A Trade Agreement or Economic Anschluss?

  

As the interminable trade negotiations between Canada and the United States continue, in the absence of inside information from being at the table, one is left with trying to figure out what is going on by relying on the snippets and reports that make their way into media stories.  One of the most recent accounts as to where we are at in the Globe and Mail paints a picture of Canada that runs contrary to the public “elbows up” domestic rhetoric.  Essentially, according to this report “Canada and the United States are negotiating a deal in which Ottawa would concede on a long list of Trump administration trade demands in exchange for some relief on sectoral tariffs, as talks intensify less than two weeks before another round of threatened American levies.” Indeed, the tendency towards concessions was noted in another less flattering Globe and Mail piece.

Essentially, Canada would remove its retaliatory tariffs, return U.S. alcohol to the shelves, agree to Washington’s views on dairy quotas and in return get lower tariffs on steel and aluminum, some relief on auto and forest product tariffs and avoid the August 19^th tariff increases.  However, there is going to be a baseline set of tariffs on all Canadian goods no matter what, which will be part of continuing negotiations into the fall and we are expected to make good on our purchase of F-35 fighter jets as well as make additional commitments to joint North American security which will inevitably involve more purchases of U.S. military goods. Any new United States-Mexico-Canada trade arrangement down the road will essentially be an assortment of separate managed deals as dictated by the United States united by a continued tariff albeit one that probably favours us relative to countries outside North America. 

In some respects, one would have to say that we should not be surprised if this is the outcome.  A country with 75 percent of its exports going to a single market does not have the leverage it might imagine unless it wants to play hardball on crucial exports like oil, gas, potash and electricity and the Prime Minister has already given up that card.  Ultimately not using it is one thing but stating in advance that it will not be used is something else. The Americans want tariffs because they see them as both a way to onshore production as well as a potentially lucrative source of revenue.  And whose exports are a better source of revenue than Canada and Mexico given the sheer volume of trade.  The Americans will certainly not want to reduce their “tax base” by exempting either us or Mexico. As for the fact that tariffs on our goods are paid for by American consumers – well, it is a de facto consumption tax on Americans and if Americans want to avoid it, they can consume American products.  From the Trumpian perspective it is a win-win situation despite the fact that the evidence to date suggests that this is not working as well as they would like.

Currently, what the Americans seem to be proposing is a world where they levy tariffs on us in terms of whatever goods they want and at whatever rate they choose while we continue to admit all their products tariff free as well as spend Canadian tax dollars on American military goods. After all of our elbows up rhetoric, this is the deal it would appear we are on the road to accepting.  The real question is can we come up with a better approach?  Obviously, the best approach is multilateral free trade given the shared economic and geographic space occupied by Canada, the US and Mexico but this is now not on the table.   

 I would have to venture once again that what Canada should pursue with the Americans is essentially a deal modelled in part on the 1854 Reciprocity Treaty.  Both sides would let in raw natural resource and raw agricultural imports duty free. This would satisfy our commitments as reliable providers of the goods the Americans seem to want from us.  It would also help keep food costs down for consumers on both sides.  However, all imports of non-raw-natural resource and raw agricultural imports – anything value added - could have tariffs levied on them by either side.  (For example, oil and natural gas duty free but gasoline and petroleum products could be tariffed. Milk duty free but butter and cheese can be tariffed) The rates can be jointly negotiated, or they can simply be left up to each side based on what they think their consumers can bear and what revenues each side thinks that they think they can get. It all sounds so very 19th century but these seem to be the times we are in.

Naturally, this is a not very good outcome but think back to the period between 1870 and 1930 when Canada had a much smaller domestic market and was behind a tariff wall.  There was still economic growth and while growth in an environment of free trade would have been greater, it was not an available option.  We now have a market of 40 million people and if we combine it with a set of tax reforms that lower corporate and personal income tax rates, that could help compensate for the higher costs imposed by tariffs on American imports. Add in further reductions of inter-provincial trade restrictions and we may actually achieve the internal common market that should have been brought into existence in 1867.

Freer trade with the United States was something that was achieved over several generations and when it worked it worked well for both sides. Again, it does not seem to be an available option.  Think of it another way.  If we simply accept an outcome whereby the Americans dictate all the terms and tariffs as well as well as continue to direct our military purchases towards their goods and then arbitrarily change the terms whenever they feel it is to their benefit, well in a sense you have indeed become the 51^st state but without any of the benefits.  If the Carney government negotiates a trade deal in which we essentially grant the Americans everything they want and we obtain only what they deign to grant us, then we will have negotiated an economic capitulation and Anschluss and not a trade agreement.  The choice facing the Carney government is either a smaller and slower growing protectionist Canadian economy (which some might argue we have already partly achieved with the economic policies of the last decade) or Economic Anschluss with the Americans in which the Americans receive all the economic benefits of Canada as an American territory without any of the political costs.

 

How is That Trade War Going?

  

It is now well over a year since President Trump took office for the second time and began his tariff war on both Canada and the world.  Indeed, on his first day in office, Trump said that he expected “to put 25 percent tariffs on Canada and Mexico starting on Feb. 1, while declining to immediately flesh out plans for taxing Chinese imports.”  On February 1^st, 2025, Trump signed an executive order to impose tariffs on imports from Mexico, Canada and China with a 10 percent on all imports from China and 25 percent on imports from Mexico and Canada starting Feb. 4, 2025 justified by declaring a national emergency over undocumented immigration and drug trafficking.  Indeed, President Trump soon decreed that all the world should be taxed via tariffs with some unlikely targets.

