8 fateful issues Canada's next PM must face

The Liberal party will take office in Canada at a time when the country is facing a number of urgent challenges. US President Donald Trump's trade war and its impact on Canada's economy are chief among them, but that's far from the end of the list.

The housing shortage remains acute, and many Canadians have no access to a family doctor, reports the Globe and Mail. 

Debates about the immigration system and the recent flood of temporary residents—and their impact on services—have not gone away, nor has the need to respond to the threat of climate change. Trump has pressured Canada to increase defence spending, while his trade war has prompted calls for Canada's military to become more self-sufficient. The election campaign also exposed a growing regional divide that threatens national unity.

Here are some of the biggest challenges facing the new government:

Trump

Since returning to office in January, US President Donald Trump has threatened to annex Canada as his country's "51st state," imposed across-the-board tariffs, abruptly rolled them back, then reimposed a more targeted series of levies. Canada is facing the most serious threat from south of the border since the War of 1812 and the most punishing trade war in its recent history.

Ottawa must immediately handle the economic fallout from tariffs on key sectors such as cars, steel, and aluminum. Trump has also threatened more levies, including on auto parts, as soon as next month. A frantic diplomatic push—both direct with the White House and indirect through free-trade-aligned US politicians and business figures—will aim to roll back protectionist measures and head off new ones. Preparations for more retaliatory tariffs and possible public support for hit industries are also on the table.

In the mid-to-long-term, Canada's new government must rethink its relationship with the US, given Trump's determination to pull back from deepening economic cooperation and collective security guarantees.

Lessening reliance on the US will be hellishly complicated. Finding enough new business opportunities worldwide to replace access to the massive US market won't be easy. Moreover, Canada has yet to meet NATO's 2-per-cent-of-GDP defence spending target, 11 years after agreeing to it.

Central to every decision will be whether to try placating Trump or refuse to concede anything, doubling down on the trade war and hoping that intransigence will pressure the US to back off.

Trump's erratic behavior has made the latter option more appealing by repeatedly moving the goalposts in negotiations. For example, when Trudeau complied with a Trump demand to toughen border security, Trump simply increased his threats. Since then, he has made no concrete demands—aside from the annexation threat.

Trump has already upended Canadian politics. His threats revitalized the Liberals' competitiveness against the Conservatives. And though he defined the election campaign, he may have an even more definitive influence over Canada's future economy, security, and sovereignty.

Economy and tariffs

Even before Trump's trade war, Canada faced an economic reckoning. Years of tepid growth, weak business investment, and deteriorating affordability were masked only partially by a growing population.

Bank of Canada senior deputy governor Carolyn Rogers has called Canada's sluggish productivity a "break the glass" emergency. Without improvement, wages will stagnate, inflation will become harder to manage, and living standards will decline. The new government must address these longstanding issues while navigating Trump's unpredictable trade moves.

In the short term, everything hinges on US trade policy. Canada has dodged some bullets: many goods were exempted from US tariffs under the continental free-trade agreement, and Canada avoided the 10-per-cent baseline tariff placed on most other countries.

If the US backs down, Canada may still face a rough patch, but not a recession, the Bank of Canada recently said. However, if the trade war escalates, Canada could face a year-long recession with lasting damage.

Longer-term, the government must figure out Canada's place in a global economy where the US is no longer a dependable partner. Finding new markets won't be easy—especially for industries like automobiles, oil and gas, and steel, which are deeply tied to the US.

"There are no easy outs," said Peter Morrow, associate professor of economics at the University of Toronto.

Housing

The housing crisis remains urgent. Canada's structural shortage, combined with a decade of high immigration, has created a worsening mismatch.

The federal government can fund new construction, alter the building code, and build housing directly. The Canada Mortgage and Housing Corp. (CMHC) estimates Canada must double its building rate and add 3.5 million more homes over five years to restore affordability to 2000 levels.

This will be extremely difficult. Housing construction levels today mirror those of the 1970s, despite a much larger population. The shortage is worst in BC and Ontario, while the market is stalled by high prices, taxes, and uncertainty.

