This is a part of RBC Thought Leadership and Eurasia Group’s joint report

Canada is looking to build its military, develop an industrial base and forge new commercial partnerships at a wartime pace. A failure to execute could lead to others, notably the U.S., stepping in.

Canada’s enthusiasm for rapid militarization began the moment Donald Trump demanded more from America’s NATO allies and deepened as he mused about taking over parts of the Western Hemisphere, from Panama to Greenland, even putting the idea of Canada as the 51st state on the table. For Canadians, the exercise was initially a budgetary one, finding ways to allocate tens of billions to its small and often overlooked military. But when Trump sent the U.S. military into Venezuela, the warning for Canada and its armed forces took on a sharper focus. Borders are no longer gates. They’re hard lines that need to be defended.

For Canada, the task of building a big military—the biggest since the Second World War—is daunting. In war, extraordinary measures like state-run supply chains can be implemented quickly. In peacetime, each step needs more negotiation—that’s made even harder with a public that barely remembers the losses of the Afghan mission and a military bureaucracy that has struggled with much smaller magnitudes of procurement and deployment. The industrial base is a further challenge. Mention the words “military-industrial complex” and most Canadians will say “no, thanks.” Before Trump returned to power, Canada ranked 27th out of 31 NATO nations when it came to military spending as a share of GDP. In fact, defence spending had languished for the past 25 years at levels well below the late 20th century averages. Military enrolment has also been in terminal decline, with less than two service members for every 1,000 people. Even peacekeeping has declined to a few dozen blue helmets.

The Mark Carney government has taken the challenge head on. Its first budget injected $81.1 billion over five years. Now, Ottawa is trying to reduce the heavy concentration it spends in the United States, taking gunboat diplomacy in a very different direction: its ministers have travelled the world in search of equipment like submarines, and much more, from any ally other than the U.S. Relations with Japan and Germany have been transformed by the idea of peacetime rearmament. Same with South Korea and Sweden.

But now comes the hard part: making choices. Ottawa will inevitably irk an ally, and may very well irk its own military brass, by choosing boats, planes and weapons that aren’t as effective, on the battlefield or the balance sheet, as those American options. The challenge of “interoperability” is even greater if the Canadian military is to continue to share responsibility with the U.S. for the defence of North America. Currently, 100% of Canada’s fighter aircraft, 91% of helicopters, and more than 75% of other mission aircraft originate from the U.S. If the U.S. feels Canada’s non-American equipment isn’t up to the task of defending the Arctic or, for that matter, the North Atlantic, they may just do it themselves, even if it means torpedoing Canada’s sovereignty.

The vast web of red tape in Canada’s defence procurement system—and a bureaucracy trained to say “maybe”—has contributed to draining the private sector of much of its entrepreneurial flex. In recent budgets, fully a quarter of the Industrial and Technology Benefits Policy, or $15.3 billion, was listed as unallocated, due to deployment frictions, certification gates and poor definitions. Even the government admits it takes 15-plus years for a major fleet acquisition. And a recent study found that $18.5 billion in planned capital went unspent over a five-year period. A new ‘Buy Canadian’ military mandate may lead to, at least in the short term, more dollars chasing fewer producers. But greater cyber-security requirements—and a lot of the new spend will go to cyber defence—stands to cause further delays.

To break through that bureaucratic blockade and boost military spending at home, the Carney team opened a new Defence Investment Agency to do something soldiers are trained to do on the battlefield but is less common in government: move fast. The new money hasn’t even started to flow at speed or scale, and regions are insisting on their share, whether in the national interest or not. This will inevitably lead to lower efficiencies and higher costs, even if it does create more jobs for Canadians. It will also challenge Canada to be competitive in the growing global arms market, as it seeks to trade with allies in Europe and Asia—but will need scale and excellence to meet their standards.

Of course, missing in these equations is the sort of private capital that has helped the U.S. military-industrial complex grow. That new kind of military capitalism will be novel for many Canadian operators, and the military. Canada is seeking to play a leading role in the nascent Defence, Security and Resilience Bank—a kind of World Bank for NATO and its allies—which will draw on the strengths of members’ balance sheets to help them borrow on capital markets to finance their own budgets and supply chains. The government’s financial institutions, such as the Business Development Bank and Export Development Canada, will need to play an even greater role in helping small- and medium-sized Canadian businesses raise the capital needed to serve the so-called “primes”—or prime contractors—that sit at the top of every supply chain.

