Dialogue with the Dean | What will it take to secure Canada’s economic future?

KANINA BLANCHARD (KB)

Exclusive insights, actionable strategies and ideas that ignite change. You're listening to the Ivey Impact Podcast from Ivey Business School.

JULIAN BIRKINSHAW (JB)

Hello and welcome to Dialogue with the Dean, the flagship series on the Ivey Impact podcast. I'm Julian Birkinshaw, Dean of the Ivey business School. As we begin 2026, Canada finds itself at a critical crossroads. Heightened trade tensions with the United States, new tariffs and a more fragmented global economy have injected a new level of uncertainty into our economic future. This matters deeply when you consider that $3.6 billion in trade crosses the Canada-U.S. border every single day, making this relationship not just important, but foundational. The question now is how Canada responds. How do we manage uncertainty while strengthening productivity? How do we move from innovation potential to an innovation economy, and how do we diversify and deepen our global trading relationships at the moment when economic strategy and diplomacy are inseparable? This is also a pivotal year for the Carney government, which faces rising expectations to be decisive, strategic and credible both at home and abroad as it navigates U.S. relations and an increasingly complex global landscape. To help us make sense of what's ahead, I'm joined today by Assistant Professor Romel Mostafa, who's research and policy work as director of the Lawrence National Center for Policy and Management, focuses on competitiveness, productivity, innovation and global trade strategy. Romel, welcome to Dialogue with the Dean. It's great to have you with us.

ROMEL MOSTAFA (RM)

Well, thank you so much, Julian, for having me. These are interesting times. Perhaps too interesting, but here we are.

JB

So, to get us started Romel, just give us a sense of what people are going to be listening to for the next 20, 30 minutes. What are the key things we're going to talk about?

RM

You know, I think actually, Julian, as you said, you know, 2026 is going to be a pivotal year for Canada, in terms of building, and strengthening its economic foundation. Clearly, the trade dynamics are going to play a huge role. As well as we want to talk about how do we really generate economic growth internally through, you know, innovation, productivity along the way. We're hoping that we're going to, you know, shed some actionable policy ideas, as well as implications for business.

JB

Good. And just a brief look back at 2025, I mean, lots went on. It was a crazy year. That was Carney’s first year as Prime Minister. Give us a quick report card on two of the three of the things that the Carney government achieved already in that first period.

RM

Julian, as you said, this was the first inning and the was a lot going on. And the way to think about it is how do we really bring stability across all these forces that are in play? Yeah, right. I think in terms of positives, if you think about it, what we've seen is essentially there have been some major announcements of major projects, right? Just, you know, turning a page here, but maybe Canada can actually build some of these big, bring in big investments and create some economic growth through that process. At the same time, if you think about it, we have actually committed to, bringing up, what is it to 5% of the GDP to defense strengthening that part in terms of sovereignty. As well as, if you think about it, with the, the Carney government has done quite a lot in terms of building bridges across other countries, including the European Union. And then of course, you know, trade deals with Indonesia, potential investments from UAE. Right about $70 billion. Right. So, these are positive things. And then of course on the negative side of what you have is essentially the expectations that some of the sectoral tariffs would be addressed. They’re still here. Right. And then of course, there's also expectations that, you know, would really progress a lot on the interprovincial trade barriers….

JB

We'll come back we'll come back to that. But I do I do think that every leader comes in with huge expectations. And certainly if I compare in his first period in office compared to leaders, for example, in the UK, where I'm from, there's a lot of positivity I feel and I do think that the resetting of our relationships with a lot of international partners has been quite key.

RM

And if I just add to it, I think we don't know the counterfactual, what you know would have happened if Pierre Poilievre had won. But I think it is pretty safe to say that based on what we were a year before now and we are on a stronger economic footing, for sure

MUSICAL TRANSITION

JB

So let's move to 2026. And of course, one of the huge issues is going to be our trading relationship with the US. Everybody knows that. Something like 72% of total Canadian goods and services exported went to the US, I think in 2023. So this is vital to Canada. Everybody knows about Trump's tariffs. But I do understand that at the moment, something 86%, this is what Mark Carney says, some 86% of all Canadian goods are currently what we call CUSMA compliant, compliant with the existing trade arrangements. Explain why July the 1st is a looming date in our relationship, our Trade relationship with the US.