Steel and aluminum tariffs were hiked on February 10^th and by March both Canada and Mexico retaliated with tariff measures of their own.  In the aftermath, there have been retreats and some moderation of tariffs with Canadian steel, autos and lumber remaining hit rather hard but overall the impacts on the Canadian economy have not been as dire as expected largely because 90 percent of Canadian trade with the United States remained tariff free under CUSMA. Indeed, some of the estimates of Canada’s economy shrinking were as high as 5.6 percent which did not come to pass in 2025.

So, one year down the road, how is the trade war affecting Canada and the United States?  This can be done via a comparison of some basic indicators with the indicators using data from both Statistics Canada and FRED. The obvious place to start is a look at how Canada’s merchandise trade has fared. Figure 1 plots the percentage change in Canadian merchandise trade with the United States and the World between 2024 and 2025.  With nearly three quarters of Canadian export trade occurring with the United States going into the trade war, it is not surprising that total Canadian merchandise exports are down but only by about one tenth of one percent. Meanwhile our total merchandise imports are up by 2.8 percent in 2025.  However, our exports to the United States are down 5.1 percent while our imports from the United States are also down 4.1 percent. What is more interesting is what has happened to the remainder of our trade – exports to the rest of the world are up 15.8 percent while imports are up 9.6 percent.  This suggests that 2025 did indeed see a measure of trade diversification away from the United States and towards the rest of the World.

 

However, there is still a way to go in terms of shifting trade away from the United States as Figures 2 and 3 illustrate.  Figure 2 looks at the distribution of Canadian merchandise exports while Figure 3 plots the distribution of merchandise imports.  The share of Canadian goods going to the United States has indeed declined going from nearly 80 percent in early 2025 to 69 percent by February of 2026.  Meanwhile, the share going to the rest of the World rose from 22 percent in January 2025 to nearly 32 percent by February 2026.  It remains to be seen if this performance merely reflects the picking of low hanging fruit and will level off or the trend will continue.  Meanwhile, the performance of imports was somewhat more abrupt.  Whereas prior to the trade war, there was an approximately 50/50 split between imports from the United States and the rest of the world, there was a sudden shift by March of 2025 with the US share dropping to 46 percent by February 2026 and the rest of the World climbing up to 54 percent. However, the gap after this sudden shift has remained relatively constant.

 

 

The Trump tariffs were sold to the American public as necessary to create jobs and particularly retain manufacturing jobs. Figure 4 looks at the percent change in total employment and manufacturing employment between January 2025 and January 2026.  During this period, Canada saw an increase in employment of 134,300 jobs – an increase in employment of 0.6 percent - though it shed 50,500 manufacturing jobs for a decrease in that sector of 2.6 percent.  Meanwhile, the United States saw an increase in total employment of 324,000 jobs or 0.2 percent and a 0.7 percent decline in manufacturing employment totalling 91,000 jobs.  For an economy ten times the size of the United States, one would have expected its total employment increase all things given to be about ten times that of Canada, but it is barely three-fold.  Moreover, its manufacturing sector has shed nearly twice the total number of jobs that Canada did though its percentage decline is substantially less.

 

When one looks at the unemployment rate between the two countries as shown in Figure 5, the traditional gap between US and Canadian unemployment rates continues but the Canadian unemployment rate essentially trended flat in 2025 starting at 6.7 percent in January 2025 and was still at 6.7 percent in February of 2026. Meanwhile over the same period, the Us unemployment rate rose from 4 percent to 4.3 percent.  Both countries have seen their unemployment rates decline from highs in mid 2025.

 

How about economic growth as measured by real GDP?  Well, the most interesting result displayed here in Figure 6 is that Canada saw its real GDP rise in 2025 rather than decline sharply as many had forecast displaying an unforeseen resilience.  Nevertheless, in 2025, Canada’s quarterly real GDP growth averaged 0.8 percent while that of the United States averaged 2 percent. Still, 0.8 percent growth is much better than a 5.6 percent decline. And as for the United States, it grew more slowly in 2025 than it did in either 2023 or 2024.

 

The reasons for Canada’s economy remaining as resilient are fourfold.  First, there has been a plethora of deficit spending at the provincial and federal government levels as well as efforts to prioritize government spending on Canadian producers. Second, 90 percent of Canadian trade with the United States remains tariff free under CUSMA and this will likely continue even after the deal is reviewed and re-negotiated given the United States is more dependent on trade with Canada and Mexico than the current federal administration is willing to publicly admit. Third, Canadian firms and business exporters are busily looking for new customers outside the United States while they are also looking for other import clients.  Fourth, Canadians themselves have responded by either shopping Canadian or looking for imported goods from elsewhere in their daily purchases and by making more of an effort to either spend their travel dollars domestically or anywhere but the United States.

