Geopolitics: Trudeau poised to depart as tariffs poised to arrive

Momentum had been building for some time within the Liberal Party for Justin Trudeau to step down as prime minister. 

This sentiment accelerated in the wake of Chrystia Freeland’s resignation as deputy prime minister and finance minister. Her scathing open resignation letter highlighted the nationalist turn in U.S. politics, the threat of tariffs from the incoming Trump administration, and the lack of an appropriate response from Ottawa.

Change comes to Ottawa

Trudeau’s poll numbers hit a new low in December, with only a 22% approval rating and a 74% disapproval rate. The New Democratic Party has indicated they will no longer support the Liberal Party government’s minority position. The Conservative Party has been trying to oust the Liberal Party government for several months. It appears that the Conservatives will succeed in the near future.

Seventh longest term

Source: Parliament of Canada. January 2025.

Prime Minister Justin Trudeau announced that Parliament would be prorogued (suspended) until March 24. The move will give the Liberal party time to find a new leader ahead of an expected confidence vote that could trigger an early election in 2025. Trudeau will remain in power until his successor is chosen, and his government will be forced to deal with tariff threats from the new Trump administration in the U.S., which takes office on Jan. 20. Given where current polls stand, it probably won’t have a major impact on the Canadian government going forward, as it is widely expected that there will be a Conservative Party majority.

As tariffs come to Canada

The proroguing of Parliament may prevent the Canadian government from having any lasting or effective defense against U.S. President Donald Trump’s proposed tariffs on goods imported from Canada. Prorogation risks a “vacation” of Parliament as no one will want to commit to an unknown government regime. In other words, members of Parliament essentially are “lame ducks” through at least March 24, and likely to remain so until after the election. While there is no guarantee Canadians will face an early election in 2025, a federal election must be held no later than October 2025 under Canadian law.

Our view

We should note that a vote on non-confidence in the current government has yet to take place, and a federal election has yet to be called. We would argue that it would be in the best interests of the country for an election to be called as soon as possible, not two months from now. According to Elections Canada, an election period must be a minimum of 36 days and a maximum of 50 days. The swearing-in ceremony most likely won’t take place for an additional one to two weeks, and more time will be needed for the formation of the new Cabinet and preparation for the first day of government. Consequently, the leadership of Canada may be in a state of flux until the summer of this year.

As frustrating as geopolitics can be, it is worth remembering that political upheaval is not confined to Canada. The U.K. saw a change of government last year, and the new prime minister is already facing significant dissent. The government regimes of France and Germany also fell. Austria’s political parties have been unable to form a government, providing an opportunity for the right-wing Freedom Party to gain power. South Korea is facing bizarre political developments, and of course, we would be remiss if we did not mention the new administration in the U.S.

The timing could not be worse. Canada faces unique challenges given potential disruptions from proposed trade tariffs expected from President elect Donald Trump. If proposed tariffs are implemented and unchallenged by the Canadian government, the potential consequences could be significantly damaging to the Canadian economy. A lack of clear political leadership from Canada would weaken any bargaining advantage given the U.S. would be unclear of Canada’s political resolve. With Canada’s eminent fate in the balance, investors should prepare for additional volatility.

Important information

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the investment fund manager and portfolio manager of the SEI Funds in Canada.

The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds.

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results.

This material may contain "forward-looking information" ("FLI") as such term is defined under applicable Canadian securities laws. FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. FLI is subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from expectations as expressed or implied in this material. FLI reflects current expectations with respect to current events and is not a guarantee of future performance. Any FLI that may be included or incorporated by reference in this material is presented solely for the purpose of conveying current anticipated expectations and may not be appropriate for any other purposes.

Information contained herein that is based on external sources or other sources is believed to be reliable, but is not guaranteed by SEI Investments Canada Company, and the information may be incomplete or may change without notice.

There are risks involved with investing, including loss of principal. Diversification may not protect against market risk. There may be other holdings which are not discussed that may have additional specific risks. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Bonds and bond funds will decrease in value as interest rates rise.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.