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\u2019s tariff-battered industries. <\/p>\n
\u201cWe have the potential to become our own best customer for steel, but we will lose that ability if we don\u2019t manage the profound transformation now under way in the industry,\u201d 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. <\/p>\n
A few weeks later, he announced a support package<\/a> for the lumber industry. And in early September, he outlined the pillars<\/a> of Ottawa\u2019s new \u201ccomprehensive industrial strategy.\u201d<\/p>\n This involves $5-billion to help companies rejig their product lines, money to retrain workers and a strict \u201cBuy Canadian\u201d policy for government procurement \u2013 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.<\/p>\n Open this photo in gallery:<\/a><\/p>\n 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\u2019s lumber producers deal with U.S. tariffs.DARRYL DYCK\/The Canadian Press<\/p>\n 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\u2019s political economy.<\/p>\n If key Canadian industries can\u2019t sell into the U.S. market, the argument goes, perhaps the government can cultivate domestic markets to pick up the slack.<\/p>\n This kind of thinking was the touchstone of economic policy throughout much of Canada\u2019s history, from John A. Macdonald\u2019s National Policy in the decades after Confederation to the industrial policy experiments of Pierre Trudeau\u2019s 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. <\/p>\n Now we\u2019re 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\u2019s America First economic vision is pushing Canada to follow suit.<\/p>\n Mr. Carney argues the world has changed, so Canada must change as well.<\/p>\n \u201cWe\u2019re 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,\u201d he said in a speech in early September<\/a> at an aircraft parts factory in Mississauga.<\/p>\n Managing this transition, he said, means \u201cretraining our workers, transforming our strategic sectors, creating entirely new industries and being our own best customer by buying Canadian.\u201d<\/p>\n But this comes with risks and trade-offs for a mid-sized, trade-oriented economy that has a spotty record with industrial policy<\/a>.<\/p>\n 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.<\/p>\n 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.<\/p>\n As with earlier periods of economic nationalism, the rhetoric may not ultimately match up with reality.<\/p>\n<\/p>\n The government\u2019s new industrial policy is focused on a relatively narrow sliver of the economy: The industries hit by U.S. sectoral tariffs \u2013 autos, steel, aluminum and lumber \u2013 along with canola, which is being hammered by Chinese tariffs<\/a>.<\/p>\n 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\u2019s biggest economic priority is getting relief from Mr. Trump\u2019s sectoral tariffs and the successful renewal of the North American free trade pact<\/a>, the U.S.-Mexico-Canada Agreement.<\/p>\n Mr. Carney is set to meet Mr. Trump again on Tuesday<\/a> in Washington in pursuit of a deal. <\/p>\n 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 \u2013 the desire to protect companies but promote innovation; buy Canadian but improve affordability; fortify the domestic market but pursue trade diversification \u2013 could determine how well the country navigates what he has called a \u201crupture\u201d in global affairs.<\/p>\n \u201cCanadians 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,\u201d said Dimitry Anastakis, LR Wilson and RJ Currie Chair in Canadian business history the University of Toronto.<\/p>\n \u201cBut no matter what, the consequences of what we\u2019re going through are going to be painful. It\u2019s not going to be good. It\u2019s going to be a pretty big adjustment.\u201d<\/p>\n Open this photo in gallery:<\/a><\/p>\n 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<\/p>\n 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<\/a> if they maintained a certain level of production north of the border.<\/p>\n 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.<\/p>\n In the 1960s, the question was how to open up the U.S. market to Canadian car exports without killing Canada\u2019s branch-plant auto industry, which had emerged behind high tariff walls.<\/p>\n 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\u2019t 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\u2019t be higher.<\/p>\n Ottawa has earmarked $2-billion for an \u201cautomotive strategy.\u201d Some of this is for emergency loans to parts makers, said Flavio Volpe, head of the Automotive Parts Manufacturers\u2019\u200b Association. But a larger portion is there to coax the big carmakers \u2013 Ford, General Motors, Stellantis, Honda and Toyota \u2013 to retool their Canadian factories to produce cars with better domestic sales prospects.<\/p>\n 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.