As trade negotiations with the United States sputtered over the summer, Prime Minister Mark Carney started talking about a new, domestically oriented solution for Canada’s tariff-battered industries.
“We have the potential to become our own best customer for steel, but we will lose that ability if we don’t manage the profound transformation now under way in the industry,” Mr. Carney said from the floor of a metal fabrication plant in Hamilton in mid-July as he unveiled a bundle of measures to keep out foreign steel and boost domestic demand for Canadian mills.
A few weeks later, he announced a support package for the lumber industry. And in early September, he outlined the pillars of Ottawa’s new “comprehensive industrial strategy.”
This involves $5-billion to help companies rejig their product lines, money to retrain workers and a strict “Buy Canadian” policy for government procurement – alongside a surge in government spending on homebuilding, infrastructure and defence, with the goal of absorbing stranded Canadian metals, lumber, and auto industry parts and labour.
Prime Minister Mark Carney greets employees after touring the Gorman Brothers Lumber sawmill, in West Kelowna, B.C. in August. Mr. Carney announced $1.2-billion in financial supports to help Canada’s lumber producers deal with U.S. tariffs.DARRYL DYCK/The Canadian Press
On the surface, this looks like a suite of emergency measures to help companies bridge a temporary loss of demand similar to those announced as the COVID-19 pandemic spread. Taken together, however, it represents a more fundamental shift in Canada’s political economy.
If key Canadian industries can’t sell into the U.S. market, the argument goes, perhaps the government can cultivate domestic markets to pick up the slack.
This kind of thinking was the touchstone of economic policy throughout much of Canada’s history, from John A. Macdonald’s National Policy in the decades after Confederation to the industrial policy experiments of Pierre Trudeau’s governments in the 1970s. But it was largely shelved with the dawn of continental free trade in the late 1980s and the recognition that Canadian manufacturers needed access to big international markets to reap the benefits of specialization and long production runs.
Now we’re seeing the return of economic nationalism and a kind of defensive industrial policy aimed less at creating world-beating champions and more at minimizing job losses and saving the cutlery as the house burns down. In effect, U.S. President Donald Trump’s America First economic vision is pushing Canada to follow suit.
Mr. Carney argues the world has changed, so Canada must change as well.
“We’re moving from an age that lasted decades, an age when free trade was a motor of global economic growth, to a new age, an age of economic nationalism and mercantilism,” he said in a speech in early September at an aircraft parts factory in Mississauga.
Managing this transition, he said, means “retraining our workers, transforming our strategic sectors, creating entirely new industries and being our own best customer by buying Canadian.”
But this comes with risks and trade-offs for a mid-sized, trade-oriented economy that has a spotty record with industrial policy.
Protecting domestic steel mills means higher costs for Canadian manufacturers, housing developers, and provincial and municipal infrastructure departments. Prioritizing Canadian companies in government procurement risks alienating trade partners. And subsidizing hard-hit companies risks throwing good money after bad while delaying potentially necessary economic adjustments.
There are also fundamental questions about the extent of domestic demand for industries that were built to export. You would need to build a lot more homes or navy ships in Canada to absorb even a small portion of lumber and steel that has typically gone to the U.S.
As with earlier periods of economic nationalism, the rhetoric may not ultimately match up with reality.
The government’s new industrial policy is focused on a relatively narrow sliver of the economy: The industries hit by U.S. sectoral tariffs – autos, steel, aluminum and lumber – along with canola, which is being hammered by Chinese tariffs.
And for all the talk of building domestic markets and diversifying trade, Canadian resource and manufacturing companies remain overwhelmingly reliant on the massive market to the south, and Ottawa’s biggest economic priority is getting relief from Mr. Trump’s sectoral tariffs and the successful renewal of the North American free trade pact, the U.S.-Mexico-Canada Agreement.
Mr. Carney is set to meet Mr. Trump again on Tuesday in Washington in pursuit of a deal.
But make no mistake, Canada First economics is making a comeback. And how Mr. Carney and his team balance the tensions at the heart of this program – the desire to protect companies but promote innovation; buy Canadian but improve affordability; fortify the domestic market but pursue trade diversification – could determine how well the country navigates what he has called a “rupture” in global affairs.
“Canadians have been pretty resilient in dealing with whatever comes their way. In a high-tariff era, we do the National Policy, and we do okay. In a free trade era, we get into free trade, we do okay,” said Dimitry Anastakis, LR Wilson and RJ Currie Chair in Canadian business history the University of Toronto.