Canada’s defence industrial base includes about 600 firms—compared to 60,000 in the U.S.—and most employ fewer than 250. Those small but mighty Canadian firms have an equally small capital base. Many have been lucky to survive through the demand shocks of various governments and militaries announcing programs and then delaying them, or even shutting them down. Adding to the challenge is the fact that half of Canada’s military exports go to the U.S., which may decide to close the door if Canada snubs the big American primes. A more hidden risk for Canadian SMEs is entanglement. The IP in a complex defence product is often controlled by large operators, usually multinationals, that can shut down a small supplier.

Generals, and their political masters, love their toys, which is why so many photo ops are with big hulks of steel and not small groups of men and women doing the work behind the machines. Still, more of those people will be needed—but are harder to find. Canada’s military employs only 0.38% of the national labour force—down from 0.56% a decade ago, and well below Britain (0.58%), Australia (0.60%) and the U.S. (1.69%). The Canadian military, which has struggled to get close to 100,000 personnel, may need to double or triple in size in the next decade. And it’s not just fighter pilots and combat soldiers. It’s base operators in the Far North and cyber coders across the south. Currently, the Canadian Armed Forces (CAF) is roughly 15,000 members short of its intended size, creating persistent readiness and sustainment gaps. A lack of speed is to blame. Median recruiting timelines are upwards of 271 days, more than double the official target. The delays are sometimes greater for Canada’s large immigrant population, which needs to undergo an even longer security clearance. It’s no wonder more than half the young Canadians who apply ultimately pull out. And then there’s the hurdle of training. The CAF’s training centres are running at 80% capacity due to a shortage of instructors. That pressure may only grow as the military becomes more STEM-driven. The defence sector is 2.5 times as STEM intensive as general manufacturing.

Remilitarization is central to Canada’s effort to carve out a new relevance in the world, especially to allies, old and new. Even before Trump’s second term began, Canada was significantly growing its military participation in eastern Europe in response to the Russian invasion of Ukraine. The Canadian deployment in Latvia is one of Canada’s biggest peacetime missions anywhere and seen in Europe as a meaningful commitment to the continent’s defence. A growing Canadian military may also play a role in defending the Caribbean from drug cartels, as well as unrest in places like Haiti. And, of course, it will define itself once again in the Arctic, on land, in the air, under the ice—and overhead in low orbit, where the next battlefields may play out.

A more sophisticated and better capitalized defence industry—and a more dynamic armed forces—may even help shape the next chapter of Canada-U.S. relations. As partners, not rivals, in taking on the greater threats of China, Russia and Iran. The Great White North’s geographic sanctuary has long been a blessing. Any loss of that sanctuary will challenge the country anew. But for those Canadians who study their history, the role of conflict—present and hidden—has never been far from sight.

This is a part of RBC Thought Leadership and Eurasia Group’s joint report

Canada is aiming to double non-U.S. exports through two of its biggest trade antagonists, China and India, even as Canadian investment continues to pour into the United States.

Since Mark Carney launched his “elbows up” campaign to get the country to trade more with the rest of the world, and with each other, Canadians have spent and invested more in the United States, even as Americans are doing less in Canada. The strong U.S. economy, and tax breaks under the Big Beautiful Bill, have reinforced the attractiveness of the world’s largest market for Canadian investors. From pension funds to mutual funds, more Canadian dollars than ever have headed south. Business investment has done the same. Carney may need to do even more on taxes and regulations to keep Canadian investments at home.

For all the bark, and bite, of tariffs, Canadian consumers have been slow to change habits, too. Highly visible brands like Tennessee whiskey were perhaps an easy early target. Florida and Arizona vacations have taken a hit, too. But in large measure, Canadians are still watching Netflix, buying Fords and drinking Coke at the same rate as before the trade war.

A couple of generations ago, in the Trudeau 1 era, when Canada was trying to shift away from a Vietnam-era America, similar tensions reverberated through Canadian living rooms, and board rooms. The proverbial U.S. elephant and Canadian mouse was about more than sneezes and colds; it was about dependencies (plural) in the economy, culture and ultimately sovereignty. A new approach emerged to the binary option of dependence versus independence, known as the Third Option in which Canada would become more closely tied with a reconstructed Europe, a re-emerging Asia and a resurgent Third World.