RM

It's an important date because that's the date when you've got the three parties coming together and actually going to basically say whether they agree to the CUSMA where it is, or trigger, which is most likely what's going to happen, an annual review. Right, and that's then would you know essentially lead to concessions. What you have is public consultations have happened. We've got closed door negotiations going on. Right. And then, of course, there are other moving parts to it, which is essentially, you know, you've got the Supreme Court ruling that could happen. And then at the same time, there is the November midterm elections.

JB

So right now there are a bunch of conversations going on between essentially Canadian trade negotiators and U.S. and Mexicans sector by sector, they are working out some of the things that potentially will get thrown into the mix as they start talking about the re the renegotiation, or the continuation of the of the free trade agreement. Is that right?

RM

That's correct. And there are strategies that I think we should be pushing forward. And essentially if you look at the trade between Canada and the US, it's pretty balanced. And we've developed a whole bunch of infographics to that effect at the Centre. And essentially it is one of those things where both countries really benefit as a result of that relationship. And we want to make sure that that, you know, voice gets, you know, noted not only here but also across the border and then really bring along the U.S. businesses and, of course, governors and politicians so that they can actually be an ally in that negotiation.

JB

So, in the scheme of things, the rough trade balance is is equal. I mean, Canada has a slight trade surplus. I think, perhaps we have a slight services deficit, but roughly balanced. This is a good relationship for both sides. I mean, the rational argument is that this is a working relationship that should not change, and that was presumably what the Canadian negotiators will be bringing to the table.

RM

Indeed. And if you think about there's actually research that suggests, you know, why, this actually works. Because if you think about it, when we actually moved, to the first free trade agreement, you know, a lot of tariffs went down. And the research suggests that Canada actually lost disproportionately more jobs as result. But then the US in these sectors. But then what happens, what is really interesting is that specialization across the border occurs. And then these industries actually increase their productivity, actually grow, and then become more competitive. And then this is a reason why I think we've been able to withstand some of the even external foreign competition coming into North America, if you will.

JB

But this is ultimately going to be a difficult negotiation, and you've got the wild card of how Trump decides he wants things to go. And of course, he's not into the detail, but he can absolutely, come in with some fairly heavy-handed views as this thing reaches its pinnacle. Presumably certain sectors are at risk. And, and I'm asking you perhaps to speculate more than is fair, but you know, which parts of the Canadian economy do we see at most sort of at risk or at play in these negotiations?

RM

Clearly, I mean, the autos is going to be an important sector. I mean, and as well as, you know, the steel and aluminum. Right, right. I think the key is to reduce, and if not, get rid of these sectoral and essentially and we can make the case there whereby if you think about it, yes, it will create some jobs in the steel sector, and the prior research suggests it, in the first Trump administration, we created about a thousand jobs in steel. And but, you know, U.S. manufacturing lost 75 to upwards of, you know, 400,000 jobs according to certain estimates. We want those manufacturers to basically say, you know, what we need to bring down these tariffs, sectoral tariffs, because that is really hurting the U.S. sectors essentially.

JB

Understood. And one thing Mark Carney has said is he wants to double non-U.S. exports over the next ten years, which is an increase of roughly $300 billion. Now, I think everyone would say, yes, that is a good idea. And of course, yes, it takes a long time. I think everybody understands that as well. But I guess the question then becomes, what are the policy levers available that will allow us to actually deliver on that promise?

RM

So, I think this is a really important question. And if we think about this more carefully, which is we actually have a lot of trade agreements, free trade agreements, but we haven't really been able to, you know, capitalize on those, right. Now, obviously diversification is difficult because when you go to the new market, we know there's demand uncertainty. There is, new regulations that you have to abide by. Right? There are, you know, supply chain risks that you have to take currency risk, a whole bunch of things that you have to deal with. The reasons why we tend to move towards the more familiar large market, the US.  But I think the policy levers, one way to look at is actually China. China's actually done pretty well in diversifying its exports, geographically. Now, some of these things actually, when you do the, you know, export schemes tied to directly to export performance that will, run afoul with the WTO rules. But Canada can focus on the non-direct incentives, can exports and other means whereby we can really, there's potentially scope for broadening that for new market penetration as well as providing technical expertise to help these firms too.