“But no matter what, the consequences of what we’re going through are going to be painful. It’s not going to be good. It’s going to be a pretty big adjustment.”
Prime Minister Lester B. Pearson (centre left) and U.S. President Lyndon Johnson sign the Auto Pact on January 16, 1965. The Pact forced the big Detroit automakers to produce one car in Canada for every car they imported into the U.S.Library and Archives Canada/Supplied
When Ottawa announced retaliatory tariffs on American-made cars earlier this year, it took a page from the history books. Car companies importing vehicles into Canada could get a break from the countertariffs if they maintained a certain level of production north of the border.
This remission scheme is a clear echo of the 1965 Auto Pact, which governed the North American auto industry for decades, and which forced the big Detroit automakers to produce one car in Canada for every car they imported into the country.
In the 1960s, the question was how to open up the U.S. market to Canadian car exports without killing Canada’s branch-plant auto industry, which had emerged behind high tariff walls.
Today, policy makers face a different, but related question: How to convince U.S. and Japanese carmakers to keep building vehicles in Canada if they can’t sell them into the U.S. tariff free? With 90 per cent of 1.3 million vehicles made in Canada last year heading south across the border, the stakes couldn’t be higher.
Ottawa has earmarked $2-billion for an “automotive strategy.” Some of this is for emergency loans to parts makers, said Flavio Volpe, head of the Automotive Parts Manufacturers’ Association. But a larger portion is there to coax the big carmakers – Ford, General Motors, Stellantis, Honda and Toyota – to retool their Canadian factories to produce cars with better domestic sales prospects.
Honda vehicles are assembled at the company’s automotive assembly plant in Alliston, Ont. Ottawa has earmarked $2-billion for an ‘automotive strategy,’ part of which is intended to encourage the large carmakers to retool their Canadian factories.
Carlos Osorio/Reuters; Cole Burston/THE CANADIAN PRESS
“If we end up with a permanent tariff, if we can’t figure out how to regain access for vehicles from here, could Ford find a vehicle that Canadians buy 100,000 or 150,000 of – or between Canadians and Mexicans – and then retool for that?” he said.
These aren’t questions automakers or governments have had to ask for decades in North America, where auto supply chains have operated as if borders didn’t exist and car manufacturers have been able to think about the continent as a single market.
So far, only GM has publicly said it’s reorienting production to align more with national markets. In the spring, the company announced it was increasing production of the Chevy Silverado pickup truck at its plant in Indiana, while cutting back production of the same truck at its plant in Oshawa – from 150,000 to 100,000 a year – with plans to sell Canadian-made Silverados domestically.
Greig Mordue, ArcelorMittal Dofasco chair in advanced manufacturing policy at McMaster University and a former top executive at Toyota Canada, said this kind of pivot is tricky.
Demand for Silverados in Canada is only about 50,000 a year, he said. And it’s hard to make the numbers work when you’re moving from a continental market to a much smaller Canadian one.
“A viable automotive plant is generally seen as at least 250,000 vehicles. So, you can queue the violins for Oshawa now, because it’s not viable at 100,000. And I think they know that. I think the Government of Canada knows that. And nobody wants to say it,” he said.
Other auto industry experts were less pessimistic, but none downplayed the challenge automakers and their suppliers face if Canada can’t negotiate more secure access to the U.S. market. Mr. Volpe and his organization are even considering the feasibility of launching a new Canadian auto company to be an anchor client for the domestic parts industry – although it would more likely aim to produce specialty vehicles for defence contracts, not a consumer car, he said.
Similar conversations are playing out in other Canadian industries that have suddenly found themselves cut off from the U.S. or Chinese market – leaving executives and policy makers scrambling to gin up domestic demand as a substitute.
Canola is harvested on a farm near Clandeboye, Man., in September. The government’s new industrial policy is focused on industries hit by U.S. tariffs, including canola, which is also being hammered by Chinese tariffs.Shannon Vanraes/Reuters
In early September, Ottawa announced a $370-million biofuel production subsidy to boost demand for Canadian canola, which has effectively been locked out of the Chinese market in response to Canadian tariffs on Chinese electric vehicles.
And it unveiled a new “Buy Canadian” procurement policy for steel and lumber. As Ottawa ramps up spending on housing and the military – with the new Build Canada Homes agency and a commitment to spend 5 per cent of gross domestic product on defence – companies bidding on government contracts will need to source lumber and steel from Canadian suppliers.