Back then, there was strong concern about Canada as a branch plant economy—meaning American branch plants. But 50 years on, instead of playing from a position of strength, Canada’s search for new global alliances comes at a moment of maximum dependence on, and maximum uncertainty about, the United States. That dependency has been built over the past century through defence and deterrence partnerships like the North American Aerospace Defense Command (NORAD), trade and investment cooperation and, for Canada, a profile that rested on being the ally most like—but not—America. Now, the central risk is not that Canada will suddenly “break” with its neighbour and ally but that attempts to diversify away from U.S. power will expose how little hard leverage Ottawa has with other partners—and how quickly a more transactional White House can weaponize asymmetry in defence, intelligence, and trade. Geography still is destiny.

Canada’s struggle for more independence starts with the economy. The impact of Trump’s tariffs has included the loss off tens of thousands of manufacturing jobs, and body blows to the auto, steel and lumber sectors and regions that depend on them. If those tariffs are sustained, most projections suggest a prolonged period of slow growth for the economy, which will further erode Canada’s relevance on the world stage. The Trump tariffs were felt quickly and deeply, driving down Canada’s overall exports by close to 10% by mid-2025.

Compounding the challenge of dependence, while Canada’s trade deficit with the U.S. is worsening, its investment surplus is growing. The first year of the trade war made Canadians even more keen to invest in the U.S., despite the bourbon boycotts. Canadians injected $61 billion in U.S. securities in the first half of 2025. The country’s biggest pension fund, the Canada Pension Plan, had raised its share of all investments in the U.S. from 35% at the start of the decade to 47% in 2025.

After decades of Canadian exports gravitating to the U.S., business is starting to find opportunities elsewhere. Britain is buying more unwrought gold as investors and central banks look for alternatives to the U.S. dollar. The rest of Europe has been buying more Canadian canola, aluminum, and oil. China is also buying more oil from Canada, thanks to the Trans Mountain pipeline expansion that fuelled an all-time high, in October 2025, of oil shipments outside North America. Even faraway Singapore and Indonesia saw a surge in Canadian sales, from oil to coal to potassium chloride.  

Those successes speak to Carney’s pledge to double exports to non-U.S. markets by 2035. To accelerate the early trend, the Carney government is focussed in 2026 on forging closer trade ties with China and India. The federal government also launched consultations on trade talks with several countries, including the United Arab Emirates, Qatar, Saudi Arabia. And the first Carney budget pledged $159 million over three years for trade-financing programs to assist firms trying to enter and grow in new markets. It will need to do a lot more to unglue the infrastructure bottlenecks that have made Canadian ports among the least efficient in the industrialized world. 

To gain leverage in more overseas markets, Canada will need to do more to enhance its relevance to those countries—especially in countries and markets, like China, India and even continental Europe, that have a history of hitting Canada with non-tariff trade measures when a point needs to be made. That won’t be easy. As global power has shifted to Asia and as Europe and the Middle East rearm and realign, Canada’s relative salience has eroded. The risk is not outright exclusion from clubs, but quiet marginalization in the working coalitions that matter most for security, technology, and industrial policy—and ultimately trade. Consider Ottawa’s Indo-Pacific Strategy and its deepening security partnership with the Philippines—politically effective, yet not enough to deliver big trade breakthroughs in a region where Japan, Australia, India, and ASEAN states look first to Washington, Beijing, and each other. In Europe, Canada’s big contributions to helping defend Latvia, and a more assertive defence of the Arctic, is buying credibility. Closer to home, in the Caribbean, commitments to helping restore order in Haiti, while important and appreciated, aren’t transforming Canada’s place in the region. 

Too often, these allies calibrate their engagement with Canada through the lens of Trump-era conditionality on NATO and trade. Ottawa is seen as tightly bound to U.S. markets and security but slow to invest in capabilities, enforcement, and industrial scale. To carve out a more independent and ambitious role in the world, Canada can build on some of the alliances and networks it’s already part of. Take the Arctic Council, a group of regional players and powers that focuses on soft issues like science and environmental protection. Canada can deepen ties with Scandinavians and perhaps one day re-engage with Russia through those non-military efforts, while also building up military capacity in the region with like-minded allies like Sweden. It cuts to the new (and old) ethos of foreign policy being rooted in interests, not values.