JB

So when we see Mark Carney go to China and to the UAE in the Middle East and various other countries, I mean, he's obviously making a statement when he goes to those visits. But behind all of that, you're saying there's a bunch of people working with those respective countries to try to ease trade trading…

RM

We have to double down on our trade missions and creating these relationships right across the importers there and our exporters here. I mean, these are like business relationships that have to be built. And and let me just, you know, point out a small example like if you think about it right, there is a quite a bit of rewiring that you have to do in order to sometimes technically, even, you know, to export to a new country. So for example, in softwood lumber essentially, when actually export to the US and it's an imperial system. When you try to export to other countries, it's actually a metric system. Yeah. Now there you know, it is actually it requires quite a bit of technical changes that you need to do and capital investments in order to do that.

JB

No, it's a good point. I mean we think of trade as just, you know, two parties choosing to do trade. But there's a bunch of stuff which either makes that money difficult or relatively easy that happens behind the scenes, and that is a government's job.

RM

And that's a lever that we can help. The only thing we can do is enable these organizations.

JB

And then there is the wider, and this is of course a long term thing, the wider sort of reputation of Canada in the world. And of course this is particularly effects Ivey, and of course, many of the listeners here are Ivey graduates and so forth. I mean, we are trying to make ourselves, Ivey, more attractive to the world. I think that we are, we have turned a corner in terms of trying to get students from Asia or wherever to realize that Canada was an attractive place to come to study.

RM

And that's a huge export potential. I think I think we really need to rethink, Canada …

JB

And it's and it's worth reminding everybody that when students come to study in Canada, that's actually us exporting our services to the world. And that's a good thing. And, and I think, you know, the data, I saw a study by the so-called Reputation Institute. You may not even have seen this, but, you know, this is country reputations around the world as raised by other countries. And Canada and Switzerland were joint number one in that study. So there are things already in place that we just need to capitalize on.

RM

And if I can just, add to it, is this actually research that suggests that even when we bring foreign students here and they acclimatize to the Canadian system, they tend to add more to the Canadian economy if we can keep that here, then actually bringing in in other ways. Right. And we know that our population growth is declining. We need to re-think this strategy…

MUSICAL TRANSITION

Let's move on. So, productivity and competitiveness and a couple of basic stats. Yes. The Canadian economy is growing at a couple of percent a year, but when you then look at GDP growth per capita per person, it's actually shrinking. Now this is not a unique problem to Canada. I mean, U.S is a little bit of an outlier, but if I compare Canada to big European countries, we've all got the same problem. Explain to the listener what's going on there.

RM

Well, I mean, I think part of it is, of course, you know, there are a couple of areas. One is, you know, are we not investing enough in existing businesses in terms of improving their productivity? So that's one question, right? The other one is that we have we really focused on some of the knowledge sector that can actually improve productivity growth substantially. Right, right through, you know, ideas and network effects as opposed to really, you know, capital inputs. And then of course, the other part to it is essentially, if you think about it, what certain policy levers can we really do in order to, improve productivity, right, in the country? Now, clearly, what has happened is that we've had in a large intake of immigration in the last few years. And so it will take some adjustments for our economy to like, you know, see growth through that process over time. Yeah. But I think it's vital, right, to think about how we increase productivity now, as you said. There's some sectors that we do really well. In the grain sector we have high productivity, but across other sectors we tend to have lower productivity.

