(Bloomberg) -- Finance Minister Chrystia Freeland resigned from Prime Minister Justin Trudeau’s cabinet because of differences over how to prepare for the Trump administration, a political earthquake that shakes Canada’s government to its core.
Freeland has been the most powerful person serving under Trudeau for years and also held the title of deputy prime minister. After Donald Trump won the US presidential election, the prime minister appointed her to lead a cabinet group developing a strategy on how to respond to US policies.
She announced her exit in a social media post on Monday morning, saying in a letter to the prime minister that the two are “at odds about the best path forward for Canada.” She released it just hours before she was due to deliver a fiscal and economic update in parliament.
Trudeau has yet to name a replacement, but the Finance Department announced on Monday afternoon that the fiscal update would proceed. It was expected to be unveiled at approximately 4 p.m. Ottawa time, though it was not immediately clear who would introduce it in the House of Commons.
The Canadian dollar fell as low as C$1.4271 per US dollar, while bond yields jumped, taking the benchmark two-year note to 3.05% as of 11:58 a.m. Ottawa time. Conservative Leader Pierre Poilievre called for an election.
“This is a serious moment. It’s time for the government’s mandate to come to an end. This cannot go on,” Poilievre said.
The sudden departure of one of Trudeau’s most loyal ministers — someone who has held senior cabinet posts during the entire nine years of this government — is a staggering blow for a prime minister who has lost a number of senior officials in recent months. His Liberal Party is trailing the Conservative Party by about 20 points in recent public opinion polls, with an election due next year.
Freeland’s resignation letter talked about Trump’s “aggressive economic nationalism,” including his threat to impose 25% tariffs against goods from Canada and Mexico — a move that would be extremely harmful to Canada’s economy.
“Our country today faces a grave challenge,” Freeland wrote. “We need to take that threat extremely seriously. That means keeping our fiscal powder dry today, so we have the reserves we may need for a coming tariff war. That means eschewing costly political gimmicks, which we can ill afford and which make Canadians doubt that we recognize the gravity of the moment.”
The phrase “political gimmicks” is likely a reference to the government’s announcement last month that it plans to implement a two-month sales-tax holiday on certain items, such as toys and Christmas trees, and send C$250 checks to millions of Canadians. The tax holiday came into force on Dec. 14 but so far the government doesn’t appear to have the votes necessary to pass the rebate checks. The total cost of that package was estimated at more than C$6 billion ($4.2 billion).
The comment about keeping fiscal powder dry is the “most damning bit,” said Rishi Mishra, an analyst at Futures First Canada Inc. “Whenever the finance minister of a country says that they don’t have fiscal room, it leads to a selloff in bonds.”
Freeland all but admitted last week that the government is likely to break an earlier pledge to keep budget deficits around C$40 billion.
Her letter said Trudeau told her on Friday that he wanted her to serve in a different portfolio, but she felt the “only honest and viable path is for me to resign from the Cabinet.” Trudeau offered her a position managing the Canada-US relationship that would not have included a ministerial portfolio, according to a government official who spoke on condition of anonymity.
Her resignation comes as Trudeau redoubles efforts to recruit Brookfield Asset Management Chair Mark Carney into the government, though it remains unclear where those conversations will lead, an official recently told Bloomberg News. The person spoke on condition they not be identified.
Trudeau told reporters in July that he had been trying to persuade Carney for years to join politics. More recently, Carney agreed to become an economic adviser to the Liberal Party. The former Bank of Canada and Bank of England governor also serves in a number of philanthropic and business roles, including as chair of Bloomberg Inc.
Trudeau has now seen the departure of two finance ministers in a little more than four years. Freeland — the first woman to hold the post in Canada — was given the job in 2020 after the prime minister had a falling out with then-Finance Minister Bill Morneau over issues such as spending on Covid-related support programs.
Freeland said in her letter that still plans to run for reelection in her Toronto district.
“It certainly adds another layer of uncertainty as we likely enter a period of volatility with the upcoming US administration,” Dominique Lapointe of Manulife Investment Management said by email.
Housing Minister Sean Fraser also resigned from cabinet, news that came out on Sunday evening.
--With assistance from Erik Hertzberg, Laura Dhillon Kane and Randy Thanthong-Knight.
(Adds in paragraph four that the fiscal update will proceed. Also updates attribution regarding Trudeau’s offer to Freeland in paragraph 14.)
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