<\/p>\n Carlos Osorio\/Reuters; Cole Burston\/THE CANADIAN PRESS<\/p>\n \u201cIf we end up with a permanent tariff, if we can\u2019t figure out how to regain access for vehicles from here, could Ford find a vehicle that Canadians buy 100,000 or 150,000 of \u2013 or between Canadians and Mexicans \u2013 and then retool for that?\u201d he said.<\/p>\n These aren\u2019t questions automakers or governments have had to ask for decades in North America, where auto supply chains have operated as if borders didn\u2019t exist and car manufacturers have been able to think about the continent as a single market.<\/p>\n So far, only GM has publicly said it\u2019s 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<\/a> of the same truck at its plant in Oshawa \u2013 from 150,000 to 100,000 a year \u2013 with plans to sell Canadian-made Silverados domestically.<\/p>\n 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.<\/p>\n<\/p>\n Demand for Silverados in Canada is only about 50,000 a year, he said. And it\u2019s hard to make the numbers work when you\u2019re moving from a continental market to a much smaller Canadian one.<\/p>\n \u201cA viable automotive plant is generally seen as at least 250,000 vehicles. So, you can queue the violins for Oshawa now, because it\u2019s 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,\u201d he said.<\/p>\n Other auto industry experts were less pessimistic, but none downplayed the challenge automakers and their suppliers face if Canada can\u2019t 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<\/a> to be an anchor client for the domestic parts industry \u2013 although it would more likely aim to produce specialty vehicles for defence contracts, not a consumer car, he said. <\/p>\n Similar conversations are playing out in other Canadian industries that have suddenly found themselves cut off from the U.S. or Chinese market \u2013 leaving executives and policy makers scrambling to gin up domestic demand as a substitute.<\/p>\n Open this photo in gallery:<\/a><\/p>\n Canola is harvested on a farm near Clandeboye, Man., in September. The government\u2019s 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<\/p>\n In early September, Ottawa announced a $370-million biofuel production subsidy<\/a> 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.<\/p>\n And it unveiled a new \u201cBuy Canadian\u201d procurement policy for steel and lumber. As Ottawa ramps up spending on housing and the military \u2013 with the new Build Canada Homes agency<\/a> and a commitment to spend 5 per cent of gross domestic product on defence<\/a> \u2013 companies bidding on government contracts will need to source lumber and steel from Canadian suppliers.<\/p>\n Derek Nighbor, chief executive officer of the Forest Products Association of Canada, said there\u2019s 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\u2019s sent to the U.S. each year.<\/p>\n \u201cThere\u2019s no one measure that\u2019s going to offset the long-term effects or declines to our relationship and trade with the United States. It\u2019s just not easy to pivot,\u201d Mr. Nighbor said. \u201cBut we can definitely blunt the blow over time by doing some smart things domestically.\u201d<\/p>\n Meanwhile, there are already signs that the steel industry is starting to adjust.<\/p>\n Algoma Steel\u2019s 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.<\/p>\n Nick Iwanyshyn\/The Canadian Press; Fred Lum\/The Globe and Mail<\/p>\n 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<\/a> 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.<\/p>\n And in the first hint that the government\u2019s emphasis on using Canadian steel in defence procurement might be gaining traction, Algoma signed a memorandum of understanding<\/a> with Vancouver shipbuilder Seaspan ULC over the summer to \u201cassess the feasibility\u201d of using its steel plate in Canadian-made vessels.<\/p>\n The steel industry has the hardest road ahead, having been effectively cut out of the U.S. market by Mr. Trump\u2019s 50-per-cent tariff and with few other foreign opportunities, given the glut of cheap steel in international markets.<\/p>\n<\/p>\n But it\u2019s also getting the most support from the government \u2013 particularly with the tariff-rate quotas that Ottawa introduced over the summer<\/a> on foreign steel imports, which has significantly restricted competition for Canadian steelmakers.<\/p>\n It\u2019s here the trade-offs become clearer.<\/p>\n 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\u2019s driving up costs for steel-using manufacturers, housing developers and public infrastructure departments across the country.<\/p>\n The Independent Contractors and Businesses Associations of British Columbia and Alberta warned in a letter to Mr. Carney<\/a> last month that quotas on steel rebar are pushing up construction costs and leading to project delays.