JB

So, I want to unpack this a little bit. As you say, one of the levers of growth is more people, but obviously we don't want more people doing low end jobs. Gradually those new entrants to the Canadian economy will build skills and will build their own productivity. Another part of the story is capital investment. And maybe we can talk about that later. But the heart of the issue is what economists called total factor productivity, which basically means how much efficiency are we building out of this engine of companies that actually take inputs and turn them into outputs? So, we need to improve the essentially the competitiveness of companies, and the evidence suggests that we've struggled to do that. Now, that is not always been the case. I mean, if you look take a long view, if you go back to the 1970s, 80s, 90s, productivity growth was huge through that period. Essentially, since the financial crisis of 2008, productivity of companies has ground to a halt. What what's going on there? How we just sort of eked out all of the value in terms of productivity improvements and we are stuck? Or are there things we could do to help companies to revitalize their productivity.

RM

Yeah, I think it's the latter. Right. Okay. I mean, I think clearly, you know, as you said,you go through inputs, which is labor and capital. And then of course, if you hold those constant, there's actually that multi-factor productivity, which is really drives it. And part of the growth often comes from what I was referring to before, is the knowledge based sector. Right. So we have to think about how do we really scale some of these knowledge based sectors and potentially grow that economy.

JB

So let me just so let me just pick up on what you're saying here and make sure we're clear. So there is the, there's the agricultural sector, there is the manufacturing sector. And then there is, for want of a better word, to the knowledge sector, the high-end jobs in digital and biotech and in education, creativity, all these things. You're saying that the latter sector, the sort of the tertiary part of the economy, is where the big opportunities for productivity growth are, and we haven't tapped into those properly.

RM

Indeed. And if you look at it, we you know, where is the gap there. Right, right. You know, are we really creating enough research which is the backbone of the knowledge-based sector.We are we are producing a lot of publications, good publications, etc. we've actually funded the godfathers of AI. Now the question is, are we not creating new ideas? We are creating new ideas? There's lots of startups right in biotech, and then if you think about, AI and all of that, our research at the center suggests that, you know, there are more than in 700 AI startups, right? Right. And, more than 300 of them have actually raised, you know, more than 1 million, you know, in terms of funding. But the successes are few and far between. And what you're seeing is that what they struggle is actually scaling these innovations.

JB

So we've got all the bright ideas, the startups I mean there is some data says the number of startups has actually been dropping. I think the Morrissette Institute has some data on that. But if you're saying where is the biggest gap it is, we are not taking our clever techies and startups and turning them into the Googles and the and the Amazons of the future, right?

RM

In the knowledge sector, this startup per capita, we do pretty good. Yeah, right. Maybe across the board. Not so well. Right. And so how do we then really think about scaling these innovations. And one of the areas that our center has actually focused on and looking at market access, and potentially, you know, some of the, you know, policy or for that matter, regulations, that condition market access. So, let me give you an example. If you are, you know, a medical device company, and you want to sell it in Canada, you have to go through a pretty cumbersome process. And what that leads is essentially then you think about, okay, why don't I take it to the US, that's a bigger market, and try to get, essentially, approval there and maybe then I can come back. But that sequencing that means that.we actually lose some..,

JB

indeed. I've, I've heard many Canadian entrepreneurs say it was actually easier for them to get their products sold into the US than into Canada, which is completely insane.

RM

So we have to think about streamlining those. And there's some movements that are happening. The other thing that we, our research suggests is that sometimes, you know, scaling this innovation that requires a systems change, but in the policy environment. There are lots of startups, right? As well as, you know, hospitals that are doing but, you know, bringing in really good, you know, technologies out there, but then when they when you have to go and scale it, you need to change funding requirements, you need to change, you know, the data interoperability governance structure. So those are the things that we have to work right in order to really push these out.

JB

So once again, there are things that the government can do, usually in the form of actually getting out of the way in terms of reducing the rules and the regulations in order to let entrepreneurs do their thing. Is that is that right?

RM

And don't get me wrong, we want, you know, safety and good standards, of course, but we want to take out those cumbersome, you know, you know, processes if you would. And the way, one way would be to do it would actually be to create a major office…,

JB

The Major Projects Office…

RM

Take the inspiration from the Major Projects Office...

JB

So, remind me. So, I think last year sometime Mark Carney announced a Major Projects Office. Just say a little bit more about what that does.

RM

What that was was about in a building out large projects. Right. And and really fast tracking those.

JB

So this is a mechanism to fast track major projects. Has that happened?