A very different approach could be taken to the Francophonie and Commonwealth, if other members are willing to muscle up, especially with money. In Africa, for instance, where France’s image has deteriorated, Canada can work with francophone partners to strengthen non-military defences against a resurgent ISIS in the Sahel. The Commonwealth can play its own pragmatic role, helping build trade bridges from Australia to India to South Africa while the U.S. doubles down on America First. More military commitments will be needed, too, as the U.S. pulls back from volatile regions and countries. Haiti crystallizes the risk. A Kenya-led mission with UN authority and rising pressure from the Organization of American States gives Canada a chance to be the training and standards hub for Caribbean contributors, focusing on ports, fuel logistics, and basic state functions—and perhaps with difficulty for Canadians to look the other way if the U.S. shows up in the dead of night to take out gangs or shut down migrant rings.

One of the biggest plays for Canada in gaining more leverage may be AUKUS—the security alliance of Australia, U.K. and U.S. The trilateral pact has focussed initially on nuclear submarines—not a Canadian strength—and is now widening its aperture to advanced capabilities, including undersea sensing, low-orbit satellites, and cyber defences, all of which are Canadian strengths. Canada can pitch itself as a serious member for the next stage of the alliance, which would build leverage overseas while also maintaining a respectful and relevant partnership with the U.S.

The year ahead will present plenty of opportunities to explore this sort of realpolitik diplomacy, as Canada helps design or join more strategic approaches based on interests more than values, and pragmatism more than principles. This will be a step back from those more idealistic approaches that emerged in that earlier time of Third Options. But as every nation knows, independence has a price.

This is a part of RBC Thought Leadership and Eurasia Group’s joint report

A shift in global oil and gas prospects, from Venezuela to Qatar, changes the investment outlook for Albertan exports—and the big infrastructure projects designed to get them to overseas markets.

Canada’s ambitions to be an energy superpower—including oil and gas—is being tested after the U.S. intervention in Venezuela. But the challenges lie well beyond Canada’s immediate neighbourhood. Long-term demand for oil and gas remains an open question, especially as Asia continues to turn to electrons to power growth. A global surplus of supply, including American LNG, clouds the picture further. And then there’s the question of global growth. No growth, no need for more energy, from Canada or anywhere else.

In one strategic swoop in Caracas, U.S. President Donald Trump has attempted to ringfence the Americas with Washington as its most consequential capital. In that respect, Trump may have weakened Canada’s most valuable negotiating card—energy exports. A resurgent Venezuela crude production could displace Canadian oil in the U.S. and leave it scrambling for market share with Saudis and others elsewhere. It’s a potential competitive shock. Over the past 25 years, Canada had solidified its position as the foremost supplier of oil and gas to the world’s biggest oil market, accounting for nearly three out of every five imported barrels entering the U.S. An industry built to serve America now pumps out a record five million barrels per day, compared to just over two million bpd in 2000, with more than 90% of its exports ending up in refineries in the U.S. Midwest, West Coast and the Gulf Coast.

With the U.S. moving at lightning speed on securing its energy and resource needs, Canada needs to pivot quickly, not just to capture a portion of the investment dollars being spent in a hurry, but also to defend its turf and diversify its exports (hello, Xi)—everything all at once to match the American blitz.

Disruptions to the north-south energy flow could deal an economic and political blow to Canada. The industry generates close to $100 billion in annual revenues. A decline in energy exports could also test national unity. Failure to build out Alberta’s oilsands will be seen by the province as a national declaration of political war, at a time when the province’s independence movement is louder than it’s been in a generation. Land-locked Alberta is also at odds with neighbouring British Columbia, which is opposed to building an oil pipeline across its territory to tidewater.

Canada has a few strong cards to play. Venezuela may be home to the world’s largest proven crude oil reserves, but Canada boasts the world’s third largest, with the added advantages of a world-class infrastructure, ready expertise, technology and the capital to deliver on America’s oil needs. After decades of dithering, Ottawa, under Mark Carney, seems to have the will to follow through.

There’s a strong correlation between Canadian oil’s supremacy in the U.S. coinciding with Venezuelan crude’s steady decline (see chart). Both trade primarily in what’s known in the business as “heavy oil,” which has the consistency of peanut butter—it’s harder to extract from the ground, is energy and carbon-intensive to produce, and needs thinning diluents to push through pipelines, adding to shipping costs. Canadian oil’s viscous nature makes it ideal for making gasoline/diesel, jet fuel and plastics, compared to the light blend pumped out from American shale basins.

