Canadian Manufacturing

Durable goods are consumer goods that have a long life span (i.e., over three years) and are used over time. Examples include bicycles and refrigerators. Nondurable goods are consumed in less than three years and have short lifespans. Examples of nondurable goods include food and drinks.

Currently, the four dominant manufacturing industries in Canada are
motor vehicles and parts ($103 billion)

food products ($101 billion),

coal and petroleum products ($51.2 billion), and

chemical products ($50.3 billion).

Manufacturing Production in Canada increased 3.64 percent
in February of 2022 over the same month in the previous year

Revitalizing Canada’s Manufacturing Economy

Manufacturing in Canada used to be dynamic; now, industrial production has been stagnant for two decades.  Canada needs to create and sustain a resilient manufacturing economy that will also be more competitive internationally and will create good jobs while minimizing environmental impacts.

Canada’s Declining
Manufacturing Sector

Recent crises show how fragile international economic arrangements are that we rely on in times. The lack of access to essential medical and personal protective equipment in many countries, including Canada, years of offshoring, outsourcing and just-in-time production left us and others unable to deal with the pandemic. Some of this was exasperated by the Chinese government in all its representations buying all the PPE from Canada and other countries before CoVid was officially recognized.

Because of these inadequacies, some of the world’s countries turned inward and enacted policies mandating personal protective equipment meant for export must now be used for domestic purposes. This reduced Canada’s supplies of these essential goods. In Canada, the federal and provincial governments reacted swiftly, going as far as bringing supply chains under provincial control, though the lack of long-term planning meant critical shortages remained.

The pandemic showed the importance of a strong domestic manufacturing sector to produce what Canada needs. It has also shone a light on the decline of Canadian manufacturing sector over the last number of decades.

Over the past 20 years in Canada, GDP from industrial production has been stagnant. Manufacturing accounts for roughly 10 percent of Canada’s GDP, down from about 16 percent in 2000  and far lower than the high of 30 percent in the 1950s.  It took the Canadian manufacturing sector close to six years to recover from the 2008-2009 financial crisis. 

Germany, a country with a domestic industrial strategy, has seen GDP from industrial production rise by more than 66 percent over the last 20 years, and its manufacturing sector bounced back from the 2008 crisis in fewer than three years.

While labour productivity has increased, thanks to new generations of machines, manufacturing’s share of the GDP, employment and wages have all stagnated or declined in some cases.
Canadians produced more goods per hour while wages
barely increased, thanks to better equipment and methods

The decline in manufacturing has been a key contributor to the stagnation of wages in Canada, the decline in private-sector unionization, and Canada’s increasing reliance on the extraction and export of unprocessed natural resources. In 1980, almost 20 percent of all jobs in Canada were in the manufacturing sector. By 2020, that had dropped to 9 percent. (see below)

Globalization and liberalized trade agreements have not been good for Canadian manufacturing. Canada is still party to dozens of international trade and investment treaties and our manufacturing sector is still heavily reliant on export markets. Manufactured goods represent almost 70 percent of Canada’s total merchandise exports. The pandemic has shown a global economic order that is too often reliant on cheap labour and the prioritization of cheap goods and short-term gain.

Canada has to recreate and resustain a resilient manufacturing economy that will also be more competitive in a globalized economy. Successful manufacturing economies, such as Germany’s, have supported advanced manufacturing that creates good jobs and cannot be offshored to low-wage countries. Following this model requires rethinking the role that the state and workers can play in the revitalization of manufacturing.

Canada needs concerted training and apprenticeship policies that incorporate equity (including hiring and pay equity) and recognition of labour rights in procurement contracts and in investment decisions at various levels of government. Additionally, the country should invest in communities hit hard by de-industrialization and mine

The federal and provincial governments play key roles in ensuring the oversight and co-ordination of key industries and supply chains. Analysis of supply chains can include whether or not Canada can actually produce the raw materials needed for a final product. There areas in Canada that have the opportunity for value-added manufacturing that isn’t being taking advantage of. An example may be raw logs in British Columbia, where instead of creating good manufacturing jobs, large timber companies ship raw material abroad for processing. The negative labour and environmental consequences could be improved with proper planning, co-ordination and an explicit manufacturing policy.

One of the fears of strengthening environmental standards — and of the possible increased cost of using Canadian-made goods — is that they will simply be undercut by cheaper imported products, rendering higher standards useless.

Border carbon adjustments (BCA) have been suggested. A BCA would apply to goods produced in countries that have no form of carbon pricing, in particular on trade-exposed products with high emissions such as steel and aluminum. This would help to reflect the true cost of imported goods. In A New Canada’s view, this would not work to make our products world competitive.  We also believe in Duties to make foreign produced products comparable in price to domestic.

Where it really is not feasible to re-shore a supply chain (for example, there is no prospect for domestic production or Canada simply does not have the raw materials), then supply chain diversification is an option. Rather than relying on one country or one global supplier, Canada should ensure access to critical goods from multiple sources.