RM

Yeah. Well it exists or exists of course. And and then of course, you know, the announcements have, you know, taken place. And what we need to do is essentially follow through actions on those things. But where I was going with that is that, you know, you could essentially take inspiration from that. And then create a department if you would, that would actually look sector by sector at some of the challenges that you have in terms of scaling innovation and work along with the provincial governments and federal agencies in order to really, remove some of those cumbersome, you know, policy environment,  and then, of course, you have a whole bunch of levers in order to help scale some of these innovations.

JB

One thing I just want to come back to on productivity, many people will know Linda Hassenfratz, chief executive or executive chairman, now of Linamar Corporation, one of our top automotive suppliers. She is very clear that her company is absolutely improving its productivity, you know, month on month, year on year. She obviously rails against this narrative that there's a productivity problem. Now there is a productivity problem in aggregate. She is also, of course, completely correct that her company is doing a good job of driving productivity growth. How do we square those two?

RM

Well, I mean, that's the puzzle, right? What you have is essentially within sectors you have certain firms that do really well in terms of productivity. And I think if you look at it with the Canadian the automobile sector, the tier one firms do pretty well. Whereby if you look at, you know, the tier two and tier three, that's where some of the struggles are on the productivity side. Right. And so within sectors you're going to see, you know, firms that are going to actually are investing.

JB

I think Linda's point is also that the public sector does struggle quite a lot with low productivity.

RM

For sure. And that's I think is a discussion for another day to unpack that. There's so much that needs to be done in the public sector in order to improve productivity.

JB

You know this is and then of course Canada is, you know love it or hate it, a heavily unionized country. And of course that does make productivity growth a little bit more challenging.

RM

On the other side, of course, is if we think about, you know, investments in technology across the board and the aggregate, what we've seen is that Canadian firms, you know, have UK behind the U.S. And I think that's where the demand side of adoption comes in. I feel like there is an opportunity here. Right. And the opportunity is, you know, if you think about it, it's becoming more accessible if you want. Right? Like even chat bots these days, you can actually create very quickly. And there are actually, you know, some cases that are coming up whereby SMEs, they are few and far between, that have been able to leverage that in order to upsell or for that matter, increase efficiency. So what we need there is essentially more AI literacy if you would and really think about how do we really apply AI in business scenarios to improve.

JB

I mean, my take on it is that we are all of us are seeing AI help our individual productivity. That is that is I mean, we literally see it on a day to day basis, but translating that into organization wide and system wide productivity, greater benefits has not yet happened. We're not yet quite seeing follow through,

MUSICAL TRANSITION

JB

We're out of time. Let me just ask you, are you optimistic about the outlook for the Canadian economy in 2026?

RM

Let's let me put it this way. I feel much better today where Canada is than I did a year ago. All right. The outlook for this year, I don't think materially this is going to be any different in terms of numbers. I mean we're still will need time for the major projects to roll out. There's going to be uncertainty on the trade. Business investment might still be limited. So we're not probably not going to see a lot of growth yet this year. But this is the year we actually have action. Build our foundation for which then down the road will pay off.

JB

I mean for what it's worth I, I pretty much agree. In other words, the actual growth in the Canadian economy this year will be will be low. But we are setting the stage for a significant, and unfortunately, this is just the nature of, of policy, and indeed politics, is you have to take a bunch of actions that will take 5 to 10 years to play out. And I personally, I do believe Mark Carney's government is making the right decisions right now.

RM

And, you know, for the last words, essentially, given the existential threats that we have there's no room for failure. We need exactly to really and, you know, take the actions and drive.

JB

At the moment to foreigners, Canada looks like a beacon of stability right now. So let's let's keep working on that. You've been listening to Dialogue with the Dean from Ivey Business School. A big thank you to my guest, Ramel Mostafa, for sharing his time and insights and for peering into a crystal ball for what's ahead in 2026. Until next time. Goodbye.

KB

This was dialog with the Dean and I the Impact Podcast series. For more insights from Ivy, including thought leadership on critical issues and additional podcast episodes, visit Ivy impact or subscribe on your preferred podcast platform. Thanks for tuning in.