As Canadian oilsands firms innovated over the past decade to overcome cost and emissions intensity, Venezuela’s state-owned Petróleos de Venezuela (PDVSA) fell into a state of neglect, mismanagement, and corruption. Another blow: in 2018, the company was looted by thieves, stripping the oil company of vital equipment, including copper wiring, and its skilled workers fleeing to neighbouring states. If U.S. firms return to Venezuela, they will have to start from scratch in many ways, with some suggesting it will cost upwards of US$100 billion over 10 years to get the Venezuelan oil sector up and running. In a best-case scenario, it would take at least a decade to displace some of Canada’s 4.5 million bpd of oil shipments to the U.S. from Venezuela, which currently produces around 750,000 bpd. That would give Canada a head start to adjust to the new energy paradigm.

Heavy oil is deeply integrated into U.S. refinery systems, which should give oil executives in Calgary some comfort. As early as the 1990s, U.S. refiners began investing billions in heavy-sour configurations to run Canadian and Latin American barrels, given the proximity of both energy sources. Total refining capacity in Gulf Coast refineries (known as PADD 3) rose 2.9 million barrels per day, while Midwest refineries (PADD 2) grew 700,000 bpd. Both regions boosted coker capacity of 1 million bpd during the period.

U.S.-Canadian joint ventures also started to spring up, such as Cenovus and ConocoPhillips collaborating on two refineries in the U.S. as cross-border upstream and downstream flows became entrenched. Meanwhile, Canadian pipeline operators Enbridge and South Bow (spun off from TC Energy) cast a wider system of pipeline spurs and added capacity to reach the Gulf Coast and the Midwest.

Canada’s heavy oil is prized in other markets. While much is made of China becoming an electro-state and other Asian markets switching to renewables, there are few viable substitutes for heavy oil as a critical ingredient for plastics. Rising income levels across Asia is set to fuel ever more demand for TVs, refrigerators, electronics, and Labubu dolls, even as population growth in many emerging markets tapers off. The federal government-owned TMX pipeline expansion has already demonstrated a market for Canadian oil outside the U.S. While overall more than 90% of Canadian oil exports are destined for the U.S., only a third of TMX’s shipmentsended up across the border with the rest shipped to refineries in China, Singapore, South Korea and India.

After all, Asia is where the growth’s at, especially with Europe set to see declining demand. The continent is forecast to account for 80% of total net oil demand growth until 2030, according to the IEA. Indian demand alone is expected to grow almost one million bd, with emerging Asia also in the market for more barrels.

There’s also the perennial question of the value of Canada spending billions on an industry presumed to be slowing down—in a crowded market. While the International Energy Agency recently retreated from its “peak oil” forecast, global demand is inching up only slowly while producers ramp up. New player Guyana, led by production from a three-way ExxonMobil-Chevron-CNOOC venture, has quickly boosted production to around 900,000 bpd in a short span of time. Several OPEC producers and independents such as Brazil, Mexico and Norway also have ambition to pump up oil volumes. While the Saudis, the most influential OPEC producer, have been quiet as U.S. moves threaten to drive down oil prices, Brent crude prices of around US$60 per barrel are nowhere near Saudi government’s fiscal breakeven prices of around US$90.

For Canadian oil firms, which spent roughly $25 billion in dividends and buybacks in 2025, the risk is to embark on a new capital-intensive project without a new pipeline proposal or much visibility when it comes to market direction. Another caveat: Ottawa would insist companies contribute to a much-anticipated and expensive carbon capture storage and utilization (CCUS) project to offset new emissions. Indeed, it’s in writing as part of the Ottawa-Alberta Memorandum of Understanding.

The MoU, which offers a path for the oil industry’s expansion and inject a new investment wave in the country, is an iconic symbol of what Canadian energy can achieve. If it succeeds, the MoU could serve as a model for how Canada can deliver its resources, assets and expertise to a customer base beyond the United States.

This is a part of RBC Thought Leadership and Eurasia Group’s joint report

An over-correction to the recent surge in irregular immigration is squeezing employers, hammering colleges and universities, and threatening to delay a new wave of resource projects and infrastructure builds—at the same time as Canada is nearing a demographic cliff.

Canadian public and political sentiment toward immigration is increasingly negative. But the sentiment is running contrary to the country’s needs: Canada’s aging population is facing declining fertility rates, leaving immigration central to the expansion of the skilled workforce. Cutting back on immigration drastically could lead to a rapid dip in population, hurting efforts to maintain living standards, drive economic and business activity and meet near-term economic ambitions.

