Canada at a crossroads: tariffs, fiscal pressures, and a new minority government

Canada’s recent federal election produced a surprising outcome: the Liberal Party, under Prime Minister Mark Carney, outperformed expectations and will now lead a minority government.

For legal and business communities, this result signals both uncertainty and opportunity. With no party holding a majority, economic policy will require broad consensus, particularly on trade, fiscal stability, and regulatory reform.

A minority mandate and U.S. trade tensions

Any attempt to revise the United States-Mexico-Canada Agreement (USMCA), as hinted by recent U.S. tariff threats, will require approval in Parliament. In a minority setting, this means the government must collaborate across party lines—a dynamic that adds complexity to ratifying any changes and will shape Canada’s broader trade posture.

Meanwhile, tariff tensions have sparked renewed interest in eliminating longstanding interprovincial trade barriers. Legal practitioners have long observed that businesses operating across provinces often face duplicative registration requirements, overlapping licensing frameworks, and differing compliance obligations. These regulatory burdens deter investment and reduce efficiency. With global trade relationships under pressure, simplifying internal commerce has become critical.

We anticipate that the Federal Minister of Internal Trade, once Cabinet is formed and announced, will play a pivotal role in advancing interprovincial trade reform in the next Parliament. This portfolio will be central to coordinating with provinces, harmonising standards, and enabling a more integrated national marketplace.

The fiscal picture: A growing concern

Following years of pandemic-era spending and growing public sector obligations, the federal government is now expected to implement investment-focused economic policies, including tax credits, infrastructure incentives, and sector-specific programs to attract capital and fuel growth. This urgency is underscored by Fitch Ratings’ recent report, which highlights the need for credible fiscal consolidation.

Legal advisors will need to monitor how these incentives are structured, ensuring clients are properly positioned to benefit from them while managing complex multi-jurisdictional compliance requirements.

Corporate law reform: Opening the market

In parallel, Canada has taken major steps to modernise its corporate regulatory environment. One of the most significant developments has been the removal of Canadian director residency requirements—particularly in Ontario.

Previously, Ontario’s corporate law required that at least 25% of a company’s directors be Canadian residents, creating a barrier for international investors. Through sustained advocacy, including leadership from Loopstra Nixon LLP, this requirement was eliminated, liberating the marketplace and aligning the province with international norms.

Today, non-residents can serve as directors of private Ontario corporations without restriction, offering far more flexibility in structuring foreign direct investment and cross-border growth.

A legal and economic outlook for the next chapter

Looking ahead, Canada’s evolving political and economic landscape presents several clear themes:

• Policy collaboration will be key, with trade and fiscal reform requiring multi-party consensus
• Domestic trade modernisation will likely accelerate, particularly with a renewed mandate for the Federal Minister of Internal Trade
• Global diversification will be prioritised as Canada reduces reliance on the U.S. and expands into new markets
• Regulatory modernisation, including corporate governance reform, will continue to enhance competitiveness
• Fiscal prudence will dominate the agenda, especially in light of credit agency warnings and rising debt service costs.

For businesses and their legal counsel, this period calls for strategic planning, agility, and close attention to both federal legislation and provincial reform. Despite global uncertainty, Canada is positioning itself as an increasingly open and investor-friendly market, one shaped by cooperation, modernisation, and resilience.

This article was written by Peter Saad, Managing Partner of Loopstra Nixon LLP. As fellow members of LawExchange International, HCR Law work closely with Loopstra to serve clients in the UK and Canada, and Corporate Solicitor Bronia Richards is currently with the firm on secondment.