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Hi all.

Canada’s public service knows how to handle a crisis. Look at its unimagined response – and in record time – to the pandemic. But Trump’s tariff threats and a relief package on the scale of pandemic supports? The prospect has sent chaos and uncertainty rippling through every corner of government since Christmas.

The tariffs are set to start tomorrow, but who knows? Mexico just got a one-month reprieve and Donald Trump finally spoke with Justin Trudeau today. They will reportedly speak again this afternoon.

If the tariffs proceed, this trade war could hit with pandemic force. But with one big difference. The pandemic was a temporary shock. There might be no end to this crisis. It could permanently reshape Canada’s economy.

Whatever any relief package looks like, it’s public servants who will have to deliver it. And if this is a fundamental change we will have to live with, some public servants see a risk in managing it like the pandemic. They’re concerned.

The stakes are high: not only could it cost billions, it will create major operational challenges for a bureaucracy bracing for downsizing — forced to cut costs in a weakening economy while scrambling to manage the crisis.

Let’s dive in.

Today:

The tariff scramble: At the epicentre is ESDC and Service Canada.

How EI could help: The pieces are already in place for a simpler relief program.

Well, that’s bad timing: ESDC’s about to lose its temporary funding.

And then what? The government will be gone by March 9.

Need advice?: IPAC will hold a panel to help steer through the election.

The deep dive that was buried: A look at Kim Campbell’s epic restructuring suddenly appears.

THE POLICY DEBATE

Will this be temporary or permanent?

The Trudeau government is ready to support businesses and individuals with relief measures. Some are in place and others are being considered. The government is under pressure to recall Parliament to approve a relief package. The government is allowing businesses to seek exemptions from tariffs.

The first response is Canada’s retaliatory 25 per cent on $30 billion worth of American goods coming into Canada as of Tuesday. Tariffs will then be applied to another $125 billion worth of American imports in three weeks.

The policy challenge is uncertainty. Trump’s endgame is unclear. As reported, business and labour groups want emergency funding. Some warn it could further undermine Canada’s productivity. Some say pandemic-level stimulus is needed. Others argue we can’t keep flooding the economy with government money.

If the tariff impacts turn out to be permanent, a broad, pandemic-style response could backfire. Massive supports — keeping struggling businesses afloat or providing CERB-like benefits beyond EI — might impede necessary economic adjustments.

Those who see this as a lasting shift point to Trump’s consistency on tariffs — not just as a negotiating tactic but as a way to raise revenue and push businesses to relocate to the U.S. A key Trump adviser says as much, calling the shift “generational change” in global trade, according to The Logic.

If that’s the case, says one long-time bureaucrat, “any supports to businesses should be purely to assist them in transitioning to more productive functions, not to helping them sustain businesses that won’t be viable in the long term.”

But the Liberals like to spend their way out of problems, some argue. “It’s what this government does,” says a bureaucrat who worked on the COVID response. “We don’t have a lot of fiscal firepower left. I’d be very reluctant to blow it on bailing out businesses that won’t survive in this new reality or bailing out workers with benefits beyond EI. Not only could it cost a lot of money, but it will prevent the economy from restructuring, which it is going to have to do.”

Others say too much is being read into three words: “pandemic-like response.” For them, the words refer to speed more than the size of any support package. It’s about how fast the government can act to get help to workers and businesses.

And that debate — whether Trump’s tariffs are temporary or here to stay — will continue as the trade war unfolds, requiring close monitoring.

“It’s a fool’s game to have great confidence about how this is going to break one way or another,” said a senior official not authorized to speak publicly.

Donald Trump at the East Room of the White House on Wednesday. AP Photo/Evan Vucci

TRUMP ALL THE TIME

With public servants stuck in the middle

Many departments are scrambling: Finance, PCO, Global Affairs, ISED, RCMP, Public Safety, CBSA, and CRA and Justice. Canada could challenge the tariffs as a violation of the United States-Mexico Canada Agreement (USMCA) and World Trade Organization agreements. But ESDC and its delivery arm Service Canada are at the epicentre of any response to support workers.

For now, the government is managing the tariffs like an evolving crisis rather than a permanent shift and new normal.

It’s looking at a package of relief measures to help business and industries, but that could require legislation and Parliament’s approval. EI will be the first line of defence – and it needs no parliamentary approval

Senior government officials say they don’t think a full-on pandemic-style response is needed. The EI program can handle it. There’s no need for broad, one-size-fits-all payments like CERB. Service Canada’s planning has included the worst-case scenario of 25 per cent tariffs, so it is ready, officials say.

When COVID hit in 2020, the federal government froze the economy and rolled out an $82-billion aid package. It included income support, wage subsidies and tax deferrals.

Within days, Service Canada was overwhelmed. Months’ worth of EI applications would arrive in a single day. That’s when it pivoted fast. It built a simpler, quicker system and expanded support beyond EI.

(CERB was the most widely used benefit during the pandemic, and it was available to anyone out of work regardless of EI eligibility. All they needed was an attestation. (We all know the problems that created – and back then, those aging IT systems had to be tricked just to get payments out.)

