🔮 Canada Switcheroo
And What’s Next in the Trade War?
By Napas Thein
Trump's election and trade war have shaken up Canadian politics, ending Prime Minister Justin Trudeau's decade-long tenure, and leaving another leader the task of dealing with Trump.
Trudeau announced his resignation on January 7, which triggered a Liberal leadership race where Mark Carney, a former central banker, won 86% of the vote against former Deputy Prime Minister Chrystia Freeland’s 8%.
Elections, When?
In December, just after Trump’s election, Canadian politics were thrown into disarray by a number of ministers, including Freeland, quitting Trudeau’s cabinet and calling for his resignation.
Liberal polling numbers had been dismal for months, but the tides turned starting around Trump’s inauguration, and Canadian polling sites like 338 now see a tight race between Conservatives and the Liberals.
On Polymarket, Conservative leader Pierre Poilievre’s chances have fallen from 89% to 🔮 59% today. Why?
New Face: Approval ratings for Trudeau were plummeting right before he stepped down. Carney is a new face for the Liberals after a decade of Trudeau.
Improving Economy: Recovering growth, inflation, and reduced interest rates have lessened worries for Canadians.
Trump Threats: Trump's tariffs, threats of annexation, and economic warfare have given the Liberals a threat to rally behind.
Because Carney will be a prime minister without a seat in the House of Commons (a rare occurrence in Canadian politics that limits his governing effectiveness) he has two viable options:
Call a general election; or
Run and win a seat in a by-election.
There are reports that Carney plans to call an election before Parliament is set to resume on March 24. On Polymarket, there’s a 90% chance he calls elections before April, up from a low of 35% in early February.
So are elections a lock? There are a couple reasons why Carney might still delay:
The left-leaning NDP have said they are open to not having the election, saying that the government should focus on the trade war. This is after weeks of them suggesting the opposite.
Although the trend is positive for the Liberals, there is still a 61% chance of a Conservative win. Carney may want to acquire the confidence of more Canadians as prime minister before calling an election.
Trade War
All this comes amid the trade war where tariff threats to the nearly $1 trillion in annual cross-border trade are flying at a pace that is hard for dedicated posters (let alone business leaders and customs officials) to keep up with. Here is the latest:
Ontario Premier Doug Ford had a spat with Trump after imposing 25% tariffs on energy from Ontario, which powers nearby US states. Trump responded with 50% levies on Canadian steel and aluminum, which he halted in exchange for the power tariff relief.
Shortly after Ford's electricity move, Trump escalated to a complete re-negotiation of the US-Canadian border.
Ford has threatened to cut off electricity to the US, a threat the market only prices at 🔮 8% by May. Cutting off electricity to the US would be unprecedented, and could lead to serious economic and security issues for American states reliant on Canadian energy.
The incoming PM has backed Ford, applauding him for standing up to Trump.
The trade war has also caused Conservative PM-hopeful Pierre Poilievre to distance himself from Trump.
What’s Next?
The trade war is not over yet, but several markets give us a picture of where things are heading:
Trump removes tariffs before May: 🔮35%, (despite a spike to 60% right after the first reprieve)
Trump has a history of doubling down, as we saw with the electricity spat. But Canada also has other retaliatory measures in its pocket.
More tariffs, export restrictions of oil and critical minerals, and restricting electricity from Quebec are all possible. But Trump will likely hit back in response, meaning things will probably get worse before they get better.
And Trump’s threats of turning the trade war into something more serious cannot be ignored:
This is likely overvalued as Canada and the US have not been to war for over 200 years and an invasion would destroy American credibility. Any Canadian leader agreeing to give up territory would be committing political suicide.
Nevertheless, it would be wise to follow the progress of the No Invading Allies Act, a bill introduced in the US House that would prevent Trump from using Federal funds to invade Canada and other allies.
But even short of a military conflict, there are other markets to keep an eye on to measure the health of the US-Canada relationship.
Canada out of Five Eyes intelligence partnership before July: 🔮 4%
Trump meets with Carney in March: 🔮 20%
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On the picture of Trudeau holding the chair, MPs are allowed to purchase a replica of their chair in the House of Commons before leaving.
https://www.ourcommons.ca/Content/MAS/mas-e.pdf