The Mark Carney government’s plan to clamp down on immigration comes after years of expansionary policy. Temporary residents increased beyond capacity during Justin Trudeau’s decade-long tenure that began in 2015. Housing infrastructure and community services were overloaded, and productivity declined as temporary low-wage workers removed the incentive from some businesses to invest in technology, training or equipment. Targets for new temporary residents, including students, are down by over 550,000 in 2026 compared to 2024. And permanent resident targets are down by over 100,000 from 2024 admissions. Even with these reductions, Canadians feel immigration levels are too high.  

The government crackdown may face challenges advancing its broader agenda. The 2025 federal budget allocates billions for nation-building projects to jumpstart the economy and insulate Canada from geopolitical threats. It dedicates funding to scaling Canadian businesses, recognizing larger firms create more jobs and contribute disproportionately to economic growth and productivity.

Making good on these investments, and seizing opportunities before the country, will rely on a skilled workforce—without a smarter immigration strategy, Canada has little hope of attracting that skilled labour. Economic immigrants bring skills experience, innovation, and financial investments. They will be essential to addressing labour shortages in critical sectors like healthcare, technology, skilled trades, and agriculture, as they have done in the past. Global talent will also be key to scaling Canadian companies in key sectors and avoiding population declines in rural parts of the country.

Attracting the talent Canada needs will also be increasingly difficult given growing global competition for talent. By some estimates, the global population is set to peak by mid-2080 and is already shrinking in Europe and China. Other countries will be rolling out the red carpet to prospective citizens as their domestic populations shrink. Canada’s approach to immigration needs to be as much about recruiting as it is selecting.

Competing globally to recruit the best and brightest will require a strong international brand, which recent policy volatility is jeopardizing. Changes to Canada’s immigration point system in recent years have created back doors and side doors, making the system less predictable and transparent—deterring the people needed to build a strong economy from applying. The system has been described as a “lottery” depending less on merit and more on timing and has been criticized for long processing times—over two years for those entering through the entrepreneurial program.

Even if Canada addresses these recruitment challenges, there is little guarantee the newcomers will stay. New research shows one in five immigrants leave within 25 years of arriving in Canada, and the most highly skilled are the biggest flight risks.  Whether newcomer or Canadian-born, many of Canada’s graduates from degree programs in science, technology, engineering and math (STEM) disciplines, emigrate after graduation, primarily to the U.S. And Canada’s three largest startup cities—Toronto, Vancouver, Montreal—lag far behind global leaders, pulling in less than 5% of the venture capital investment that flows into places like San Francisco, New York and Boston.

Attracting and retaining the best and brightest will require more transparent, predictable pathways, faster processing times and investment in infrastructure and services—like housing and health care—to ensure a high standard of living. With a steady inflow of talent, Canada will be better placed to grow businesses and invest in the innovation needed to retain top talent.

In addition to attracting world-class talent, Canada can train for it. International students represent an important opportunity that Canada should be careful not to overlook. Foreign students who graduate from reputable programs in in-demand fields offer needed skills and recognized credentials, making them great candidates for permanent residency. They are also more likely to stay in the country and see higher earnings than immigrants who pursue permanent residency directly. That is, of course, if they come in the first place.

The latest federal budget cut international student numbers drastically for the next two years, by almost half of 2025’s target. Even at its new low, the target is unlikely to be met. International applications have declined significantly as frequent changes to post-graduate work permit eligibility have prospective students doubting whether their studies will provide a path to staying in Canada. The new system is also clunky and cumbersome for applicants. It features new hoops that students and institutions must jump through, namely Provincial Attestation Letters to enforce annual permit caps.

Canada can re-open student pathways and make them appealing again by rebuilding its brand as a country that welcomes foreign students and offers transparent immigration pathways after graduation. With guardrails to ensure colleges and universities maintain integrity, Canada could focus on welcoming students who pursue credentials (e.g., diplomas, degrees) in fields of study (e.g., STEM) that yield positive outcomes after graduation, including higher transition rates to permanent residency. (Rather than constantly revising a list of specific programs eligible for work permits after graduation—feeding into an image of instability.)

As the global population contracts and competition for immigration grows, reactive policies hurt Canada’s brand as a stable and desirable destination. Many Canadians acknowledge the need for immigration to fill labour market gaps, and most concerns about immigration are tied to capacity rather than culture or ideology. A revised immigration strategy with stable targets for both temporary and permanent residents, an international brand strategy, and investments in infrastructure and services can set Canada on a positive course.