Derek Nighbor, chief executive officer of the Forest Products Association of Canada, said there’s an incremental opportunity to sell more lumber in Canada if home construction picks up and building codes are changed to allow for more wooden high-rises. But that would likely amount to 1 billion to 4 billion board feet in additional Canadian sales, compared to around 13 billion that’s sent to the U.S. each year.
“There’s no one measure that’s going to offset the long-term effects or declines to our relationship and trade with the United States. It’s just not easy to pivot,” Mr. Nighbor said. “But we can definitely blunt the blow over time by doing some smart things domestically.”
Meanwhile, there are already signs that the steel industry is starting to adjust.
Algoma Steel’s new electric arc furnaces at its Sault Ste. Marie facility. The company announced it would be accelerating the rollout of its electric arc furnaces, which can produce a broader range of steel products to meet the changing demands of the market.
Nick Iwanyshyn/The Canadian Press; Fred Lum/The Globe and Mail
Algoma Steel Group Inc., which just received a $400-million loan from Ottawa, with another $100-million from the Government of Ontario, said this week that it is shutting down its blast furnace earlier than planned and accelerating its rollout of electric arc furnaces, which can produce a broader range of steel products in batches and can be powered up and down to meet fluctuating demand.
And in the first hint that the government’s emphasis on using Canadian steel in defence procurement might be gaining traction, Algoma signed a memorandum of understanding with Vancouver shipbuilder Seaspan ULC over the summer to “assess the feasibility” of using its steel plate in Canadian-made vessels.
The steel industry has the hardest road ahead, having been effectively cut out of the U.S. market by Mr. Trump’s 50-per-cent tariff and with few other foreign opportunities, given the glut of cheap steel in international markets.
But it’s also getting the most support from the government – particularly with the tariff-rate quotas that Ottawa introduced over the summer on foreign steel imports, which has significantly restricted competition for Canadian steelmakers.
It’s here the trade-offs become clearer.
By limiting imports of foreign steel, Ottawa is throwing a lifeline to mills in Hamilton, Sault Ste. Marie, Ont., and elsewhere, mostly in Eastern Canada. But that’s driving up costs for steel-using manufacturers, housing developers and public infrastructure departments across the country.
The Independent Contractors and Businesses Associations of British Columbia and Alberta warned in a letter to Mr. Carney last month that quotas on steel rebar are pushing up construction costs and leading to project delays.
“These measures may have been introduced in response to U.S. trade policies, but today they have become a self-inflicted economic wound that penalizes western Canadians while serving a handful of central Canadian steel producers, most of them foreign-owned,” wrote Chris Gardner and Mike Martens, the presidents of ICBA British Columbia and ICBA Alberta.
ArcelorMittal Dofasco’s Hamilton steel mill in June. By limiting imports of foreign steel and significantly restricting competition for Canadian steelmakers, Ottawa is throwing a lifeline to mills in Hamilton, Sault Ste. Marie, and elsewhere in Eastern Canada.Cole Burston/Getty Images
Tim McMenamin, president at Jebsen & Jessen Metals Canada, which imports steel from Asia, said Ottawa is making a mistake by not distinguishing between different steel products with its quotas. The country may be swimming in plate and sheet metal that comes out of mills in Ontario, but the supply-and-demand dynamic is different for rebar, he said.
“Those Hamilton flat-rolled mills can’t all of a sudden turn the switch and start producing long products,” he said, referring to rebar. “You’d have to just gut it and put brand new equipment in, and it takes years of implementation. It’s just not a viable thing to do.”
A ‘Buy Canadian Instead’ sign is displayed at a at B.C. Liquor Store in response to U.S. President Donald Trump’s tariffs on Canadian goods, in February.Chris Helgren/Reuters
Ottawa is also walking a fine line pursuing an aggressive Buy Canadian strategy while trying to develop new markets overseas and carve out opportunities for Canadian companies in European defence supply chains. Industry Minister Mélanie Joly said last week that Canada would be “much more protectionist” but with an eye to remaining on good terms with the European Union, Japan and South Korea.
“Just trying to survive as a middle power in a complicated world means that you have to really be very agile with the different tools that you have,” said Wolfgang Alschner, Hyman Soloway chair in business and trade law at the University of Ottawa.
“You’re very nationalist on some issues; you trade very closely with friends on other issues; and you’re a free trade champion when it comes to other buckets,” he said.
In many ways, what’s happening today is following a familiar pattern throughout Canadian history.