The travel data is quite intriguing and presented in Figure 7 and 8. When monthly vehicles entering Canada are examined, Canadian vehicles re-entering Canada from the United States have shown a noticeable declining trend while Americans entering Canada are trending flat. Yet, in 2024, 8.4 million American crossed into Canada whereas in 2025 the total was 8.1 million for a decline of 3.7 percent.  As for Canadians, they continue to visit the United States at a much higher rate than Americans visit Canada – as they always have – but in 2024 there were 19.3 million vehicle re-entries and in 2025 there were 16.3 million – a decline of about 15.6 percent.  Needless to say, the impact on American border communities from the decline in Canadian shoppers and travellers has had a multi-billion dollar negative effect.

 

 

Figure 8 looks at air travel and here the numbers also show a shift in Canadian travel both by Canadians as well as the rest of the world with respect to Canada.  In 2025, Canadians returning to Canada by air from the United States was down nearly 14 percent while Canadians returning by air to Canada from the rest of the World was up nearly 17 percent.  Meanwhile, Americans entering Canada by air in 2025 was up nearly 6 percent while entry by non-Americans was up nearly 10 percent.  Between more Canadians staying home and more American and other international visitors coming to Canada, the Canadian tourism and hospitality industry has had a banner year with benefits to the economy and employment.

So, where does this leave us?  After one year of the Canada-US trade dispute, the sky has not fallen but there are noticeable effects.  Both countries are worse off in that their economic and employment growth could be better.  More to the point, President's Trump's claims that he is making America great again are falling somewhat short.  And while Canada has taken some steps to diversify its trade and business activities away from the United States, it stands that Canada is still heavily reliant on the US economy.  Still, it is remarkable that the share of Canadian merchandise exports going to the United States has fallen below 70 percent which  is the lowest it has been in twenty years. While our exports to the United States are down, so are our imports from them, and given that for many American states their largest trade partner is Canada, this is undoubtedly a contributor to their slower employment and GDP growth. 

What will 2026 bring?  Good question.  CUSMA will likely be retained in some form even if it involves separate bilateral pacts between Canada and Mexico with the United States as the current administration is hinting. However, the efforts at Canadian diversification away from the United States will continue given the increasingly erratic state of world economic and political affairs though the rate of diversification will be slow and incremental.  The United States will remain Canada’s largest trade partner but with our export share with the Americans falling below 70 percent and imports below 50 percent in just one year, it is apparent that Canada can generate new economic opportunities that do not involve the United States.  However, the pace is slow and a good economic trading relationship with the United States remains important. Completely reversing fifty years of economic integration is not going to happen overnight nor should it given the traditional links between two countries that share the North American continent. Still, going forward, things will  be different and new patterns of travel and consumption once established will persist to some extent.

Northwest Resilience and Growth

  

The Northwestern Ontario Municipal Association (NOMA) will be meeting April 22^nd to 24^th for its 2026 conference and annual general meeting in Thunder Bay, under the theme “Resilience.” After the winter we have had, resilience is an apt theme though one suspects the choice of theme pertains to the economy and municipal finances rather than the weather and the gauntlet that has become the region’s highways. Economic resilience is especially important these days and it is important to note that the economy in Northwestern Ontario has been doing rather well over the last few years if one is to take labour force data at face value.

It has been an era not of decline or stagnation but of growth with that growth occurring both in the region’s dominant metropolis of Thunder Bay but also outside of it.  Indeed, there has been a noticeable improvement in one of the key indicators at least from the general public’s perspective – the unemployment rate.  From highs of 8 percent in the wake of the Great Recession and Forest Sector Crisis, the unemployment rate in Northwestern Ontario in 2025 stood at 4.6 percent compared to over 6 percent for Canada and over 7 percent for Ontario.  Using data from Statistics Canada, a more detailed portrait of improvement emerges. 

 

Figure 1 plots three labour market indicators for Northwestern Ontario comparing 2015 with 2025.  Between these two years, the population aged 15 years and over grew from 173,400 to 184,200. The labour force grew from 104,700 to 112,500 and employment grew from 98,400 to 107,300.  Of course, it is worth looking at the data in terms of the Thunder Bay CMA and the rest of the region given that Thunder Bay CMA accounts for about 60 percent of both the population and employment of the entire region.  

 

Figure 2 repeats the indicators for the Thunder Bay and adds Full Time(FT) and Part Time (PT) Employment.  Thunder Bay’s population aged 15 years and over increased by 7,400 between 2015 and 2025.  This was accompanied by labour force growth also of 7,400 individuals and employment growth again of 7,400 with FT employment growing by 8,100 while PT Employment declined by 700 jobs.  The good news here is that this employment creation was overwhelming FT employment, and this pattern repeats itself outside of Thunder Bay.   Figure 3 shows that for the rest of Northwest Ontario outside of Thunder Bay, the population aged 15 years and over grew by 3,400 with the labour force growing by 400 and employment growing by 1500.  FT employment in the region outside Thunder Bay grew by 1,800 while PT employment also declined by 300 jobs.  

 

Figure 4 compares percent growth in these indicators across Thunder Bay and the Rest of Northwest Ontario.  Between 2015 and 2025, population aged 15 and over grew 7 percent in Thunder Bay and 5 percent in the rest of the region.  The labour force grew nearly 12 percent in Thunder Bay but only 1 percent in the rest of the region.  Meanwhile, employment grew 12.5 percent in Thunder Bay and 3.8 percent in the rest of the region.  Full time employment grew impressively by nearly 18 percent in Thunder Bay and almost 6 percent outside of Thunder Bay.  Part time employment declined more in Thunder Bay at -5 percent as opposed to about -4 percent outside of Thunder Bay.

