The latest monthly report from S&P Global on the state of the Canadian manufacturing sector showed that manufacturing continues to decline. This report is based on an index comprised of surveys of purchasing managers (PMI) in the sector. The results for June saw sharp contractions in both output and new orders, indicating that these tough times will continue in future. Tariffs imposed by the U.S. were undoubtedly one of the factors driving this decline as U.S. demand for Canadian manufactured goods was down. But tariffs were by no means the only reason. General business uncertainty because of the erratic nature of U.S. President Donald Trump continues and businesses are still waiting for some indication from Prime Minister Mark Carney as to what he will be doing to improve the business climate. Input prices also remain high, which in part reflects the continued low value of the Canadian dollar as well as tariffs.
The PMI index for June 2025 was 45.6, down from 46.1 in May. That might not sound like a big change, but it was the fifth successive time the index was below the 50 mark, which indicates no change. As well, production volumes were cut to the greatest degree in more than five years and new export orders fell by one of the steepest rates in the history of this survey. Overall employment in the sector also fell for the fifth consecutive month.
Canada’s manufacturing sector has been shrinking for a number of years. Since 2018, manufacturing as a percentage of GDP has declined by five per cent, while the U.S. sector for the same period has increased by 10 per cent. Manufacturing is an especially important sector in any economy, as it is key to the ability to innovate and compete. Also, the two leading sectors to contribute to a country’s productivity performance are resources and manufacturing, both of which have declined over the last decade due to foolish government policies. As economic productivity is the basis for our standard of living, this recent trend has had a negative impact on most Canadians.
Canada’s relatively high energy costs have also damaged manufacturing and driven many out of Canada to more business-friendly jurisdictions. Manufacturing businesses tend to be especially large users of energy as compared to other businesses, and the variety of “green” policies and added energy-related taxes in Canada have driven up the cost of electricity and other energy sources considerably. Canada’s relatively inexpensive hydro-based electricity used to be a competitive advantage in many parts of Canada that were blessed with those resources, but in recent years policies like Ontario’s Green Energy Act turned energy costs into a disadvantage.
There are also many linkages between the resource and manufacturing sectors. The Liberal government’s deliberate policies to hobble the resource sector in recent years also had its impact on manufacturers. This impact was country-wide, as many manufacturers in Ontario and Quebec are dependent upon various parts of the resource sector in Western Canada. Also damaging over the last decade of Liberal federal government mismanagement has been the fact that most employment growth has taken place in the unproductive public sector, not the productive private sector. This has imposed a heavier cost burden on all private sector businesses, including manufacturing, as well as all private sector employees which represents about 75 per cent of all Canadians.
There is a lot governments can do to remedy this situation. One area in which Canadian governments at all levels have been sadly lacking is in their procurement policies. Our governments never seem to make much of an effort to favour Canadian suppliers when they are purchasing goods and services. A recent example took place in B.C., where the government chose to purchase four ferry boats from a Chinese shipyard. The B.C. government was not the only one involved, as the federal Infrastructure Bank helped fund this purchase with a $1 billion loan. Chrystia Freeland, the new Minister of Transport, is said to be disappointed by this but why didn’t she know this was happening? Incompetence, or just not paying attention until it became a public outrage in the media?
The B.C. government tried to defend itself by saying there were no Canadian bids, but this excuse has been used many times by governments who can’t be bothered to do a proper procurement process which includes Canadian companies. If such processes don’t reach out to Canadian manufacturers as they should, it is logical that Canada will never develop the capability to supply these contracts. Purchasing these ships from China is especially odious, considering that China is imposing serious tariffs on our agricultural producers at this time. Canada needs a more comprehensive and intelligent procurement approach that encourages and favours Canadian suppliers, as other countries do.
No economy can be successful without a vibrant manufacturing sector. North America has lost many of its manufacturers over the past few decades because of cheaper labour and fewer regulatory burdens in many Asian countries. Trump is trying to reverse this with tariffs, but that is a blunt instrument that tends to damage the economies of all countries involved and does not capitalize on the advantages of trade relationships. What both the U.S. and Canada share is suffocating regulatory regimes and relatively high levels of taxation, with Canada being considerably worse than the U.S. The focus going forward for both countries, and especially Canada, should be to reduce useless and costly red tape, lower taxes and impose the same rules on imports as we impose on our own businesses. Canada also needs an initiative similar to the U.S.’s DOGE effort to downsize government significantly and bring some accountability into the public spending of our tax dollars for a change. If Canada was to lose our vital manufacturing sector, it will be very difficult to get back.
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.
