Business Brief: A new normal takes shape

Good morning. Washington is getting a fresh coat of blue. Today, we’re looking at how the U.S. midterms, a reopened trade file and tomorrow’s budget could give us a clearer picture of Canada’s new economic normal.

Up first

In today’s headlines

Transportation: Airline executives praise major projects bill’s labour provisions, say frequent strikes hurt investment.

Defence: A lobby group of Canadian-owned defence companies is urging Ottawa to give greater weight to domestic ownership when awarding military procurement contracts.

Tech: Ottawa’s mega investment in Cohere sparks commercial criticism and sovereign support.

In focus

Three turns toward a new normal

This week won’t settle Canada’s relationship with the U.S., but it should give us a clearer view of what’s in store over the next year or two. Here’s what we know about tomorrow’s budget, the reopened trade talks and the political mood south of the border – and what to watch next.

1. The Midterms

A shift in power: Voters handed Democrats control of the U.S. House and Senate yesterday. Polls ahead of the vote showed Americans were heated over high prices, which have been driven up by the war in Iran and by U.S. President Donald Trump’s tariffs on nearly every country in the world, Canada included.

A divided Washington raises the odds of budget fights and closer oversight of industries such as banking, health care, crypto and AI. The results of yesterday’s vote could amplify discontent over the tech industry’s data-centre buildout, which has also drawn opposition across Canada.

Where the power stays: Trump will still be in charge of most of what matters to Canada. Washington’s tariffs on Canadian goods come in two layers, and both rest on executive authority. The first is the Section 232 levies on steel, aluminum, autos and lumber, which the U.S. applies to all its trading partners.

The second is the 50-per-cent duties on about $28-billion of Canadian products, including some vehicles, alcohol and dairy. A Democratic Congress could challenge either but would have trouble undoing them. When the Supreme Court ruled in February that Trump couldn’t use an emergency-powers law to impose tariffs, his administration turned to a 1930 statute no president had used before to put the 50-per-cent levies in place. Foreign policy, including the war in Iran, also remains largely the President’s call.

As the Democrats picked up early wins last night, Jesper Koll, a director at Monex Group, said he doubts there will be much impact on policymaking.

“This is basically an imperial presidency that operates by executive orders,” he told Reuters.

What to watch next: Trump’s administration has spent weeks warning Canada against meddling in U.S. elections, so how he reacts to the results could be a distraction at best and, at worst, a pretext for tougher tariffs.

2. The budget

Promises, promises: Ottawa has titled the budget “Masters of Our Destiny,” though much of what it must plan for will be decided in Washington. Carney announced what is likely its largest measure in September. The Productivity Mega Deduction will cost $36-billion over five years and expands the rules that let companies write off eligible capital investments immediately, instead of spreading the cost over several years. The budget will also have to account for a year of multibillion-dollar commitments to new icebreakers, submarines, major projects and housing.

On Monday, Finance Minister François-Philippe Champagne told a Toronto business audience that the budget would go further for small- and medium-sized businesses and simplify their taxes, but he didn’t say how.

Paying up: The government will have less room to pay for those measures than its revenue gains suggest. Higher oil prices have pushed federal revenue above earlier projections, but economists say most of that money has already been committed to initiatives announced in recent months. The Parliamentary Budget Office projects a $63.3-billion deficit this fiscal year. Interest on the debt is now the fastest-growing federal expense, and the PBO expects debt to reach 42.6 per cent of GDP by 2030-31, up from 41.1 per cent, and the deficit to rise to 2 per cent of GDP in 2027-28 before easing.

What to watch next: Investments on this scale take years to pay off. Voters rarely wait that long. Expect more scrutiny of Carney’s ability to turn big commitments into action before the next election.

3. Trade talks

Back at the table: Canada and the U.S. are going back to the bargaining table for the third time in just over a year. Last October’s talks ended when Trump walked away over an Ontario government TV ad that used Ronald Reagan to make the case against tariffs. The second round fell apart in August, three days after Trump announced a deal, when Carney pulled his negotiators out of Washington less than half an hour before a tariff deadline. Yesterday, Carney said the United States is “asking less” and “offering more” in negotiations aimed at a trade deal that he says are making progress.

Now, where were we? It’s unclear whether the issues that sank the August deal have been resolved, Mark Rendell reports. The biggest were U.S. tariffs on medium- and heavy-duty trucks, which matter to Ford’s and General Motors’ plants in Ontario; American pressure over Canada’s rules requiring streaming services to promote Canadian and French-language content; and wording Ottawa feared would limit its ability to sign trade deals with other countries. Canada’s main goal is to lower tariffs on autos, steel, aluminum and wood products, though officials concede those tariffs won’t disappear entirely.

What to watch next: Attention turns to 2028 and to who emerges as each party’s leader after Trump. For Canada, that race will start to show whether the tariffs are his policy or a lasting American one.

Charted

No one can say Donald Trump is a complacent bully. In his second term, Tim Shufelt and Dexter McMillan observe, he has combined a flair for relentless branding with a penchant for geopolitical trolling. What you get is the weaponization of proper nouns.

Quoted

Someone is stealing the ashes of Hong Kong celebrities.

Up next

More files we’re following today

By the numbers: Canada’s September trade report, the first full month capturing the newest U.S. tariffs, will likely show Canadian exports of targeted goods falling off after companies rushed shipments across the border in August. Higher oil prices will likely keep energy sales strong.

Corporate results: Earnings today include Cenovus, Manulife, Great-West, Nutrien, McDonald’s; Qualcomm and Uber.

Morning update

Global stocks recovered from lows hit overnight after Democrats won control of both the Senate and the House in the U.S. midterm elections, and investors weighed what that could mean for AI spending ⁠and ​regulation.

Wall Street futures were in positive territory, while TSX futures followed sentiment higher.

Overseas, the pan-European STOXX 600 was up 1.41 per cent in morning trading. Britain’s FTSE 100 rose 1.23 per cent, Germany’s DAX climbed 1.47 per cent and France’s CAC 40 gained 1.46 per cent.

In Asia, Japan’s Nikkei closed 1.42 per cent lower, while Hong Kong’s Hang Seng climbed 1.67 per cent.

The Canadian dollar traded at 71.62 U.S. cents.