 

Figure 5 illustrates the annual unemployment rates in Thunder Bay and the outside region.  Both have declined over time with the decline somewhat sharper in the region outside of Thunder Bay.  That is because the labour force has expanded more rapidly in Thunder Bay relative to the rest of the region as Thunder Bay has attracted more population growth.  Nonetheless, a rising tide appears to have lifted all boats and the improvement in full time employment is especially welcome.

 

What has been driving these improvements?  The construction work both in Thunder Bay and the region whether on the electricity grid or highway improvement has been a factor.  Thunder Bay can add housing and hotel construction to this set of projects not to mention a billion-dollar correctional facility. Then there is mining development which continues to generate employment and activity.  Of course, the region also benefits from a large public sector and quasi-public sector particularly in the health, social assistance and indigenous economic sectors which has also been a factor in employment growth nationwide.  All these sectors in Northwest Ontario have been relatively well sheltered from the ongoing tariff dispute with the United States.  While the Northwest has not escaped unscathed from recent employment losses, it remains that much of the fallout has hit the manufacturing sector in southern Ontario.

So, regional municipal delegates and leaders will have a lot to celebrate at this year’s NOMA Meetings. Indeed, this growth should also be reflected in growing municipal tax bases which will afford additional revenue.  Yet, it is not time to rest on laurels given that the economy both nationally and globally remains turbulent and uncertain.  Hopefully the region will be able to capitalize both on critical minerals mining as well as the growth in defense related spending.

BC and Toronto Economy Studies Released

Ontario is not the only Canadian province that has been buffeted by lacklustre economic performance in recent years.  Two studies released by the Fraser Institute today highlight both Ontario and British Columbia.  The Ontario study by Nathaniel Li and Ben Eisen focuses on Toronto and its role as both Ontario and Canada's economic engine.  The other study and accompanying commentary which I have authored looks at British Columbia's economic performance within the context of whether or not BC is headed towards another "lost decade" akin to the performance of the 1990s. See below for the commentary which appears on the Fraser Institute web site with a link to the study itself. 

Study and accompanying commentary on the British Columbia economy recently released by the Fraser Institute.

Commentary

February 12, 2026

B.C. government faces another ‘lost decade’ unless it pivots to pro-growth policies

By: Livio Di Matteo

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With its inviting climate and magnificent natural setting, British Columbia has long attracted residents. The province’s robust population growth rates, historically above the national average, have been seen as a signal of economic opportunity and success.

However, in recent years, economic growth per person—an important measure of living standards—has stagnated (after adjusting for inflation). In 2025, more British Columbians left the province than moved to it, with a population decline for the first time on record. While B.C. maintains a relatively successful economy with per-person income at or above the Canadian average, it faces numerous economic challenges. In its upcoming February budget, the Eby government should prioritize economic growth.

Again, B.C. has traditionally been among the more prosperous Canadian provinces, but the 1990s and the early 2020s stand out as particularly poor economic periods based on per-person economic growth (inflation-adjusted). The 1990s were known as a “lost decade” in B.C., with per-person economic growth averaging barely one-fifth of one per cent annually (again, after adjusting for inflation).

The spectre of a lost decade has again reared its head as the 2020s have seen per-person economic growth (inflation-adjusted) averaging 0.4 per cent (for perspective, it’s been as high as 1.7 per cent in the 2000s). There are several economic factors driving the slowing growth rate. Critical is the role of business investment. In B.C., gross fixed capital formation in machinery and equipment (as a share of the economy) has declined sharply, from a peak of 28.2 per cent in 1998 to 10.2 per cent by 2023. Moreover, much economic activity in the province is still tied to residential construction and real estate, and while these sectors support many jobs, they’re not at the heart of building a productive, globally competitive economy.

Exports are a key driver of prosperity in a small open economy such as B.C., but as a share of the provincial economy, total exports peaked at 48.1 per cent in 2000 and then declined, reaching 37.5 per cent by 2023. The average annual growth of inflation-adjusted per-person exports was highest in the 2010s at 2.1 per cent, but the 2020s to date has only seen 0.6 per cent average annual growth. These findings point to a significant decline in the strength and dynamism of B.C.’s export base.

Of course, many will argue that despite these trends, employment growth has been quite respectable. However, much of that growth reflects an expanding government sector, with its employment growing by an average of 5.5 per cent annually since 2020, while private-sector employment has grown at just 1.3 per cent annually and self-employment has declined outright. Private-sector employment (including self-employment) is critical to generating the wealth for achieving higher living standards, and the brisk expansion of B.C.’s government-sector employment has come with burgeoning deficits and skyrocketing government debt—pointing to the likelihood of higher taxes down the road.

This is not a recipe for healthy economic growth and is again reminiscent of the 1990s, which saw 10 consecutive provincial government deficits. The B.C. government is projected to run deficits until at least 2027/28, with provincial net debt rising from $71.3 billion in 2023/24 to $155.8 billion by 2027/28. The net debt-to-GDP ratio—an important measure of the sustainability of debt—is in turn projected to rise over this period from 17.4 per cent to 32.4 per cent, indicating a rapidly deteriorating fiscal position.

