A significant shift in American politics and upcoming Canadian fiscal decisions are reshaping the economic landscape for North America. Following a decisive Democratic victory in the U.S. midterms, Canada is preparing to table its second federal budget under Prime Minister Mark Carney this Thursday.

What did the U.S. midterm results mean?

Voters handed control of both the U.S. House and Senate to the Democratic Party, marking a rebuke of President Donald Trump's second term. This shift occurred as the President faced declining approval ratings linked to inflation, high fuel prices, and conflicts in Iran. Key Republican Senate seats in Texas, Maine, and South Carolina were lost in the process.

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While a Democratic Congress may increase oversight of industries like AI and banking, the President maintains significant authority over trade. Current U.S. tariffs on Canadian goods, including steel and dairy, remain largely under executive control and could be difficult for a new Congress to undo.

How will these shifts impact Canadian trade?

Prime Minister Carney confirmed that "more intense" trade negotiations have begun following recent discussions with President Trump. The talks involve sensitive areas, with Carney noting that some Canadian "red lines" regarding culture and the ability to negotiate with other markets have been removed from the table.

Meanwhile, President Trump has suggested a deal is close, claiming Canada will provide fertilizer to the U.S. without tariffs. However, Canada currently does not levy export tariffs on fertilizer or potash.

What is the focus of the upcoming Canadian budget?

Known as "Maître Chez Nous," the federal budget is expected to prioritize an aggressive infrastructure agenda over daily program spending. The Liberal government has already signaled billions in new spending, including expanded tax incentives for businesses.

Fiscal watchdogs are closely monitoring the following concerns:

  • The sustainability of federal borrowing without high oil revenues.
  • Discrepancies in how the government classifies capital versus operating expenses.
  • Whether the government can meet its goal of balancing the operating budget by 2027-28.

While some economists suggest high oil prices may lower deficits this year, others warn that the government's spending room is shrinking.

FAQ

Which party now controls the U.S. Congress?

The Democratic Party has gained control of both the U.S. House of Representatives and the Senate.

When will Canada release its new budget?

Ottawa is scheduled to table the federal budget this Thursday under the leadership of Prime Minister Mark Carney.