This article originally appeared in the Japan Times.
By Stephen Nagy, June 30, 2026
Every July 1, fireworks illuminate the skies across Canada. This year, however, the country marks Canada Day with a revitalized sense of pride. Prime Minister Mark Carney has restored a measure of dignity, intellectual seriousness and technocratic competence to the nation’s highest office.
After years in which foreign policy often appeared driven by social media trends rather than the realities of statecraft, there is a growing sense that the adults are back in the room.
Yet as the celebratory smoke clears, sobering challenges remain. A sluggish domestic economy, a fractured political landscape and the constraints of middle-power diplomacy threaten to complicate the early promise of the Carney era.
The defining moment of Carney’s 15-month tenure came at the World Economic Forum in Davos this January. His keynote address described a fundamental rupture in the international order and called for middle powers to unite. The speech struck an emotional chord at home and abroad. Many Canadians, like others around the world, have grown weary of U.S. President Donald Trump’s abrasive tone, his public criticism of allies and his repeated provocations — including referring to Canada as a potential “51st state” and reviving talk of acquiring Greenland.
Carney’s remarks seemed to channel that frustration. In tone, they echoed the defiance shown by Italian Prime Minister Giorgia Meloni in a widely circulated video after the Group of Seven summit in which she rebuked the U.S. president for suggesting she had sought a photo opportunity. In Davos, Carney appeared to stand up to Washington and gesture toward a new architecture of middle-power cooperation.
But policymakers in allied capitals saw the speech differently. The idea that middle powers — especially those deeply tied to the United States through trade and security — would unite to counterbalance Washington struck many as unrealistic.
More concerning was the perception that Carney’s framing implied a moral equivalence between the United States and China.
For all its current political volatility, the United States remains a democratic state with a transparent legal system and broadly aligned interests with its allies. China, by contrast, represents a fundamentally different political and strategic model. In diplomatic circles, quiet questions emerged about why Canada would risk provoking its most important trading partner and security guarantor.
The contrast with Japan is instructive. Tokyo has long practiced a form of adaptive middle-power diplomacy that emphasizes engagement over confrontation. Rather than publicly rebuking Washington, Japan works to shape U.S. behavior from within the alliance, reinforcing its commitment to the Indo-Pacific and to a rules-based international order.
From Tokyo’s perspective, Canada’s reemergence as a serious actor is welcome — but only if it remains a reliable partner. If Ottawa ceases to function as a stable gateway to the U.S. market or allows relations with Washington to deteriorate, its value to allies diminishes. Japan and others need Canada to be a steady force in North America, not a geopolitical wildcard.
Despite the overreach at Davos, Carney’s broader foreign policy shift has been well received. His outreach to Japan, India, Australia and the European Union reflects a clear effort to diversify Canada’s economic and strategic relationships. That diversification is both necessary and overdue, given the country’s longstanding dependence on the United States.
At the same time, Carney has moved away from the more performative elements of recent Canadian diplomacy. Issues such as gender-focused foreign policy and overt values-based messaging have taken a back seat to economic pragmatism and security concerns. The shift has been welcomed by many allies, who see it as a return to a more traditional, interest-driven approach.
Canada is also showing renewed seriousness about national defense. Increased participation in multinational exercises such as Rim of the Pacific, greater involvement in Indo-Pacific security and support for partners including the Philippines and Taiwan signal a more engaged posture. Continued backing for Ukraine, investments in Arctic security and efforts to strengthen North American defense cooperation have further reinforced Canada’s credibility.
Energy and resource policy is another area of change. Moves to ease restrictive environmental policies and expand exports of critical minerals and energy resources have been well received abroad, particularly by allies seeking secure supply chains. In these areas, Canada has much to celebrate.
The real test, however, lies at home.
Canada’s economy faces mounting structural and cyclical pressures. Growth remains weak, with gross domestic product increasing by just 1.74% in 2025 and projected to hover near 1% through 2026. Per capita growth is even more concerning, lagging well behind the average for advanced economies.
Youth unemployment has surged, with rates exceeding 14% and approaching 20% among teenagers. Inflation has proven stubborn, driven in part by sharp increases in energy prices. Housing affordability remains a crisis, with household debt at nearly 175% of disposable income — the highest in the Group of Seven.
Other indicators present a mixed picture. Life expectancy remains relatively high, but health care spending continues to outpace peers. Meanwhile, crime severity has risen across the country even as homicide rates have edged slightly lower.
Compounding these economic challenges is a return to political fragmentation. The national unity that briefly emerged in response to U.S. tariffs and rhetoric has given way to familiar divisions — between provinces, parties and competing interest groups.
Carney has yet to consolidate control over his own political base. Within the Liberal Party, a vocal progressive wing continues to resist efforts to expand energy production, develop critical minerals and recalibrate environmental targets. Elements of the party are also deeply skeptical of closer engagement with Washington, viewing it as a concession rather than a necessity.
This internal resistance risks undermining Carney’s broader agenda. Japan offers a useful precedent. In 2005, Prime Minister Junichiro Koizumi confronted entrenched factions within his party, calling a snap election to push through his signature reform — the privatization of Japan Post. The move temporarily weakened internal opposition and enabled decisive action.
Carney faces a similar challenge. Without greater discipline and cohesion, his government may struggle to implement the policies needed to reverse Canada’s economic drift.
There is also a broader strategic reality Canadians must confront. Allies value Canada, but their support is not unconditional. If Canada’s relationship with the U.S. deteriorates significantly, or if its economic performance continues to lag, its strategic importance will decline. Investment and attention will shift elsewhere, exacerbating domestic challenges.
To sustain the current moment of optimism, Carney must act decisively on three fronts.
First, he needs to impose greater discipline within his party. That may require difficult political choices to sideline factions that prioritize ideological purity over economic growth and national interest.
Second, he must quietly repair and stabilize relations with Washington. Public rhetoric may play well domestically, but effective diplomacy often happens behind closed doors. Reassuring U.S. policymakers that Canada remains a dependable partner is essential.
Finally, Carney should accelerate efforts to develop and export Canada’s natural resources. Expanding liquefied natural gas capacity and critical mineral production would not only strengthen the domestic economy but also enhance Canada’s strategic value to allies seeking secure and diversified supply chains.
Canada has regained a measure of international respect under Carney’s leadership. The challenge now is to translate that goodwill into tangible economic and political results at home. If he succeeds, future Canada Days may offer not just symbolic pride, but a sustained sense of national renewal.
Stephen R. Nagy is a professor at the International Christian University, a senior fellow and China project lead at the Macdonald-Laurier Institute and a visiting fellow at the Japan Institute for International Affairs.