This is a part of RBC Thought Leadership and Eurasia Group’s joint report

Canada’s economic prospects are threatened not just by external shocks and demanding neighbours; they’re up against a deepening asymmetry of federalism that makes a unified economic strategy harder to design, sell, and implement.

Different views among Ottawa, the provinces, and Indigenous governments over how to use natural resources, fund and deliver education, and stabilize a strained health-care system are pulling Canada further toward a patchwork of policy regimes just as it confronts tough trade talks with a more transactional United States and intensifying global competition. Constitutional tools that were once seen as last resorts—the notwithstanding clause, aggressive jurisdictional challenges, demands for exemptions from national regulations and standards, even provincial votes on autonomy—are becoming more commonplace, raising the odds that provinces and Indigenous groups will weaponize hard and soft vetoes on national priorities. One Canada, maybe, but many nations within.

The consequences for national unity are more serious than at any point since the 1990s because fragmentation now comes with cheerleaders and sponsors abroad. A divided global order gives foreign governments, activist networks, and corporate actors more opportunities to exploit jurisdictional tensions, whether by privileging particular provinces in supply-chain decisions, funding litigation and media campaigns around resource projects, or amplifying separatist narratives. For geopolitical rivals, anything that weakens Canada’s coherence as a U.S. ally and G7 partner could even become a feature, not a bug, as sub-national players and Indigenous rights-holders seek to express their voices more assertively over energy, climate, industrial policy, internal trade and, most critically, bilateral trade with the U.S.

Canada’s federation was designed to balance provincial autonomy with federal authority over certain shared concerns, including trade. But over time, the Charter of Rights and Freedoms has pulled the courts into the heart of that balance. The Charter gives individuals and groups—including Indigenous communities and provinces themselves—powerful tools to challenge federal or provincial legislation on rights grounds, forcing policy choices in areas like language, education, and social programs to survive constitutional scrutiny. In practice, this has extended the Supreme Court’s role as an arbiter of federal-provincial and Crown–Indigenous relations, as governments on all sides use the Charter not only to protect rights but also to constrain fiscal and regulatory initiatives they oppose.

Among those weapons, the most contentious is the notwithstanding clause. Once rarely invoked, the clause has been used or seriously threatened in recent years by Quebec, Ontario, Saskatchewan, and Alberta in disputes over language, religious symbols, election finance, labour rights, and education, signalling to voters that governments can bypass courts when rights protections collide with political objectives. 

The regional nature—and divergences—of Canada’s economy only serves to sharpen the competing interests of the provinces, each under a different threat from the Trump trade war and global divisions. Ontario’s economy remains anchored in autos and steel; British Columbia relies heavily on lumber and Asia-facing trade; Saskatchewan depends on canola and other agricultural exports; and Alberta’s prosperity hinges on oil and gas. Canada’s negotiating position struggled through much of 2025 as premiers tried to argue for their patch in Washington. They may reemerge as soon as CUSMA negotiations begin in earnest.

Bill C-5, the One Canadian Economy Act, and political backlash, has become a focal point for federal-provincial tensions over resource governance and Indigenous rights. The legislation allows the federal cabinet to declare projects—ports, pipelines, mines, dams—to be in the national interest and fast-track approvals. Provinces that resent federal intrusion into natural-resource jurisdiction view C-5 as Ottawa reaching over their heads, while many Indigenous groups see the act as a direct attack on their constitutionally protected right to be consulted and accommodated on decisions affecting their lands. The result is a wave of legal challenges and protests that further politicize big-ticket projects the Carney government counts on to diversify away from the United States.

In the wake of C-5, the Canada–Alberta Memorandum of Understanding on energy and climate is both a template for cooperation and a sign of how transactional federalism has become. The MOU commits Ottawa and Edmonton to work together on net-zero by 2050, build major transmission interties, streamline regulatory timelines to roughly two years, and negotiate equivalency agreements on carbon pricing and methane reductions by April 2026. It also sketches pathways for a new export pipeline and carbon capture infrastructure, with explicit references to Indigenous participation and economic benefit-sharing. But the fact that these national priorities are being handled on a project-by-project basis, with one province at a time, underlines how much of the Carney agenda now runs through bilateral deals rather than pan-Canadian frameworks, inviting other resource-rich provinces to demand similar side arrangements or carve-outs—and the growing urban parts of the country, where the ruling Liberals have their political base, to question if their own aspirations are being met, too.

