The escalating trade war with the United States might be just the spark Canada needed to light a fire under both government and businesses to boost domestic and foreign investment in the country.
After Canada walked out of talks with the U.S. over the renegotiation of the Canada-U.S.-Mexico (CUSMA) agreement in August 2026, the U.S. escalated the trade war, adding additional tariffs of 50 per cent on nearly $28 billion worth of Canadian goods. Canada matched these counter-tariffs dollar-for-dollar in response. That was on top of earlier 25 per cent tariffs on key goods such as autos, steel and aluminum, along with a range of other tariffs.
All this occurred just before Prime Minister Mark Carney hosted top global investors in Toronto for the inaugural Canada Investment Summit where he pitched them on investing $1 trillion in major projects across Canada in the next five years. Since then, Trump announced he will lift some of those 50 per cent tariffs at the end of October, and suggested a trade deal with Canada might be close – but he also announced he’ll be adding tariffs to dozens of new products. Those comments came as U.S. midterms neared and Canadian and European Union leaders planned to meet in Montreal for a summit aimed at deepening their alliance amid an increasingly tumultuous relationship with the U.S.
Opportunity for change
Given all these events, Toronto-Dominion Bank economists have suggested now is the time for Canada to take the kind of action that could have a lasting impact.
“The recent escalation in the U.S.-Canada trade war makes the case for Canada to seize the opportunity in front of it more compelling,” wrote Beata Caranci, Toronto-Dominion Bank chief economist and Derek Burleton, the bank’s deputy chief economist in an August report.
“If Canadian policymakers play their cards right, the country could be propelled into an investment ‘supercycle’ lasting for a decade or longer,” they noted.
The economists said with projects worth more than $1 trillion on the table through 2035 that could create “waves” of investment over time. Their “high investment scenario” suggests upwards of $1.7-trillion “could materialize over the longer term.”
The TD economists explain that past “supercycles” came after bold policy decisions.
“Canada’s ‘to do’ list is long when it comes to improving competitiveness of the tax and regulatory systems, fostering and scaling high-growth firms and ensuring skilled labour meets demand,” they state.
“If policymakers get it right and lean more heavily into creating a pro-competitive environment, the investment outlook could be in for a series of upgrades that defies recent history.”
Productivity mega deduction
One big policy move was revealed during the investment summit in Toronto. Carney announced a new productivity mega deduction, a new tax incentive that will allow companies to expense the full cost of new investments across a wider range of sectors, including equipment, machinery, clean energy and zero-emission vehicles.
In the past, Canada has fallen behind its peers in investing in itself and Canadian companies. For years, there’s been a push for Canadian pension funds and other institutional investors to put more dollars into the Canadian economy and businesses. The trade turmoil with the U.S. is a chance for Canada to make a significant change to what was done in the past, says Jenifer Bartman, who runs her own business advisory consultancy based in Winnipeg.
“We have a real opportunity here,” she says. “I think that should be a significant impetus, along with all the other things that are being said about the diversification of trade relationships – (such as) bringing down the barriers between provinces, these large nation-building projects, building infrastructure. All the stars are aligning here, and money is needed.”
Ongoing need for institutional investment
Bartman ponders what Canada’s economy might look like today had the country’s large institutions, including pension funds, boosted the amount they invested in Canadian companies years ago, to upwards of three to five per cent of their portfolios.
It wouldn’t have impacted their portfolios that much “but the dollars that you would get would be very significant in the marketplace to those companies.”
The business investment ecosystem must change, she adds.
“(What) we really need to be able to get to, and what we are behind on, is building that community of sizable global Canadian companies that are born here, they grow up here, they stay here – (and) don’t end up going south of the border, or wherever else they go.”
Canada’s pension funds and banks have begun to heed the call. In the past few months in advance of the investment summit, Canadian institutions outlined pledges to spend billions on investment in key sectors.
- Bank of Montreal plans to deploy up to $70-billion in capital over 10 years aimed at boosting the country’s economic security and resilience.
- The Ontario Teachers’ Pension Plan announced plans to invest an additional $10-billion in Canada by the end of 2027.
- The Public Sector Pension Investment Board said it would increase investments from $72.4-billion to $100-billion over several years.
- The Ontario Municipal Employees Retirement System detailed plans to add at least $10-billion in new investments in Canada in the next five years.
- Sun Life Financial plans to invest $5-billion in the next five years in Canada.
- Royal Bank of Canada launched a $1.4-billion fund to invest in Canadian technology companies.
- Canadian Imperial Bank of Commerce committed $2-billion over five years for defence-related businesses.
Labour productivity
For decades, Canada has fallen behind peer countries, especially the United States, in investment as well as output per hour worked, known as labour productivity, says Parisa Mahboubi, associate director of research with the C.D. Howe Institute, and her colleague, Tingting Zhang, a policy analyst with the institute, in a report released this summer.
“Overall, business-sector labour productivity in Canada, measured in 2017 constant dollars, stood at $58.20 per hour in 2019 and had barely increased to just $59.20 per hour by 2024,” and it remained flat in 2025, their report stated.
The tariffs have led some companies to delay investment, and that in turn affects worker productivity, Mahboubi says.
“Productivity growth is the only sustainable source of rising real incomes in the long run.”
While Canada’s productivity challenge is not new, “this is something we need to take seriously especially now in light of trade tensions and what’s happening, because at the same time productivity affects our economic power and it also even affects our negotiation power,” she said in an interview.
Boosting investment is also key to increasing productivity, she adds. “We need really to take it really seriously and do everything we can to attract investments,” in addition to diversifying trade, reducing interprovincial and other trade barriers.
“We need to address those to be able to improve productivity, to be able to attract more investment and mitigate some of the impacts” of the trade war, she says.
Building on positive steps
The government pursuing major infrastructure projects, increasing investment in the military and artificial intelligence are “positive steps, but definitely we can’t stop. We have to continue, to push forward and make all those projects work well and become successful to be able to create an environment that attracts business investment.”
The trade war with the United States has been the impetus for Canada to act on issues the country has needed to address for decades, she says.
“The wake-up call was absolutely a positive thing,” she says, adding she hopes the moves to improve the economy and reduce barriers continue, even if the U.S. and Canada reach a trade deal.
“We shouldn’t pause when everything gets settled down.”