Tariffs aren’t expected to hit with the same scale or speed. Senior officials are likening it to the 2008 financial crisis, which drove up unemployment but didn’t require pandemic-scale relief. EI claims surged but were spread out over time.

A Kingston, Ont., location in March 2020. THE CANADIAN PRESS IMAGES/Lars Hagberg 

The upside of EI. EI has a work-sharing program for temporary business downturns, which officials say is exactly the kind of short-term disruption tariffs could cause. Instead of layoffs, employers can reduce hours while workers collect EI to offset lost wages. This helps businesses stay afloat and employees keep their jobs. There are limits on duration of the program. It’s not intended as an ongoing support if a business is no longer viable.

EI is self-financed through employer and employee contributions. Payments and operations come from the EI Account, not the government’s main bank account, meaning no parliamentary approval is needed. Service Canada can scale up to meet demand without delays or backlogs — if all goes to plan.

Also, the Canada Employment Insurance Commission, which oversees EI, has regulatory authority and can tweak the rules on the fly. No need to wait for Parliament – just Treasury Board signoff.

That means it can quickly adjust eligibility, like dropping the week-long waiting period to get money in people’s pockets faster. Or it can extend the duration of benefits. Both are on the table. Both would make it easier and faster to respond to whatever comes next.

This approach works — until EI demand exceeds the system’s capacity. If claims surge like they did during COVID, all bets are off, says one long-time bureaucrat. Unifor President Lana Payne told CTV that “tinkering around the edges” of EI isn’t enough, as COVID proved. Workers and businesses need broader measures to keep people working, she warns, adding that the North American auto industry could face shutdowns within weeks.

Service Canada is focused on predicting unemployment rates and ensuring it can handle the resulting EI claims. Its modeling factors in both the direct impact of U.S. tariffs and Canada’s retaliatory measures, which could drive inflation, reduce economic activity, and increase job losses.

But officials don’t expect EI claims for job losses to reach COVID-era levels even if tariffs stay. They are confident Service Canada can handle the surge. Some industries will feel impact quickly, within a week or two. Others will take much longer to feel the pinch.

HEADCOUNT

The wrinkle at ESDC

The tariff crisis comes as ESDC is wrestling with its own financial reckoning. The department ballooned during the pandemic. Now, as hundreds of millions of dollars in temporary funding expires, it’s shifting to get ready for its next reality – the major spending cuts all departments are bracing for.

Service Canada is trying to keep its workforce as flexible as possible so it can react to whatever comes next. It employs most of the 7,667 term employees at ESDC who were recently told they won’t be made permanent after three years on contract. They are employed in 300 locations, from call centres to Service Canada offices across the country.

The idea is to stay flexible and keep the indeterminate head count down. Permanent hiring is now tightly controlled, requiring executive approval to ensure no existing staff can fill the role.

The continuity complication. After March 9, the government steering the response to this historic crisis won’t be around. Public servants will have to manage the fallout while preparing for the transition to a new Liberal leader — when many in the party are abandoning signature policies like the carbon tax and capital gains changes — and then possibly to a new (and likely inexperienced) government that could have very different ideas on tariffs and governing.

IPAC PANEL

How to proceed with caution

IPAC Nova Scotia is planning a virtual discussion to help public servants make their way through the confusion of the next few months. It’s called Navigating the Public Service During An Election, and is set for this Thursday, Feb. 6, from 11 a.m. to noon AT. You can livestream it.

Kim Campbell in July 1993 with then-U.S. president Bill Clinton at a G7 Summit in Tokyo, Japan. Credit: Bob McNeely. 

DEAD/BURIED FOR 30 YEARS

Suddenly, a Kim Campbell-era report is unearthed
In 1993, a drastic reorganizing of government shook the town. Under the Kim Campbell government, 35 departments collapsed down to 23. A deep dive into the restructuring was about to be published in 1995 when at the last minute, someone pulled the plug.

Scholars had been given rare access to top officials to do the research. It was commissioned by The Canadian Centre for Management Development, which became the Canada School of Public Service. The nine articles were peer-reviewed for release by McGill-Queen’s University Press. They were supposed to become a book, but were suddenly and inexplicably buried.

Now, three decades later, the work has been made public.

Coincidentally, the release comes as interest in 1993 surges. Many policymakers argue another major government shakeup is overdue. The same forces that drove restructuring then are back: rising deficits, shifting U.S. relations, and an unpopular government calling an election that could bring a new government with a dramatic shift in direction.

Btw, Liberal leadership contender Chrystia Freeland is proposing to cut the size of cabinet in half, capping it at 20 ministers — a scale of reduction not seen since Campbell’s restructuring in, you guessed it, 1993.

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A bit about me. I cover and analyze the federal public service for Policy Options as the Accenture Fellow on the Future of the Public Service. I've been reporting on the public service for 25 years. My work has appeared in the Ottawa Citizen and iPolitics, and has earned a National Newspaper Award. My full bio. X: @kathryn_may. 

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