Halfway through the 2020s, one can argue that the decade is not yet a lost one for B.C., but the recent trends are discouraging. With weak growth in inflation-adjusted per-person economic growth, a decline in important components of business investment, a weakened export sector, dismal private-sector employment growth, and record budget deficits, it’s time for the Eby government to focus on pro-growth policies in its upcoming budget. Otherwise, British Columbians may indeed face another lost decade.

 

 

 

Thunder Bay, The Conference Board and Smart Growth

 

The Major City Insights for Thunder Bay by the Conference Board of Canada was released October 15^th and the report essentially summarizes the economic situation in Thunder Bay as “Local economy treads water” with the key points being as follows:

· Thunder Bay faces a tepid economic outlook featuring mixed performances from the various sectors of its economy. Ongoing work on the city’s $1.2-billion jail remains an economic bright spot, but other important sectors face a range of difficulties.

 

· Plans for at least two local lithium plants remain in play, but faltering demand for electric vehicles (EVs), which use lithium in their batteries, and the recent removal of the federal EV mandate could scupper them. The big drop in lithium prices since 2022 is a bad sign for the industry.

 

· Modest recent improvements in lumber and pulp prices spell some optimism for the long-suffering local forest products industry, although this year’s big jump in U.S. softwood lumber tariffs to a total of 35.19 per cent is a setback.

· Thunder Bay’s real GDP has largely floundered against this uninspiring backdrop. We forecast no change in 2025 following a 0.2 per cent easing in 2024, then a 0.7 per cent rise in 2023. Fractional 0.7 per cent growth is our call for 2026, followed by annual advances just above 1 per cent in 2027–29.

 

· The window of migratory opportunity might have closed for Thunder Bay due to sharply lower federal immigration targets that are limiting the number newcomers from abroad. Rising return-to-office orders from firms and governments, meanwhile, will eventually limit other Ontarians’ ability to take advantage of very affordable local housing.

Out of 24 CMAs covered in the Conference board reports,Thunder Bay ranks 24^th in terms of real GDP growth forecast for the 2026 to 2029 period.  Total employment is expected to remain flat going forward and while population for the CMA is forecast at 134,000, it will remain at that level for the foreseeable future. On the other hand, low growth is not negative growth and business owners in Thunder Bay appear to be well adjusted to a low growth environment given that the most recent survey results out of Thunder Bay Ventures find them cautiously optimistic amid economic challenges.

Needless to say, it is not the most auspicious backdrop for the unveiling of the City’s Smart Growth strategy.  What the ultimate plan to address the City’s economic future will be is interesting to say the least and community input is being solicited on the draft as well as being subject to review by assorted City Standing Committees.  Despite what seems to be some robust construction activity underway in the city in terms of residential and hotel activity, it appears that this is not sufficient to offset what the Conference Board views as “tepid” economic performance.

Indeed, while the City seeks to address growth, a lot of the emphasis to date seems to be on assessment growth and growing the property tax base which are usually not the main targets of economic growth inducing policies.  It would be like next week's federal budget making the case that moving Canada's economy forward requires more people paying more income taxes. The aim should be growing the city’s level of economic activity to increase  both real total and real per capita GDP through private and public sector investment in productive job creating activities.  The City of Thunder Bay Smart Growth plan proposes two key measures to guide growth over the next decade:

• Grow the property tax base by 3% annually

• Grow the population by 1% annually

It would appear that in the end, this is not really an economic growth plan per se but a plan to try and grow Thunder Bay’s municipal tax base that is accompanied by a lot of social and quality of life and community goals masquerading as economic targets.  Indeed, the entire approach resembles a much earlier initiative by Thunder Bay Ventures circa 2005 called Thunder Bay Fast Forward concerned with growth in the midst of the forest sector crisis which also generated sets of indicators. Nevertheless, this latest effort at growth and measurement will probably go over well given the general level of economic literacy in the community. One suspects that perhaps such an approach also works well in a city where one-third of employment is broader public sector and public sector construction projects have been key drivers for the last few years. 

Of course, growing both the economy and the municipal tax base are not mutually exclusive goals but it is odd the performance indicators for successful growth do not include real GDP (which incidentally looks somewhat flat going forward) though employment and labour force indicators as well as building permits which are correlated with overall economic growth are included.  However, as the report states, the “key performance indicators such as tax base and population growth are priority metrics”.  In other words, as long as there are more people on public sector incomes paying more property taxes, this plan will be declared a success.

In light of the Conference Board Report, one suspects the response of our civic leadership to square the Smart Growth Plan with the Conference Board report will be to remark they are measuring different things and growth is more than about just measuring economic output – the perennial apples and oranges comparison. They may even claim the Conference Board report is missing the real sources of economic growth and performance just like Statistics Canada is missing the true size of our population with their numbers.  All we can do is wish our municipal leaders good luck on this one.

