Trudeau's Government Loses A Top Negotiator Ahead Of Trump's Second Term

Canadian Finance Minister Chrystia Freeland resigned Monday, citing disagreements with Prime Minister Justin Trudeau over anticipated U.S. tariffs.

What Happened? Freeland, who also held the position of Deputy Prime Minister, resigned hours before she was due to deliver an economic update to the parliament. In a letter to Trudeau, Freeland noted she made this decision after his suggestion to take a different position within his Cabinet.

She also reflected on President-elect Donald Trump's proposed 25% tariffs.

"We need to take that threat extremely seriously. That means keeping our fiscal powder dry today, so we have the reserves we may need for a coming tariff war," she wrote.

Freeland, a veteran journalist and a key member of Trudeau's cabinet since 2015 has held multiple high-profile roles, including Minister of Foreign Affairs. Interestingly, her predecessor, Bill Morneau, resigned over a fallout with Trudeau in 2020 as they clashed over issues with COVID-19-related income support programs.

Meanwhile, Housing Minister Sean Fraser will not seek re-election in Nova Scotia and will leave the federal cabinet during the next shuffle, per CBC News. The shuffle, which could happen as early as Wednesday, could see former Bank of Canada and Bank of England governor Mark Carney joining the cabinet. 

Why It Matters? Freeland's departure signals further weakening of Trudeau's government ahead of the election year.

As a widely respected figure, she was critical in securing Canada's trade interests and the architect of Canada's response to the U.S.-Mexico-Canada Agreement renegotiation during Trump's first term. With Freeland's exit, Trudeau loses a highly skilled negotiator at a pivotal time in international trade relations and domestic economic challenges.

Trudeau maintains the stance that imposing tariffs would hurt both sides.

"Let's not kid ourselves in any way, shape or form, 25% tariffs on everything going to the United States would be devastating for the Canadian economy," Trudeau said per AP News, clarifying how tariffs on Canadian energy and various commodity exports would make life more expensive in the U.S.

Between November 2023 and October 2024, Canada exported over C$172 billion ($120.74 billion) worth of energy products to the U.S. and C$80.4 billion ($56.44 billion) worth of motor vehicles and parts. Ford Motor Co. F and General Motors GM have notable operations in Canada, as do foreign manufacturers like Fiat Chrysler Automobiles, Honda, and Toyota.

The internal crisis has driven down the Liberal Party's popularity. Polls show Trudeau's government trails significantly behind the Conservative Party, with the next federal election due by October 2025.

Market Reaction: USD/CAD rose 0.11% for the day, closing the trading session at 1.4241. Since Donald Trump’s re-election, the pair rose around 3%.

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