COMMENTARY: Understanding the Magnitude of Canada’s Economic Decline

By Jason Clemens and Milagros Palacios

The anxiety and growing animus towards the Trump administration by many Canadians is clouding the enormity of the home-grown problems facing our country. These economic challenges existed well before President Trump took office for the second time but the uncertainty over access to the U.S. market and Trump’s almost daily threats of more tariffs have heightened the problems. Unfortunately, there’s increasing evidence that like its predecessor, the Carney government is more about optics than action and results.

Let’s first understand the magnitude of Canada’s decline. In 2014, the year before the Trudeau government was elected, the per-person value of all the goods and services produced in our economy (i.e. GDP) was US$50,055 (inflation-adjusted). We’re using U.S. dollars so we can more easily compare our performance with the United States. That same year, per-person GDP in the U.S. was US$60,212, representing a roughly 20 per cent gap.

Closing that gap should have been our goal since there should be no reason, given our natural resources, educated and hard-working labour force, sound institutions (including the rule of law), and what were generally at the time a set of federal and provincial laws and regulations that promoted entrepreneurship, private business investment and economic well-being, that we’re poorer than our southern neighbours.

The Trudeau government ushered in a new era of dramatically different policies from previous Conservative and Liberal governments going back to the mid-1990s, including significantly higher levels of government spending financed by borrowing, along with higher taxes and more regulation of the economy.

The results have been a near-unprecedented decline in the comparative economic well-being of Canadians. As of 2024, our per-person GDP (a broad measure of living standards) stood at US$51,649, a mere 3.2 per cent higher than in 2014.

Contrast that with the U.S., which had per-person GDP of $72,350, which is 20.2 per cent higher than it was in 2014, and is now 40.1 per cent higher than in Canada. In other words, Americans enjoyed growth in their living standards at almost six times the rate we have over the last decade (or so), and now have living standards 40 per cent higher than us.

And the future is not encouraging. The OECD projects that the gap between us and our American neighbours will continue to grow, reaching almost 60 per cent by 2060 if nothing materially changes.

Enter the new Carney Liberal government. Many pundits and traditional media outlets more generally have characterized the new Liberal government as a sharp break from its predecessor. While the rhetoric on many fronts is clearly different than under Trudeau, the actual policies and results don’t seem all that different.

Consider federal finances. Candidate Carney emphasized the need for less government spending, a return to balanced budgets and a generally more hospitable investment climate. However, the first budget of the Carney government increased total government spending along with the deficit (i.e. borrowing) to levels well exceeding those planned by the Trudeau government. For example, the Trudeau government in Budget 2024 planned to spend $496.3 billion in 2025/26 and borrow $38.9 billion. The Carney government plan (Budget 2025) for 2025/26, just one year later, is to spend $525.2 billion and borrow $78.3 billion. That’s not smaller government, moving to a balanced budget or creating a more hospitable entrepreneurial or business climate, since that borrowing competes with private businesses for capital.

Candidate Carney also promised to “build, baby build” but Prime Minister Carney has not rescinded any laws or regulations that were broadly deemed to have impaired infrastructure and major project construction, particularly in the mining and energy sectors. Instead, the Carney government created new bureaucracies that allow projects selected and prioritized by the government to circumvent existing laws and regulations. Everyone else must play by the old rules, which again, the creation of this new bureaucracy signals doesn’t work.

Or consider candidate Carney’s commitment to significantly accelerate homebuilding. New data from the Canada Mortgage and Housing Corporation (CMHC) shows housing starts for both single detached homes (-4.1 per cent) and row housing (-0.8 per cent) were actually down in 2025 compared to 2024. The total growth in housing starts including all types was only up 5.6 per cent, nowhere near what’s needed to reach the government’s target of 500,000 new homes per year.

And perhaps most notably given its centrality in the 2025 federal election, no trade resolution has been reached with the U.S. and many observers speculate about the real possibility of retrenchment as the Canada-United States-Mexico Agreement (CUSMA) is renewed. Indeed, some pundits have suggested Trump may walk away from North American free trade altogether.

Given the enormity of Canada’s economic problems, which predate Trump, a dramatic change in policy is required beyond just rhetoric. It requires a return to the smaller government, balanced budgets, declining debt and more competitive taxes and regulations that characterized the country during the Chrétien-Martin-Harper years, and which underpinned general prosperity and improvements in our well-being.

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