It’s hard to be ‘masters of our destiny’ when our destiny is shaped in the U.S.

John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.

Finance Minister François-Philippe Champagne delivered this week’s budget in an environment that had suddenly become both more and less benign for Canada.

The government is right to set a goal of making Canadians “masters of our destiny.” Ottawa had a revenue windfall and chose to spend it largely on stimulus instead of paying down debt. The budget introduced tax cuts and measures to boost major infrastructure projects and private-sector investment.

But it will always be the case that what happens south of the border will help shape our destiny. And Tuesday’s U.S. election result, which amounted to a decisive repudiation of Donald Trump’s economic management, changed most everything.

To start with the most obvious, the AI bubble, which had already begun to deflate, was burst by this result. The anger at the President’s gung-ho approach to AI crosses party lines, and of the 30 state-level ballot measures calling for restrictions on data centres, 29 won.

Not surprisingly, therefore, shares in AI companies have taken a beating since the election. Those of companies close to the President, like Elon Musk’s Tesla and SpaceX or Larry Ellison’s Oracle, went into free fall (Mr. Trump’s own media company’s share price, meanwhile, collapsed, suggesting the Trump money train may have hit the buffers). Crypto, rescued from its sinking two years ago by Trump’s election, is also sailing into much choppier waters.

All of this new volatility may affect the economy, particularly if the AI investment which had kept it turning over slows sharply. If this week’s stock market falls turn into a bear market, a recession in the U.S. could come swift and hard.

Thus, while Canada’s deficit projections look good, they may get revised if the economic outlook changes. The good news is that, unlike the U.S. government, Canada has more fiscal space to absorb such shocks. The government therefore did well in the budget to focus on investing for the future, not least because such spending will act as a counter-cyclical absorber should the economy soften. Besides, if we do enter a recession, long-term interest rates will further decline, which will ease the burden of interest payments.

Among the investment measures announced by the government, a couple deserve special commendation. The housing plan offers an overdue corrective to a sector that was a drag on the economy during its own bubble – good for property investors, but bad for just about everyone else. So too the investment in renewable energy and electrification.

That’s because after Tuesday’s Democratic tsunami, shares in the renewable energy sector leapt in New York, while those in the fossil fuel sector fell sharply. The meaning is clear: Mr. Trump’s steadfast efforts to thwart the energy transition and pivot back to fossil fuels, which was always a quixotic campaign to reverse a powerful tide, has now been rejected at the ballot box. Although renewable energy was not a major issue in the election campaign, the political direction of travel now matches the economic one.

Given the need to diversify both Canada’s export markets and its industrial base, the tax incentives for startups announced in the budget are also a positive development. But when it comes to Canada’s trade environment, many commentators doubt that much has changed: The new U.S. Congress won’t be noticeably more favourable to free trade than the last one, since the Democratic Party has always had a large collection of opponents to the principle and, besides, trade negotiations remain a purview of the president.

However, while such skepticism is understandable, the skeptics may be looking at the wrong side of the ledger. Tuesday’s decimation of Republican ranks has opened fissures in the party, and the recriminations have begun. Long considered untouchable because of his ability to line up MAGA faithful to strike down opponents in primary elections, Mr. Trump is suddenly seen as a liability.

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With the trade war on Canada seen as particularly dim-witted, any further mercurial behaviour from him and his administration will draw hostility within the party.

Moreover, some of the administration members most associated with the hard line on Canada, like Howard Lutnick and Peter Navarro, are very unpopular and so politically expendable. Mr. Trump might not dump them but he’ll probably allow them less freedom to scupper trade deals. All told, therefore, it’s a good bet that trade negotiations between the two countries will become less sharp.

Still, that doesn’t mean Canadians can celebrate a return to normality south of the border. The harsh punishment voters meted out to Republicans didn’t necessarily indicate a turn to the Democrats. The election appeared instead to be a rejection of Mr. Trump. Americans made clear they were fed up with their President’s neglect of their concerns, namely the high cost of living, an unpopular war and an administration whose prime aims seemed to be to enrich its members and glorify the President with monuments.

Nevertheless, Republicans may yet be back in power in two years. The budget was therefore right to push ahead with plans to bolster Canadian sovereignty and diversify exports.