged to fast-track critical minerals and liquefied natural gas projects and build infrastructure to bring those resources to new markets. Poilievre plans to scrap a Liberal environmental law and the carbon tax on industry. Carney says he would keep that tax — citing it as a requirement to trade with Europe — and maintain a controversial policy that caps emissions from the oil sands. 

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Trump’s threats also have renewed Canada’s focus on removing trade barriers between its 13 provinces and territories. After a meeting with premiers on Friday, Carney promised to eliminate these barriers by July 1 and argued that doing so would grow Canada’s economy by C$250 billion.

Trump wants to “weaken Canada dramatically,” said economist David Rosenberg, founder of Rosenberg Research & Associates. “He wants to bring the Canadian economy to its knees so that next year he could rewrite the US-Mexico-Canada Agreement. And we all know that he covets Canada’s natural resources.”

Rosenberg, formerly chief North American economist for Merrill Lynch, said he expects to see action from the Canadian government, including pipeline expansions and fast-tracking mineral projects, and building other trading relationships.

“We are still too reliant on the US. That’s over,” Rosenberg said.

Boosting Productivity 

Among Group of Seven countries, Canada’s economic growth has lagged only the US since 2018, averaging a 1.8% yearly clip. 

But that’s been largely driven by explosive growth in immigration. When output is measured on a per-capita basis — a proxy for living standards — Canada’s economy has languished.

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The Bank of Canada has described the country’s sluggish productivity as an “emergency.” Both Carney and Poilievre have promised to cap immigration at levels the economy can sustain, while unleashing investment in infrastructure and technology that would boost Canada’s productive capacity.

Jim Balsillie, the former co-CEO of BlackBerry Ltd. and now chair of the Council of Canadian Innovators, said a singular focus on diversifying trading partners isn’t the right way to think about the economic challenge. Canada needs a much better strategy around protecting intellectual property and technology in order to diversify products, allowing it to become much more than an exporter of natural resources. 

“We just rip and ship stuff like critical minerals, energy, aluminum, agriculture and so on. And how are we going to diversify products and do more value-add in our products?” he said. “You don’t start with markets, you start with products.”

And given Trump’s assertive posture toward Canada, the country needs to design its economic policy with national security in mind, he said. 

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Housing Prices

As in a number of developed countries, Canada’s home prices have exploded. An index of national home prices is up 72% in the past decade, making the benchmark price for a home more than C$700,000 now. And that’s after a correction in prices since 2022. 

The housing market looks dysfunctional. Many current homeowners are rich on paper, with so much equity in their homes, and demand for homes is strong because of population growth. Yet homebuilding is not happening quickly enough, prices remain out-of-reach for many average Canadians and some parts of the market, such as Toronto condos, are in a deep funk.  

Poilievre catapulted the Conservatives to a dominant lead in the polls in 2023 and 2024 in part by tapping into huge frustration about housing and blaming Trudeau’s Liberals for rising housing costs. “Canada is broken” was his oft-repeated slogan. He’s now swtiched to “Canada First” after Trump’s repeated threats unleashed a wave of patriotism.

Carney has promised federal investments in housing to “supercharge” construction, with the goal of building 4 million new homes by 2035. He would maintain the Liberals’ housing accelerator fund, which transfers cash to local governments to speed approvals for developers.

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Poilievre similarly wants to “unleash the biggest homebuilding boom ever,” but he’d scrap the housing accelerator fund. He has also promised to expand the pool of homebuilders, including by boosting apprenticeship grants and training halls for skilled tradespeople. Both leaders have plans to scrap the national sales tax on some new-home purchases.

Government Spending   

Former Finance Minister Chrystia Freeland precipitated Trudeau’s exit with her stinging resignation letter in December that accused him of failing to keep the “fiscal powder dry” ahead of a trade war with the US. Now that the tariff fight is underway, the government is under significant pressure to spend on programs to support businesses and workers. 

In December, the government projected a C$48.3 billion deficit for the current fiscal year, which is around 1.6% of gross domestic product. The country also faces major demands to increase its defense spending, which has long lagged other members of the North Atlantic Treaty Organization. 

Poilievre has promised to find one dollar in savings for every dollar of new spending. Carney has proposed splitting the budget in two — an operating budget that the government would balance, and a capital-spending budget for major infrastructure investments that would carry a modest deficit.

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Carney has described the trade dispute with the US as a “crisis”. And there is little question that Trump’s repeated taunts about making Canada a US state have increased the appetite within Canada for big projects that can boost the country’s economy and reduce its dependence on the US market.  

“I think the mood is a combination of white-hot anger and trepidation and profound feeling of betrayal,” said Roland Paris, director of the Graduate School of Public and International Affairs at the University of Ottawa. 

Balsillie said Canada has suffered from an economic policy failure for 30 years. “But I think Trump has done a disservice to America by waking everybody up in Canada,” he said.

“If Canada seizes this moment, Trump has given us a gift that that is of phenomenal value. Yes, the transition’s going to have some difficulty, but we do have resources — in national capacity in many realms that we can bring to bear, and fiscal and financial.”

—With assistance from Randy Thanthong-Knight.

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