A manufacturing strategy may also include analysis of community impact, including the jobs and multiplier effects of reshoring supply chains and of public investments.

While there may be concern that concentration of industry will occur as a result of supply chain reshoring, Canada could consider current ownership structures where there is significant concentration, little to no Canadian ownership and owners who hoard wealth at the expense of investment and maintaining strong workers’ rights.

Worker Retraining

Government and employers have to have responsibility to provide workers with training, apprenticeships, upskilling and reskilling. Federal and provincial government programs and agencies, including EI and ESDC programs, could be expanded to provide opportunities for training in strategic sectors, tied, where possible, to jobs guarantees.

Employers need to invest in the skills of their workforce, rather than shirking responsibility while complaining about a so-called skills gap. Unions can play a strong role in identifying where skills exist, including among retirees, and where gaps remain.

Financing and Investment

The current government has committed $180 billion in infrastructure spending from 2016 until 2028. To ensure that this funding is effective in creating domestic jobs, changes are needed:

  1. Funding have to be incorporated with a national manufacturing strategy;
  2. Canadian content must be a given

Another consideration may be a public infrastructure bank that would lend to governments at all levels, from municipalities to the federal government. A public bank could provide low-interest loans for public infrastructure projects of all types — social and physical. The recently created Canada Infrastructure Bank relies on significant private financing, which can increase costs, potentially doubling financing costs.

Federal investments can also help sectors adhere to environmental standards. Identifying secure domestic markets for goods would raise Canada self sufficiency and help with GDP. Consider it a “Me First” policy.  Use domestic products before imports.  An example would be build and extend oil pipelines from coast to coast to coast for export of goods and so Canadians have access to Canadian products first. Remove provincial trade barriers so free flow of Canadian product moves unrestricted.  

Upcoming provincial and federal budgets should not focus on austerity measures, rather governments must make strategic infrastructure investments that will create good, well-paid jobs and support short- and long-term economic development. Short term, there may be a deficit, but revamping and value added products means higher wages and better profits.

Private-sector investment is also an important component of a manufacturing strategy. However, the private sector has not been making the capital investments necessary to bolster the skills of Canada’s workforce. Instead, it has been hoarding money. As effective corporate tax rates have fallen, investments in machinery have also fallen, from about seven percent in 1998 to 3.8 percent in 2018 and the money has instead stayed in private hands. A change in tax laws will encourage more training and development.

Tax reform, including modestly higher corporate taxes, remove share buy-backs and other tax incentives would help raise the funds needed for investments. Corporate-led argument that the lowest taxes will lead to the highest investment, yielding the best results for workers and the environment has shown not to be true.

The federal government also plays an important role in investment in research and development, as well as co-ordination and marketing and it could also be a buyer. This is particularly important for pharmaceutical research and development for the public good. Investments can also play a strong role in the development and dissemination of clean technology and more energy-efficient technology for manufacturing and mining. Investments are also essential for strengthening telecommunications infrastructure and expanding access. Developing secure interprovincial transportation networks is also key to ensuring delivery and use of products across supply chains. Canada and research centers need to be more proactive in “selling” their patents and other valuable knowledge.  Canada is missing out on literally hundreds of millions of dollars in intellectual property.

Sustainable Procurement

When it comes to ensuring markets for goods produced in Canada, procurement policies that contain explicit local employment or material provisions may come under attack through the WTO, under the General Procurement Agreement, or the CETA, sustainability measures are much less likely to be challenged.

Canada should include environmental and social commitments, including community benefits in procurement for federal, provincial and municipal contracts.

In recognizing our interdependence with U.S. markets, we could develop North American markets using Buy Clean procurement policies in both countries. Buy Clean is a new initiative by Canada and the USA to purchase “lower carbon” products and use in manufacturing. Internationally, Canada is well placed to sell this concept abroad as our manufacturing is less carbon intensive than our international neighbor. Despite the lack of procurement policies in the CUSMA (Canada, USA, Mexico Agreement), Canada could work with U.S. allies to ensure a binational strategy for North American manufacturing.

A revitalized manufacturing sector can play a key role in Canada’s post-pandemic recovery. However, Canada cannot rely on the old mechanisms, such as offshoring or ever-expanding export markets, for the goods it does produce. This requires a change in thinking about the role of the state and of workers in revitalizing Canadian manufacturing and, ultimately, directed policies that promote good jobs, to benefit communities across the country, while reducing environmental impact.

Already, nations around the globe are rethinking the place of manufacturing in their domestic economic strategies to ensure access to essential goods and bolster decent employment. If Canada does not use this opportunity to rethink the role of manufacturing in our economy, it risks being left behind in a changing international economic order.

With Canadian GDP being lackluster the last 15 years, increased internal spending (on domestic products) and an aggressive export strategy will increase Canada’s balance of trade and reduce our public debt.

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