Carney unveils budget to strengthen Canada's economy as Trump's trade war slows growth

OTTAWA, Ontario — Canadian Prime Minister Mark Carney’s government unveiled a budget Thursday aimed at making Canada less dependent on the United States as President Donald Trump’s trade war reshapes the allies’ economic relationship.

The budget, titled “Masters of Our Destiny,” proposes $142.1 billion Canadian (US$101.6 billion) multiyear spending and tax breaks, including incentives to attract investment and billions for energy, infrastructure and culture.

The government projects spending of $603 billion Canadian (US$431 billion) and a $62.3 billion Canadian (US$44.5 billion) deficit for 2026-27, $3 billion Canadian (US$2.1 billion) less than forecast in April.

Canada’s combined federal, provincial and local government deficits amount to 2.5% of its economy, compared with 8.5% in the United States, according to International Monetary Fund figures cited in the budget.

“The United States is upending global trade,” the budget declares.

It comes two days after Democrats gained control of the U.S. Congress in midterm elections, weakening Trump’s political position as the countries pursue a possible trade agreement.

The government expects Trump’s trade war to slow economic growth late this year and early next year, with the budget forecasting growth of just 1% in 2026 and 1.7% in 2027.

A previously announced tax incentive would allow businesses to immediately deduct qualifying investments, reducing Canada’s effective tax rate on new investment to 6.4%, less than half the comparable U.S. rate. The measure is estimated to cost $36 billion Canadian (US$25.7 billion) over five years.

Carney, a former governor of the Bank of Canada and the Bank of England, aims to double exports outside the United States by 2035 while forging closer ties with Europe and Asia.

The budget advances plans for Canada’s first national sovereign wealth fund, a $25 billion Canadian (US$17.9 billion) initiative to invest in Canadian companies and major projects.

It outlines $7.7 billion Canadian (US$5.5 billion) to strengthen Canada’s defense industry, with a goal of awarding 70% of military contracts to Canadian firms. Canada says it is on track to meet NATO’s target of spending 5% of GDP on defense and security by 2035, though the budget does not fully account for the cost.

Canada walked away from trade negotiations in August over U.S. demands that Carney said threatened Canadian sovereignty and cultural protections.