A spoonful of government intervention helps the economic pain go down

The Carney government is signalling that it will become more interventionist in key industrial sectors to shore up Canada’s economic sovereignty – and that may not be a bad thing.

Ottawa is providing billions in support for tariff-hit sectors, sharing ownership of the proposed Pacific Link oil pipeline, creating a sovereign wealth fund to finance major projects and considering a forced divestiture of Stelco Inc., moves that highlight its increasing involvement in the economy.

The government’s goal is to drive industrial transformation amid the collapse of rules-based global trade. Its challenge, however, is to provide appropriate doses of support to domestic industries while avoiding beggar-thy-neighbour protectionism that kills competition and riles foreign partners.

Industry Minister Mélanie Joly, who recently outlined the government’s vision for strengthening our country’s economic sovereignty, suggests that Canadians get comfortable with more market interventions by the state.

“We have to accept that the government’s role will be bigger than usual because of the depth of the crisis,” Ms. Joly said during an event hosted by the Canadian Club Toronto last Friday.

“So, what we will do is in certain sectors, we’ll protect our market, obviously.” At the same time, Canada will “continue to do business” with other middle powers, she said.

It’s a fine line to walk.

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Ottawa also faces the tricky task of balancing its economic ambitions with fiscal prudence as it prepares to unveil the federal budget on Nov. 5.

Ms. Joly, who says it is possible to achieve both of those objectives, alluded to plans to help companies secure capital to seize new opportunities.

“We will provide even more financing. We will help businesses address the geopolitical risks, which are really not linked to their own operations or their own fault,” she said.

“But also we’ll go further, and that’s something that we haven’t done a lot at the federal level. But in certain contexts, we will take equity positions in companies to be able to address that need for financing and that need to help risk taking.”

To illustrate a possible investment scenario, she gave the hypothetical example of a steel plant that aspires to upgrade its operations and produce a different type of metal that has infrastructure or defence applications.

As for Stelco, Ms. Joly stopped short of saying that Ottawa is prepared to nationalize the steel maker. “It is the government’s position that Stelco has breached its commitments.”

She reiterated that view this week.

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Still, the government’s plan to take ownership interests in certain companies is an interesting strategy, especially when one considers that the Trump administration has already taken strategic equity positions in select Canadian companies.

Last fall, for instance, the U.S. government secured minority ownership in two Vancouver-based miners, Lithium Americas Corp. and Trilogy Metals Inc., ostensibly to secure access to critical minerals.

Ottawa has intervened in certain industries in past crises. For instance, it took equity stakes in automakers General Motors and Chrysler during the 2008-09 global financial crisis and in Air Canada during the COVID-19 pandemic as part of broader bailouts.

This crisis, too, is being driven by complex dynamics.

Perhaps that’s why corporate Canada, which generally favours free markets and fiscal discipline, isn’t recoiling at the idea of more government intervention.

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Indeed, some business leaders appear to welcome an expanded role for Ottawa in certain contexts.

Bank of Montreal CEO Darryl White, for one, says Ottawa should take more steps to boost access to capital for defence companies. As he points out, many are small and medium-sized businesses that struggle to obtain scale-up financing.

In an interview with my colleague Stefanie Marotta this week, Mr. White floated possible solutions such as government-backed risk-sharing tools and loan guarantees.

Here’s a related idea. Since banks are generally facing calls to increase lending to small and medium-sized businesses, perhaps Ms. Joly should consider introducing programs akin to those offered by the U.S. Small Business Administration.

The SBA, which was created in 1953 in the aftermath of the Second World War, works with financial institutions to support their lending to U.S. small businesses. It does this by backstopping a portion of loans to mitigate the risk to lenders.

A 2026 report by the Congressional Research Service said SBA stopped issuing direct business loans because the subsidy rate was up to 15 times higher than those for its loan-guaranty programs. Thus, it is something for Ottawa to consider.

Ms. Joly says the government needs to take a more active role to help businesses pivot to new markets and products.

Government intervention can make some people feel uneasy. But given the gravity of this crisis, strategic shots of state action could prove to be an economic elixir.