Energy and Our World

This article originally ran on Forbes.com on December 24, 2024. All rights reserved.

Daniel B. Markind is a Forbes.com energy column contributor. The views expressed in this article are not to be associated with the views of Flaster Greenberg PC.

Canada's troubled Prime Minister, Justin Trudeau, faced growing calls to resign last week after his Deputy Prime Minister and Finance Director, Chrystia Freeland, resigned over disagreements about government spending. (Source). Trudeau leads a minority government, and his Liberal Party partners, the New Democratic Party, announced that they no longer will support the Trudeau government. (Source).

Trudeau's troubles are exacerbated by the collapse of the Canadian Dollar's exchange rate against the American Dollar. (Source). Part of the reason for the drop of the "Loonie," as the Canadian Dollar is known, relates to the struggles of the Canadian economy, which remains relatively stagnant while the American economy shows growth. That results in Canada trying to cut interest rates to stimulate the economy while America has not needed to, encouraging investment in American bonds. (Source).

The exchange rate differential is not good news for Canada, which is heavily dependent on trade with the United States. In fact, in 2023, exports of crude oil to the United States constituted an astounding 89% of all Canadian crude oil exports. (Source).  That translated to four million barrels per day of crude oil. (Source). As energy exports constituted 10.3% of Canada's Gross Domestic Product in 2023 and generated $199 billion of revenue, the drop in the Canadian/American exchange rate is significant for Canada's already struggling economy.  

Of course, the shadow of Donald Trump's threatened tariffs on Canadian imports looms over the political and economic landscape now being suffered by our northern neighbor. While the imposition of tariffs would increase American prices and inflation, it could devastate Canada's national revenue. In the face of that, Minister Freeland accused Prime Minister Trudeau of resorting to financial gimmicks in managing Canada's financial affairs.  With polls showing Trudeau and his Liberal Party deeply unpopular, expect a shakeup in Canada's politics and finances as 2025 dawns. It appears that, in both the United States and Canada, there is a high degree of probability the new year will bring in both new governments and new economic policies.