Freeland resignation stirs economic concerns on Bay Street

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The resignation of federal Finance Minister Chrystia Freeland was met with shock and concern in Canada’s business community Monday, with some leaders worried that political infighting at the highest levels of the Liberal government could distract from the country’s economic problems and preparation for a potential trade battle with the United States.

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“Freeland’s resignation sends a powerful signal: deep divisions exist among politicians on how to tackle Canada’s growing economic challenges,” said Matthew Holmes, chief of public policy at the Canadian Chamber of Commerce.

“The next finance minister, and by extension this government, faces a critical choice: double down on tax-and-spend policies that burden Canadians and businesses, or take bold steps to restore our economic vitality and be the unapologetic champion of Canada’s best interests.”

In a letter to Prime Minister Justin Trudeau that she posted on social media Monday, Freeland said her decision hinged in part on differing views on how to position the country to face incoming U.S. president Donald Trump‘s threat of steep tariffs on Canadian products. She stated her own view that the government must eschew “costly political gimmicks” to keep its fiscal “powder dry” for a potential tariff war, an apparent jab at the government’s recent move to send $250 rebate cheques to millions of Canadians.

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During a news conference in Toronto on Friday afternoon, Freeland had offered reassuring words that the government had a plan to deal with the tariff threats and other nationalistic policies. But that same day, Trudeau demanded she step down as finance minister and accept another role in his government, according to her resignation letter.

The unfolding events left many in the business community wondering if the prime minister would face a full-on revolt. Some also questioned whether Mark Carney, the former governor of the Bank of Canada and the Bank of England who has long been touted as a potential replacement for Freeland, would want to step into the melee. Late Monday, public safety minister Dominic LeBlanc was sworn in as finance minister, but that move was perceived as a placeholder after the government delayed and then delivered its planned economic update with no finance minister in place.

“Turmoil is always terrible news,” said John Love, founder and executive chair of KingSett Capital, a private equity real estate investment business. “The Liberals are floundering with in-fighting and chaos when there are very serious issues facing the country. It’s an unimaginable mess.”

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Economists at RSM Canada said the resignation sparked uncertainty that would inevitably impact the country’s economic outlook and financial markets and could challenge the ability to attract foreign investment in the coming year.

Greg Lyle, president of Innovative Research Group, a market research and public opinion firm, said business leaders he spoke to Monday were taken aback by the way Freeland’s departure was handled and by the “substantive issues” it raises about the government’s economic performance and the U.S. relationship.

“They’re all managers and they would never do what Trudeau did,” he said, adding that the chain of events also raised questions about Trudeau’s ability to continue as prime minister. “Bay Street tends not to be too enthused about Trudeau’s economic management on a good day. And today is not a good day.”

A quick stabilization was front of mind for many in the financial sector.

“Advancing Canada’s place in the world requires stability, especially under current geopolitical circumstances, so we (would) all benefit from quick moves to settle the uncertain situation,” said Michel Leduc, global head of public affairs at the Canada Pension Plan Investment Board, the arm’s-length organization that invests on behalf of the national pension scheme.

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On Friday, Freeland had rolled out a $47 billion plan to encourage the country’s large pension funds to invest more in Canada, an initiative that would be showcased in the fall economic statement.

Leduc said funding and incentives she announced Friday are likely to happen despite her resignation because the finance department has been working closely with former Bank of Canada governor Stephen Poloz, the non-political appointee tapped to lead the task force.

“My guess (is) they will continue, though timing is uncertain,” Leduc said.