The sleeping giant of Canada’s asymmetrical agitations is Crown–Indigenous relations that sit at the intersection of rights, resources, and legitimacy. Indigenous nations and communities have become sophisticated in their use of both the courts and direct action to halt or reshape major projects, winning injunctions, forcing governments back to the negotiating table, and mobilizing public opinion when they’ve deemed consultation to have been inadequate. B.C. First Nations pose a particular challenge, as they are central to both resource development and expanded exports to the Pacific—and they have different legal standing, given the province came into Confederation without treaties.

Under these pressures, several provinces and Ottawa have started to experiment with exemptions from environmental rules, electricity regulations, and interprovincial trade norms, and some are pushing to further decentralize immigration and demanding more respect for their jurisdiction over housing policies, which remains the country’s political hot potato. As a result, international investors are beginning to price Canadian federalism—once a quirky part of the Great White North—as an operational risk. “Can you get it done?” is still the global response to many Canadian proposals, whether it’s pipelines, mines or large export infrastructure. At the same time, some view this web of rights protections and multi-level consent requirements as a signal of rule-of-law robustness and social licence, especially compared with more arbitrary regimes. The balance between speed and certainty will be measured, in part, by how the Carney government navigates high-profile disputes over C-5 projects and the project commitments under the Canada-Alberta MOU.

The PMO’s highly centralized style is both an asset and a vulnerability. A strong prime ministerial centre can coordinate economic, climate, and foreign policy to respond quickly to U.S. shocks and mobilize federal spending behind a coherent industrial strategy. But governing through a tight PMO and bilateral deals with premiers risks sidelining intergovernmental forums and parliamentary scrutiny, feeding the narrative that Ottawa is imposing its will and prompting provinces to retaliate through the courts, the notwithstanding clause, or their own referendums on autonomy. That’s not to mention the risk of cabinet and caucus, especially in a fragile parliament. Any over-reliance on executive bargains could leave national policy dependent on a handful of political relationships rather than anchored in durable institutions.

The 2026 political calendar heightens the risk that constitutional and jurisdictional disputes move from background noise to full-blown flashpoints. A possible federal election, a scheduled Quebec election, and ongoing battles in Alberta and B.C. over resource policy, climate targets, and revenue-sharing all create incentives for leaders to campaign against Ottawa or against other provinces. This politics of permanent grievance erodes the goodwill necessary for joint economic projects. Without more signals of progress, the summertime meme of “elbows up” is at risk of melting into a wintertime mood of confidence down. 

Bridging these gaps will require a deliberate strategy of political choreography as much as policy design. Federal-provincial-territorial summits on health, housing, and climate can still set common baselines—but are always at risk of becoming provincial shakedowns of the federation. Advertising, public campaigns and town halls, led not only by the prime minister but also premiers, Indigenous leaders and CEOs, can further strengthen a shared narrative around a united and confident Canada. 

Regulatory reform will be a key test of whether the Carney government can use federal powers to unite the country. Efforts to reduce interprovincial trade barriers, harmonize or mutually recognize skills accreditation, and streamline immigration pathways for in-demand occupations all promise gains in productivity and labour mobility, but each step touches sensitive provincial prerogatives. The new cooperation mechanisms embedded in the Canada-Alberta MOU—single-window assessments, clear timelines, and equivalency agreements—offer a model that could, in theory, be extended to other provinces and sectors if trust can be built. Without such reforms, Canada risks leaving significant internal market efficiencies on the table just as it tries to compensate for a less reliable U.S. partner.

Businesses and investors should treat jurisdictional tensions as an enduring feature—and potential strength—of the Canadian landscape. The need to secure multi-level consent and navigate overlapping legal regimes raises transaction costs and lengthens project lead times, but it can also produce more resilient outcomes with stronger social licence and lessen the risk of abrupt reversals. For firms willing to invest in local relationships with provinces, Indigenous governments, and municipalities, Canada’s complex federalism can be a source of differentiated advantage, insulating long-term bets from the whims of any single political actor, including the U.S. The risk in 2026 is that escalating constitutional brinkmanship turns this complexity from a managed challenge into a systemic vulnerability—just when Canada needs a coherent, collective strategy to build a stronger economy, and country.