As the world contends with the implications of Donald Trump’s re-election, Canada is faced with a moment of reflection. Though his proposed 10-20% tariffs on all imports from trading partners is particularly radical, the challenge of navigating a deeply protectionist America perhaps was inevitable. While Trump embodies the loudest voice for “America First,” protectionism seems to have become bipartisan and politically sacrosanct in the U.S. Canadians may recall the furious lobbying efforts to safeguard our auto sector from being sidelined during the Biden administration’s Build Back Better initiative. During his first term, Trump’s renegotiation of NAFTA into the Canada-United States-Mexico Agreement (CUSMA) redefined trade rules for an otherwise stable trading relationship.
Now, with Trump’s new tariff proposals on the horizon, Canadian industries brace for a ripple effect on prices, trade flow, and competitiveness. As 75% of Canada’s trade is with the U.S., decoupling isn’t an option—but diversification might be.
Canada’s dependence on the U.S. leaves us far too vulnerable to shifts in policy and market conditions south of the border. Expanding trade partnerships is critical. Securing free trade agreements with CARICOM, MERCOSUR, Europe and major Asia-Pacific nations would open doors to new markets. However, diversification is not solely about expanding trade networks—it’s about redefining our economic priorities to build resilience and self-reliance.
Industrial Policy
Canada’s economic history includes attempts to shape industrial growth, but these efforts have been sporadic and lacked the comprehensive strategy seen in other countries. Key examples include the establishment of Petro-Canada, the construction of the St. Lawrence Seaway, investments in the Northern Vision to establish natural resources in Canada’s North, and more recently Justin Trudeau’s Global Innovation Clusters Initiative. While these initiatives reflect elements of industrial policy, they fall short of the scope and ambition needed to truly be an industrial strategy. Industrial policy involves government support for businesses to enhance or reshape specific economic activities based on factors like technology, location, or size. It addresses challenges markets can’t solve alone, such as advancing the green transition or strengthening critical value chains.
Learning from the Asian Tigers: A Comprehensive Approach
In contrast to Canada’s episodic efforts, the Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore) adopted industrial policies that were comprehensive, sustained, and deeply embedded in their national strategies. Governments in South Korea, Taiwan, Hong Kong, and Singapore didn’t just dabble in individual initiatives—they built ecosystems that prioritized education, infrastructure, R&D, and export-oriented growth.
For example, South Korea’s government worked closely with private companies like Samsung and Hyundai, providing subsidies, access to credit, and support for workforce development. Taiwan’s Industrial Technology Research Institute became a powerhouse for innovation, driving advances in semiconductors that solidified its position as a global leader. These policies weren’t just about boosting industries—they were about transforming their economies into resilient and diversified powerhouses.
The Asian Tigers experienced rapid economic growth. They became global leaders in various industries, including electronics, shipbuilding, and manufacturing, which became long term employment sources and greatly improved their trading relationship with other countries. And most importantly, economic growth brought about significant improvements in living standards, including increased incomes, access to healthcare, and education.
Applying the Lessons to Canada
The pandemic exposed the weaknesses in Canada’s reliance on global supply chains prompting the need to rethink our approach. Canada’s rich natural resources, strategic location, and highly educated workforce offer the perfect foundation for adopting a robust industrial strategy. However, the country must pivot away from its traditional strategy and instead invest in value-added industries, such as developing advanced manufacturing capabilities, scaling AI research and commercialization, fostering clean technology innovation, and more.
To the credit of the current government, the Global Innovation Clusters (formerly the Superclusters program) aims to do just that. But with a very modest funding allocation of $750 million over five years in the 2022 budget and a program structure that effectively resembles a granting agency, it is difficult to liken it to the grand strategies of the €1 trillion European Green Deal or the $2.2 trillion Build Back Better initiative.
Though 57.5% of Canadians aged 25-64 hold a college or university degree, leading the G7 with the most highly educated workforce, and despite the country attracting top talent with a fast-track residency process and world-class research institutions, Canada struggles to translate these advantages into robust economic performance. Canada ranks 15th in global innovation, behind other advanced nations.