 

Thunder Bay’s Employment Trends in the Wake of the Lost Decade

 

Thunder Bay even during the trade war has been doing quite well.  Population is up as is total employment in the wake of the pandemic.  While the national unemployment rate in August of 2025 was 7.1 percent and Ontario clocked in at 7.7 percent, Thunder Bay was below both at 5 percent.  Moreover, employment grew from 65,300 in July to 66,400 in August which incidentally is one of the highest the highest monthly total employment amounts in 20 years.  While Thunder Bay has seen ebbs and flows over time, there has been a distinct upward trend in total employment since about 2012 marking the end of what could be termed the early 21^st century lost decade as the forest sector crisis ravaged the local and regional economy.

Figure 1 plots monthly total employment obtained from assorted Statistics Canada series from 1987 to 2025.  It also fits a LOWESS non-parametric smoothing curve to highlight the trends in total employment.  The early years of the first decade of the 21^st century saw total employment in Thunder Bay rise as the recessionary 1990s were left behind and the all-time peak employment of 67,400 jobs reached in July of 2003.  Soon after began the shocks and declines of the forest sector crisis began to accumulate and employment trended downwards until 2012.   

 

 

Thunder Bay’s economy transformed in the aftermath of the forest sector crisis as it moved into knowledge economy jobs as well as saw the expansion of the regional mining sector.   Indeed, despite the ebbs and flows, the period since 2012 is the longest continuous upward trend in employment in this nearly 40-year period. However, despite this good news, total employment in August 2025 still falls short of previous peaks reached in July 2003(67,400), June 2018 (66,200) and April 2023 (67,100). Indeed, Thunder Bay’s best employment performances historically have always oscillated within a band of 65,000 to 68,000 jobs.  This band has never been exceeded and until it is one can argue that Thunder Bay remains strangely constrained in a situation of bounded economic ability.

The other interesting point in all this that I came across while cleaning out files was a 2005 Major Employer List out by the Thunder Bay Community Economic Development Corporation.  Sadly, they no longer seem to have such as list on their web site as I could not locate either the old ones or an updated version.  Nevertheless, the list is compelling documentation of the world that we have lost.  Thunder Bay is intriguing in the sense that over time one is faced with the dual reality that there has been both major economic change and no change whatsoever.

Figure 2 plots the major employers in 2005 ranked from highest to lowest.  Highlighted in red are all the employers that to the best of my knowledge are no longer with us.  In 2005 the list has 55 employers with then largest being the City of Thunder Bay (3,080 employees) and the smallest being DST consulting Engineers and Loch Lomond Ski Resort (both at 100 employees each). Interestingly, the top ten employers on this list are all still with us showing the amazing continuity that is often Thunder Bay despite all the change that has occurred.

 

This list of major employees added up accounts for 29,320 employees with average total monthly employment in Thunder Bay in 2005 at 64,000.  Notable by their absence is any of the grain elevator companies but these had been hollowed out in the 1980s and 1990s and to my knowledge there could not have been more than 300-400 workers left in that sector.  Then there is TBayTel which easily has several hundred employees also, but it is possible that they are under the municipal total. Nevertheless, if you add these jobs too, then this list was essentially the city’s economic high ground with nearly 50 percent of employment.

Since 2005, Thunder Bay’s economy lost several major employers.  Gone are Buchanan Group Northern Wood (550 employees), Cascades Fine Papers Group Thunder Bay Inc. (550 employees), Abitibi Consolidated (down to 400 by 2005 after other closures), Buchanan Group Great West Timber (290 employees), Buchanan Northern Hardwoods (200 employees), Zellers (368 employees), Sears Canada (300 employees) and OPG Generating Station (150 employees)for a total of 2,518 jobs. The last three employers mentioned went later than the forest sector companies with Zellers departing 2013 (it was a national departure), Sears Canada (2018, another national departure) and OPG Generating more recently.

Between 2005 and 2010, average annual monthly total employment went from 64,000 to 59,800 as associated multiplier effects worked in reverse affecting retailers, suppliers and other services.  Thunder Bay itself lost about 5,000 jobs during this period – many high paying resource sector jobs - an upheaval that essentially ended a way of middle-class life for many families.  The fact that Thunder Bay is currently back to 66,400 jobs is a remarkable achievement given that it means that nearly 7,000 jobs have been created since the forest sector crisis low point.  In other words, the 5,000 lost jobs have been made up – in quantity of not always quality – with growth of an additional 2,000 jobs.  This is good news. 

Crucial to the remainder of this decade will be continued growth in Thunder Bay’s economy that boosts employment well above its historic 65,000 to 68,000 glass ceiling.

No quick fix for Ontario’s economic decline

 This originally appeared in the Fraser Institute Blog, August 13th.

 Ontario continues a decades-long economic malaise. From time-to-time economic analysts arise to point out the decline only for the news to be treated as so much water off a duck’s back. Indeed, the complete picture as measured by real per-capita GDP has evolved to the point where the response should be alarm rather than concern.

Moreover, the solutions now being advanced by the Ford government (and others) to move Ontario’s economy forward are quick big fix projects that do not address economic fundamentals. Despite an economy considered Canada’s powerhouse in terms of size, export intensity, and manufacturing depth, the trends are disconcerting. This is not a short-term aberration attributable to the tariff disputes with the United States but a sustained inability to effectively grow the economy.

The chart below plots Ontario’s real per-capita GDP (in 2020 dollars) along with the average real per-capita GDP of the rest of Canada from 1926 to the present using data from Finances of the Nation. For most of the last 100 years, Ontario has been the wealthiest province in the Canadian federation as measured by real per-capita income. Moreover, the gap has usually been substantial.