The National Policy of the late 19th century, which built an east-west market using railroads and protective tariffs, happened in response to a collapse in the hope of a new reciprocal trade deal with Washington.
Then-U.S. president Richard Nixon’s decision to unilaterally move off the gold standard and impose 10-per-cent tariffs on imports in 1971 helped create support for the industrial policy experiments Trudeau governments undertook in the 1970s and early 1980s, including the Foreign Investment Review Agency and the National Energy Program.
“Historically, Canada’s activist and protectionist forms of economic nationalism have often been reactive,” Eric Helleiner, University Research Chair and professor of political science at the University of Waterloo, said in an e-mail.
Economic ideas also flow north across the border, he added. “We are clearly seeing both of these phenomena today. There is not just a defensive reaction to the closure of the U.S. market, but also an importation of new American ideas (from both the political left and right) about the merits of activist policies such as industrial policies.”
Canada isn’t following the U.S. down the path of full-blown protectionism. With a few exceptions, the high tariffs that defined 19th and 20th century Canadian economic nationalism are absent. Indeed, Mr. Carney dropped most of his countertariffs on American goods in August in a bid to revive trade talks with Washington.
But Ottawa is reaching for a Canada First toolkit that would have been inconceivable a year ago.
Prime Minister Mark Carney greets workers at Walters Group Steel fabrication plant in Hamilton in July. U.S. President Donald Trump’s ‘America First’ economic vision is pushing Canada to follow suit with a Canada First outlook on its economic future.Chris Young/The Canadian Press
Jim Stanford, the director of the Centre for Future Work, said this moment is ripe with opportunity. For decades, Canada’s ability to use industrial policy to support advanced manufacturing has been constrained by international trade rules, he said. Mr. Trump’s decision to rip up the rulebook has opened up new possibilities for economic policy making, he said, pointing the revival of Auto Pact-era schemes to promote Canadian auto production.
“It’s obviously a response to Trump’s attacks which could destroy the auto industry if we don’t take powerful countermeasures, but it’s also a reflection that Canada’s former determination to be a boy scout in world trade is no longer ruling the roost,” he said.
But there are plenty of risks as well. Rachel Samson, vice-president of research at The Institute for Research on Public Policy, just wrapped up a two-year project that looked at industrial policy. Her conclusion: There are valid reasons to use industrial policy tools, but it should be done surgically.
“Any government intervention in the economy has consequences. And so one of the things we call for is to really analyze those very carefully. You don’t want to crowd out private investment,” she said.
What’s happening in Canada is part of a larger global trend, and one that predates Mr. Trump’s return to the White House.
Prime Minister Mark Carney meets with U.S. President Donald Trump at the White House in May. The pair are set to meet again on Tuesday in Washington in pursuit of a deal.Anna Moneymaker/Getty Images
In recent years, governments around the world have reached for subsidies and tax policy levers to encourage a range of private-sector outcomes, from increased investment in low-carbon technologies to more supply chain resilience since COVID-19 took hold and Russia’s invasion of Ukraine.
Canada and some provinces tried their hand at this in 2022, offering some $50-billion in subsidies to car companies to build electric vehicle battery plants in Ontario and Quebec – with mixed results. Work continues on several of the plants in Ontario, but the Quebec Government lost hundreds of millions of dollars backing the failed Northvolt Batteries plant in the province.
In contrast to the EV efforts, what’s striking about Ottawa’s new industrial policy is just how defensive it is, said Réka Juhász, an assistant professor of economics at the University of British Columbia and expert on industrial policy.
“Export-oriented industrial strategies have tended to perform better than inward looking ones, and that is particularly the case for an economy the size of Canada’s,” Prof. Juhász said.
“If this short-term use of domestic demand to try to cushion the blow is complemented with a clearer, long-term strategy of where we want to go, that to me sounds less problematic than if this becomes the long-term strategy for the Canadian economy.”
How this will all shake out in practice remains to be seen. Mr. Carney will be back in Washington next week pursuing relief from Mr. Trump’s sectoral tariffs. And Canada may be able to shore up its access to the U.S. market if it can successfully renew the USMCA next year.
If this were to happen, the impetus behind the new industrial policy measures would fade, and the latest spurt of Canadian economic nationalism might dissipate into a comfortable continentalism.
But for now, it doesn’t seem like that’s a bet the government is willing to make. Mr. Carney spelled it out at the aerospace factory in Mississauga: “Given that we can’t control what other nations do, Canada’s government is focused on what we can control.”