This underperformance stems in part, perhaps paradoxically, from one of Canada’s greatest strengths: its proximity to the US. Canadian inventors have a tendency to sell intellectual property to U.S. firms or simply expand into American markets, preventing scaling potential in Canada.
The challenge with scaling in Canada is rooted in a lack of strong customer demand and disconnects between technology firms and potential industrial adoption. There is plenty of domestic demand potential in Canada, with Canadian companies demonstrating risk-aversion with their capital intensification. This can be helped with policy incentives and scaling “matchmaker” programs that connect industrial customers with potential solutions. Additionally, as mentioned before, deepening our integration with non-US trading partners can expand Canadian access to markets without being subsumed by US competition.
The Time for Vision
Should there be a change in government, the governing party must resist the urge to unravel programs along partisan lines. Instead, the federal government should focus on creating a unified strategy that strengthens Canada’s domestic industries and reduces vulnerabilities to global shocks. Fostering self-reliance would not only protect Canada’s economy from external shocks but also enable the country to negotiate from a position of strength with trading partners, including the U.S.
Mariana Mazzucato, a renowned economist, challenges the idea that innovation is primarily driven by the private sector. She has provided valuable insights on how governments can adopt the role of “entrepreneurial states.” Here are some ideas inspired by her work that could be applied in a Canadian context:
- Expand Investment:
Strengthen funding for Canada’s Global Innovation Clusters while coordinating education, workforce development, and immigration policies to support these high-growth sectors. The Canada Infrastructure Bank also is a brilliant idea to crowd-in private investments for major infrastructure projects. Encourage alignment between these institutions.
- Support High-Risk, High-Reward Research:
Governments should prioritize investment in fundamental R&D, including subsidies, access to credit, and other mechanisms to fill gaps where private entities are reluctant to engage due to uncertainty.
- Ensure Public Returns on Public Investments:
Mazzucato advocates for ensuring the public benefits from the risks it takes in innovation. This could include equity stakes in companies benefiting from public R&D, royalty arrangements, or reinvesting profits into public goods and services.
- Align Policies Across Governments:
Collaborate with provinces and other subnational jurisdictions to ensure a cohesive strategy that integrates industrial policy with housing, transportation, healthcare and economic development initiatives.
- Learn from Others:
Canada faces challenges such as lagging productivity, rising costs of living, and a housing crisis that requires a war-time effort to address. In addition to the Asian Tigers, drawing inspiration from initiatives like the European Green Deal, the UK’s Industrial Strategy, and the US examples of the Inflation Reduction Act, Build Back Better, and the CHIPS and Science Act, Canada should adopt an ambitious industrial policy agenda to drive sustainable and inclusive growth that doesn’t reinvent the wheel.
Over four years, $46.1 billion worth of investments in Electric Vehicle and Battery manufacturing have been made in Ontario. Additionally, key investment in mineral extraction has also been prioritized by the Provincial government, leading to what some are describing as an end-to-end supply chain in Ontario. Clearly, industrial policy is on the minds of our elected officials, but it isn’t entirely clear that everyone is aligned on what this strategy means in light of a Trump presidency.
Regardless of what our friends do south of the border, our priority should be to make Canada as resilient as possible to exogenous factors. This requires diversification in international trade but also investments in a robust domestic supply chain and markets. By adopting a bold and comprehensive industrial policy, Canada can chart a future that is resilient, sustainable, and globally competitive. For cities like Brampton and the country as a whole, this is an opportunity to lead with innovation, inclusivity, and purpose.
As the Brampton Board of Trade attends the Ontario Chamber of Commerce’s Ontario Economic Summit (OES), teasing out the appetite and interest for a unified industrial strategy will be top of mind among our usual priorities of transit, housing, and access to labour. If you have thoughts on these ideas, feel free to send me a message at vsingh@bramptonbot.com.