Ottawa's key tools are capital and regulatory reform. CMHC programs have been criticized for inefficiency; faster disbursement and measuring programs by actual construction rather than approvals could help.

Regulatory changes to the National Building Code, such as allowing small apartment buildings with a single staircase, would align Canada with international standards and unlock small-lot construction.

Ottawa could also immediately move to develop social-housing projects on underused federal land—over 600 sites across the country.

Climate and energy

Canada has struggled to maximize its potential either as a global oil and gas supplier or a clean energy leader.

Despite projects like the Trans Mountain pipeline expansion and the upcoming LNG terminal in BC, complaints persist that opportunities to access overseas markets have been missed.

The next government will be under pressure to expedite energy projects by speeding up permitting, securing Indigenous buy-in, and deciding whether it makes sense to revive abandoned projects. For example, a pipeline from Alberta to Atlantic Canada has public support but no active proponent.

Balancing fossil-fuel expansion with climate commitments will be tricky. While Canada's emissions are falling, it is not on track to meet its 2030 target of a 40-per-cent reduction from 2005 levels, largely because of rising emissions from oil and gas production.

There's also an economic imperative: clean technologies offer future competitive advantages. Faster permitting for both fossil fuel and clean energy projects—such as battery mineral mining, non-emitting electricity, and emerging technologies like geothermal and carbon removal—could be a key strategy.

While Trump's hostility to climate action could prompt calls to deprioritize climate policy in Canada, aligning too closely with the US could isolate Canada internationally as Europe and Asia push harder toward decarbonization.

Immigration

Canada's new prime minister will inherit the fallout of recent immigration policy shifts, including a cap on temporary residents after years of expanded reliance on them for low-wage jobs and funding universities.

This has left many temporary residents in limbo, worsened by cutbacks in permanent residency targets, raising concerns about labour shortages and economic growth.

Bureaucratic backlogs remain a significant problem. The Immigration and Refugee Board faces 281,000 undecided claims, even as global conflict drives migration pressures higher.

A particular challenge will be managing the border with the US. Trump's immigration crackdowns have renewed criticism of the bilateral refugee agreement, forcing Canada to reconsider how it balances its refugee obligations with system strain.

Healthcare

Millions of Canadians lack access to a primary-care provider, a problem that did not figure prominently in the election campaign.

Staffing shortages are the root issue. A Health Canada report in February found a deficit of tens of thousands of health care workers, including nearly 23,000 family doctors. The Canadian Medical Association and other groups are urging Ottawa to act quickly, particularly to attract disillusioned American health professionals amid Trump's political unpredictability.

The next government is also being pressed to expand pharmacare, with bilateral agreements for covering diabetes medications and contraceptives needed in provinces yet to sign on.

Healthcare organizations want Ottawa to support virtual services under the Canada Health Act and clarify that non-physician professionals like nurse practitioners can bill the public system, following a recent interpretation letter.

Defence

Decades of underinvestment have eroded Canada's military readiness, staffing, and equipment. Canada currently spends about 1.37 per cent of GDP on defence, well short of the NATO 2-per-cent target.

All major political parties have pledged to meet the target by 2030, requiring about $18 billion more annually.

Chronic procurement problems plague defence investments, prompting promises to create a standalone procurement agency.

The Forces are understaffed, falling about 7,000 short of regular force targets and about 6,800 short of reserve targets, with future capability needs projected to add another 14,500 personnel.

Canada must also decide whether to scale back military cooperation with the US, a daunting prospect given heavy reliance on American capabilities. Fully weaning off the US would require defence spending of 3 to 4 per cent of GDP.

Unity

Trump's threats have sparked patriotic fervour in Canada, but national unity challenges remain.

The Parti Québécois leads in Quebec polls, pledging a referendum on independence if elected in 2026. However, support for Quebec independence has fallen below 30 per cent, and national pride has surged.

Meanwhile, western alienation simmers. A quarter of Albertans and a fifth of Saskatchewan residents say they would opt for separation if given the chance.

Alberta Premier Danielle Smith demands that Ottawa meet Alberta's terms or face a "national unity crisis," reflecting frustration with perceived federal hostility toward provincial industries.

The new prime minister will have no shortage of challenges to keep the country united.