 

 

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For example, in the 1920s, the per-capita income of the rest of Canada was about two-thirds that of Ontario. This proportion persisted well into the early 1970s at which point it began to quietly erode. By the late 1970s, the average real per-capita GDP of the rest of Canada had reached more than 80 per cent of Ontario’s. The economic boom of the 1980s masked Ontario’s decline but the period since the 1990s has seen its relative decline continue and the per-capita GDP of the rest of Canada now is just over 100 per cent that of Ontario.

In 1960, Ontario has the highest real per-capita GDP of all 10 provinces. By 1990, it was in second place just behind Alberta but ahead of British Columbia. In 2005, Saskatchewan surpassed Ontario moving it to third place while by 2022 Ontario’s rank had moved to fifth place. Essentially over the course of just over half a century, Ontario went from the top province in terms of per-capita GDP to mid-ranked. Ontario is exhibiting more characteristics associated with the Atlantic provinces—Ontario received equalization for the first time in 2009—than the more dynamic western parts of the country. A province that once had hopes as high as the tallest tree, now is lucky to aspire to economic heights akin to a lilac bush.

What has happened to Ontario is more than a re-equilibration of the federation as resource rich provinces developed or the effects of adjustment to a more competitive free trade world in the wake of the FTA and NAFTA. Simply put, Ontario has experienced a productivity decline rooted in a failure to boost business investment. While Ontario is a mineral and resource rich province, it has been unable to bring resource projects online—the Ring of Fire a case in point. This has been accompanied by a governmental and business culture focused more on process and regulation than on trying to get things done and a cultural shift to gaining wealth through supply restraint and asset appreciation rather than hard work.

Nowhere is this more evident than in housing investment where population growth has outstripped additions to housing stock. The regulatory framework towards getting projects approved, permitted and built is generally a labyrinth. Large amounts of both suburban and northern land were environmentally sequestered from development without steps to ensure density development creating artificial scarcity particularly in the Greater Toronto Sarea (GTA). The effects on new supply were worsened by the fact that new housing began to be treated as an investment by the public and a revenue source by governments given the plethora of tiny investor driven condo buildings and the development charges accounting for a large proportion of the price of new housing.

While there are signs that the Ontario government is finally trying to overcome these past missteps, it’s an uphill struggle given the continual grasping at quick fixes designed to promote rapid economic growth. The passage of Bill 5 gives the Ontario government the powers to establish special economic zones to speed up mining and other development projects. One suspects the goal is to speed up development in the critical mineral rich Ring of Fire area which has been on the cusp of development for decades but has yet to really go anywhere. Yet it may be too little too late as critical minerals are considered crucial for electric vehicle production but the demand appears to be slowing.

The Ontario government does not have a coherent economic strategy designed to boost long term productivity and investment but rather is hitching its wagon to quick fix large scale investment projects and the attraction of federal investment dollars in the face of President Trump’s economic and commercial assaults on the Canadian economy. Among the nation building projects that the Ford government would like federal support for are a tunnelled expressway under Highway 401, all season road access to the critical minerals of the Ring of Fire, new nuclear generation projects, and a new deep sea port on James Bay.

Ontario is also supporting the idea of an east-west pipeline made with domestically produced steel that would connect to a not-yet-built port of James Bay as well as a new rail line from the mineral rich Ring of Fire to mineral processing facilities in Western Canada. Strangely enough, Ontario has not put forward the enhancement of the vital east-west Canadian highway link passing through its north as a major nation-building project which is a curious oversight, instead leaving it up to municipalities to advocate.

In many respects, this aspirational mega project vision of economic development for Ontario is a serious case of déjà vu as many of these projects resemble a wish list from the 1960s and 1970s. Even developing deep-water ports on James Bay is a concept with a history stretching back to the 19th century. Some of these projects—such as new pipelines—are tied to resource development and are welcome given Canada’s comparative advantage in resources but a return to simple hewers of wood and drawers of water is also not where we should be going.

How does Ontario invest in 21st-century resource extraction in a manner that boosts high technology and create backward linkages into our tech and AI industries? How can Ontario break through the regulatory morass slowing the construction of homes, new resource projects and economic activity in general—regulations that in total have been estimated at 386,000 requirements? What will Ontario do to create tax incentives for business investment and individual labour supply, given that highest marginal personal income tax rates are close to 54 per cent?

Getting on the quick fix mega-project bandwagon is easy. Putting in place the environment that might help some of these projects succeed is not.

 

Is Thunder Bay in Decline?

 

Last night’s Thunder Bay city council meeting was another eventful evening with discussions of tax ratios, highway trucking routes and the ultimate location for the city’s tiny homes endeavour given the demise of the Kam River location.  However, the most interesting aspect of last night’s debates was the exchange between a councillor and the city manager in which the question was asked if Thunder Bay was in decline? Thunder Bay has come a long way in terms of its internal debates as a few decades ago asking such a question would have been met with a bristly closing of ranks among the city’s political leaders with boosterish assertions that all was well in Thunder Bay despite short term challenges.  Times have apparently changed reflecting a maturation of economic discourse in the city though one does get the impression that in some regards it is too little too late given a more vigorous growth agenda should have been in place decades ago.

