There has been considerable anecdotal evidence that Canadian manufacturers have been through a rough few years, with an uncompetitive economic environment of high taxes, intrusive regulatory demands, a sluggish economy and labour market disruptions. The tariffs imposed by the Trump administration over the past year worsened the situation. A KPMG Manufacturing survey published last week helped to quantify the intentions of this important sector. The news was not good for Canada.
The overall finding was that over 40 per cent of survey respondents had either already moved production to the U.S. or are thinking about doing so because of trade uncertainty and the lack of a competitive business environment in Canada. Twenty-nine per cent said they have moved some or all production, while 13 per cent have not yet moved their production. Of respondents who are considering relocation, 77 per cent plan to move within two years.
Fifty-seven per cent of respondents said they had paused, reduced or cancelled planned investment as a result of economic uncertainty and tariff threats. Although the tariffs imposed by the U.S. on Canada are often cited as the key reason manufacturers and other businesses are looking to leave Canada, many businesses had already left Canada or expanded in the U.S. long before President Donald Trump as Liberal governments continued their anti-business policies.
The survey also found that 52 per cent of manufacturers described themselves as being in “endurance mode.” Difficult conditions can be tolerated for a while by most businesses, but it becomes much more challenging the longer the uncertainty drags on. It has become increasingly clear that the Carney government is not interested in negotiating a trade agreement with the U.S. anytime soon and has not even initiated formal negotiations. Mexico, on the other hand, has been formally negotiating with the U.S. for the past year. Unfortunately, businesses and jobs are being permanently lost while the Liberals procrastinate.
Another interesting finding in the survey was that although 80 per cent of respondents planned to keep their headquarters in Canada, 11 per cent intend to move their them to the U.S. in the next five years. Although the majority of manufacturers will retain a Canadian location for their headquarters, any expansion and job creation will be taking place south of the border.
The survey also found 61 per cent of manufacturers are still very dependent on the U.S. market and state their business would not survive without U.S. access. Eighty-six per cent of respondents are exporters, and of the exporters, virtually all say their products are compliant with USMCA/CUSMA (not subject to tariffs).
When asked what might convince them to stay in Canada, manufacturers said the number one issue is to ensure certainty around free trade. The uncertainty around this issue is very damaging and getting worse as the Carney government continues to delay U.S. negotiations. Other important factors to keep these businesses in Canada include ongoing tariff relief and lower corporate taxes. Back in 2017, Trump significantly lowered U.S. corporate taxes from 35 per cent to 21 per cent. It was a foolish move by the Trudeau government to refuse to match this tax reduction, and Canada has remained uncompetitive with the U.S. ever since.
Manufacturers surveyed said other factors to remain in Canada were improving the cost of living for employees, access to cheaper energy and better availability of skilled workers. The many “climate” policies the Liberal government has pursued over the past decade have increased the price of energy, turning what used to be a competitive advantage for Canada into a disadvantage.
In any economy, the manufacturing sector is a key contributor to productivity, innovation and well-paid employment. Over the past couple of decades, the proportion of GDP represented by the manufacturing sector has fallen from about 17 per cent to nine per cent today. The KPMG survey results are not encouraging for the future of manufacturing in Canada. Many manufacturers are closely linked to the oil and gas sector, and the fact oil and gas has been hobbled over the last eleven years has hurt manufacturing as well.
This survey bolsters other sources that highlight uncertainty about the Canada-U.S. trade situation as the number one problem discouraging the growth of this vital sector. Let’s hope the policy makers in Ottawa are paying attention and become proactive on the U.S. trade file before we lose even more of our valuable manufacturers to the U.S. Prime Minister Mark Carney and his colleagues are letting down a big chunk of Canadians by their inaction on this issue and the longer it goes on, the worse the damage becomes.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
