Prof. David Livingstone, PhD, is a senior fellow with the Aristotle Foundation for Public Policy.Canadians are confronting another round of Donald Trump’s tariff tactics as the US President threatened to impose tariffs of up to 50% on $28 billion in Canadian exports to America.Ontario Premier Doug Ford suggested responding in a variety of ways, including the possibility of counter tariffs. “We have to hit them back with everything we have until they feel the pain,” he said.But the premiers and the prime minister can address Canada’s weak economic growth without punitively raising the cost of business on both sides of the border. We need to be honest with ourselves: many of our economic woes predate Trump’s presidency. It’s time we address them.According to the OECD, Canada’s productivity level — the amount of goods and services produced by a workforce in a given time period — is low. By 2023, Canadians only produced the equivalent of $74.70 USD per hour while Americans produced $97 USD per hour.Canada’s productivity growth between 1973 and 2000 was just 1.3%, well below countries like Japan (3.2%) and France (2.5%). Worse still, our rate deteriorated to an average of 0.8% between 2000 and 2023.Yet, between 2008 and 2019, the productivity growth rate was still better than the United Kingdom’s and just above that of Europe. However, between 2019 and 2023, Canada’s productivity growth rate sank to 0.5%, producing a marked growth gap with the US from 2019 onward..Our productivity declined at the same time the public service grew to a record total of 357,247 civil servants — a 30% increase between 2015 and 2024. That’s 100,000 more employees drawing salaries, pensions, and benefits from government revenues while contributing less to Canada’s productivity than if they were in the private sector.Canada’s corporate taxes and personal income taxes are also higher than in the US, and the regulatory hurdles businesses face here make investment less attractive. As a result, both capital and talent have been fleeing Canada.Charles Lammam, reporting in the HUB, finds that “While foreign investment in Canada grew from approximately $320 billion in 2000 to $1.3 trillion in 2024, Canadian direct investment abroad surged from roughly $360 billion to $2.3 trillion.” That’s a net loss of $1 trillion in investment in Canada’s economy. That huge loss can’t be blamed on Americans.And it's not only capital flowing out of Canada: 467,000 citizens and permanent residents left Canada between 2022 and 2025. Last year, 120,640 residents emigrated, “topping every annual total since Statistics Canada’s demographic records began in 1952” (Graeme Gordon). The Toronto Dominion Bank calls this “Canada’s silent brain drain.”Who is leaving? Highly educated Canadian immigrants and Canadian-born students at top universities. Canada is tax-subsidizing the education of students who decide that the work and professional opportunities are more promising outside of Canada. And who can blame them for departing?.High tax rates disincentivize those who would otherwise provide much-needed innovation and entrepreneurship. “High top marginal personal tax rates kick in at much lower income thresholds” in Canada compared to the US, “while complex business tax rules encourage remaining small rather than growth,” the TD report concludes.So far, Canadian governments have mostly been focused on big, multi-billion-dollar projects to boost Canada’s economy and to counter Trump’s tariffs. Fine. But these projects take years, even decades, to come to scale (if they ever materialize). They’re already being slowed by predictable demands for consent from various stakeholders and First Nations.Despite the creation of the Major Projects Office (MPO), intended to streamline the approval process for large projects, Canada’s high transaction costs will continue to discourage investors seeking long-term stability and a stable legal framework. The MPO won’t solve the economic malaise Canada created during the last decade.The federal and provincial governments should simply remove the existing handbrakes from Canada’s economic engine. By lowering marginal income tax rates, corporate tax rates, and moving quickly to secure private property rights, governments will do much more to boost our economy and retain skilled workers than by hitting America with retaliatory tariffs.Prof. David Livingstone, PhD, is a senior fellow with the Aristotle Foundation for Public Policy.