Nevertheless, the question was asked and answered by the city manager.  While the exact response cannot be replicated from memory, in essence it was that no, Thunder Bay was not in decline.  However, its economy and population were growing more slowly than provincial and national rates and that Thunder Bay needed to do more to boost growth and hence Thunder Bay had to undertake measures to boost economic growth.  This was tied to the discussion of lowering the tax ratios on commercial, large industrial, and multi-residential properties, effectively increasing the proportion of taxes paid by remaining property classes – namely single detached residences which incidentally have gone from footing half the bill to over 70 percent of the bill over the last few decades. Ostensibly this move would serve to attract businesses to Thunder Bay and boost growth and lower the tax burden on existing ratepayers.   Re-balancing the tax ratios is  a long standing issue in Thunder Bay and rooted in provincially driven policies.

There is of course some confusion as to what exactly this would cost the average homeowner in Thunder Bay.  According to one report in the local media: “A home assessed at $100,000 would see a tax increase of $66.58. The median residential single-family detached home in the city, with an assessment value of $219,000, would see a $145.80 increase on its tax bill.” Another media report stated that “For a house assessed at $219,000, the median home value in Thunder Bay, that shift would mean an extra $7.83 on the tax bill, according to Kathleen Cannon, director of revenue.” Needless to say, taxes paid are going up though the amount of the increase is not being clearly communicated.  Most people would indeed be leery of a tax shift that promises lower taxes in the future given that the tax levy in Thunder Bay has been going up for decades even if the rate of increase has declined over time.

How much money are we talking about here in terms of additional tax shifting onto residential homeowners from commercial, industrial and multi-residential assessments? Well, according to the 2021 Census, there were 26,790 single-detached homes in Thunder Bay and 2,040 semi-detached homes.  If we go with the median estimate of $145.80 as the increase in the tax bill, then this would entail a shift of $4.2 million dollars out of a $240 million tax levy onto residential ratepayers.  On the other hand, if it is $7.83, then this would entail a shift of $225,739.  Given the amount of debate that this has been taking up, one suspects that it must be the former rather than the latter.  One would think that if you are going to reduce the total business/industrial tax bill, the $4.2 million dollar amount would be of more significant impact on job creation and growth than a few hundred thousand dollars.

However, the purpose of such a move to boost growth brings us back to the question of whether Thunder Bay is in decline, thereby justifying potential growth enhancing measures.  And, by decline one of course must assume that it applies to economic decline rather than social or moral decline. Definitions are of course important and decline can be defined as “a gradual and continuous loss of strength, numbers, quality, or value.” Thus, an economic decline should exhibit a reduction in key economic variables such as GDP growth, population or employment. 

Figure 1 takes real GDP data largely from Statistics Canada and supplemented where necessary by Conference Board numbers and provides the annual rate of real GDP growth for Thunder Bay, Canada and Ontario for the period 2010 to 2024.  There are years where Thunder Bay has exceeded national or provincial growth rates in real GDP ands years when it has fallen below.  Overall, since 2010, Thunder Bay has experienced faster real GDP growth than Canada 40 percent of the time and Ontario 50 percent of the time.  However, since 2019, Thunder Bay has never grown faster than either Canada or Ontario.  As a result, over the 2010 to 2024 period, Thunder Bay’s average annual real GDP growth was 1.8 percent compared to Canada’s 2 percent or Ontario’s 2.1 percent.  Thunder Bay’s economic output is growing but it is growing at a slower rate than Canada or Ontario.

 

 

Figure 2 presents the population increase from 2001 to 2024 based on Statistics Canada data again for Canada, Ontario and the Thunder Bay CMA.  Between 2001 and 2024, Thunder Bay’s CMA grew from 121,986 to 133,0676 for an addition of just over 11,000 people representing a percent increase of 9.1 percent.  While this is indeed growth, during the same period, Canada added nearly 10 million people for an increase of 33 percent while Ontario added nearly 5 million people for an increase of 42 percent.  Again, Thunder Bay’s population is growing but not as quickly as either the country or the province.

 

 

Finally, Figure 3 looks at employment but like population, given the differences in size, total employment is best analyzed not in terms of absolute numbers but as an index.  In 2006, Thunder Bay had 59,800 employed while Canada was at 16.4 million and Ontario at 6.5 million.  To look at growth comparatively, 2006 is set equal to 100 for each jurisdiction.   By 2024, Thunder Bay had added just over 5,000 more jobs putting the index from 100 to 108.7 – an almost nine percent increase in employment.  By way of comparison, employment in Canada rose 27 percent over the same period while Ontario rose slightly under 27 percent.  As the trend lines illustrate, employment rose in Thunder Bay – albeit with more fluctuations – but also at a lower rate.

 

 

So, is Thunder Bay in decline?  Strictly speaking, it is not. Thunder Bay is growing but it is growing more slowly than the rest of the province and the rest of the country in terms of output, population and employment.  It is growing in absolute terms but getting smaller in relative terms when it comes to population, employment and output. If Thunder Bay had grown at the same rate as the rest of the province over the last two decades in terms of population and employment, it would have a CMA population of over 170,000 people and employment at nearly 76,000 jobs.   It is not decline but relative decline.  It is not as big a problem as absolute decline but a problem nonetheless.