<\/p>\n \u201cThese 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,\u201d wrote Chris Gardner and Mike Martens, the presidents of ICBA British Columbia and ICBA Alberta.<\/p>\n Open this photo in gallery:<\/a><\/p>\n 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<\/p>\n 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.<\/p>\n \u201cThose Hamilton flat-rolled mills can\u2019t all of a sudden turn the switch and start producing long products,\u201d he said, referring to rebar. \u201cYou\u2019d have to just gut it and put brand new equipment in, and it takes years of implementation. It\u2019s just not a viable thing to do.\u201d<\/p>\n Open this photo in gallery:<\/a><\/p>\n 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<\/p>\n 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 M\u00e9lanie Joly said last week<\/a> that Canada would be \u201cmuch more protectionist\u201d but with an eye to remaining on good terms with the European Union, Japan and South Korea.<\/p>\n \u201cJust 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,\u201d said Wolfgang Alschner, Hyman Soloway chair in business and trade law at the University of Ottawa.<\/p>\n \u201cYou\u2019re very nationalist on some issues; you trade very closely with friends on other issues; and you\u2019re a free trade champion when it comes to other buckets,\u201d he said.<\/p>\n In many ways, what\u2019s happening today is following a familiar pattern throughout<\/a> Canadian history.<\/p>\n 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.<\/p>\n Then-U.S. president Richard Nixon\u2019s 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.<\/p>\n \u201cHistorically, Canada\u2019s activist and protectionist forms of economic nationalism have often been reactive,\u201d Eric Helleiner, University Research Chair and professor of political science at the University of Waterloo, said in an e-mail.<\/p>\n Economic ideas also flow north across the border, he added. \u201cWe 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.\u201d<\/p>\n Canada isn\u2019t 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<\/a> on American goods in August in a bid to revive trade talks with Washington.<\/p>\n But Ottawa is reaching for a Canada First toolkit that would have been inconceivable a year ago.<\/p>\n Open this photo in gallery:<\/a><\/p>\n Prime Minister Mark Carney greets workers at Walters Group Steel fabrication plant in Hamilton in July. U.S. President Donald Trump\u2019s ‘America First’ economic vision is pushing Canada to follow suit with a Canada First outlook on its economic future.Chris Young\/The Canadian Press<\/p>\n Jim Stanford, the director of the Centre for Future Work, said this moment is ripe with opportunity. For decades, Canada\u2019s ability to use industrial policy to support advanced manufacturing has been constrained by international trade rules, he said. Mr. Trump\u2019s 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<\/a> to promote Canadian auto production. <\/p>\n \u201cIt\u2019s obviously a response to Trump\u2019s attacks which could destroy the auto industry if we don\u2019t take powerful countermeasures, but it\u2019s also a reflection that Canada\u2019s former determination to be a boy scout in world trade is no longer ruling the roost,\u201d he said.<\/p>\n 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<\/a> that looked at industrial policy. Her conclusion: There are valid reasons to use industrial policy tools, but it should be done surgically.<\/p>\n \u201cAny 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\u2019t want to crowd out private investment,\u201d she said. <\/p>\n What\u2019s happening in Canada is part of a larger global trend<\/a>, and one that predates Mr. Trump\u2019s return to the White House.<\/p>\n Open this photo in gallery:<\/a><\/p>\n 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<\/p>\n 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\u2019s invasion of Ukraine.<\/p>\n 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 \u2013 with mixed results<\/a>. Work continues on several of the plants in Ontario, but the Quebec Government lost hundreds of millions of dollars<\/a> backing the failed Northvolt Batteries plant in the province.<\/p>\n In contrast to the EV efforts, what\u2019s striking about Ottawa\u2019s new industrial policy is just how defensive it is, said R\u00e9ka Juh\u00e1sz, an assistant professor of economics at the University of British Columbia and expert on industrial policy.<\/p>\n \u201cExport-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\u2019s,\u201d Prof. Juh\u00e1sz said.<\/p>\n \u201cIf 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.\u201d<\/p>\n 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\u2019s 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.<\/p>\n 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.<\/p>\n But for now, it doesn\u2019t seem like that\u2019s a bet the government is willing to make. Mr. Carney spelled it out at the aerospace factory in Mississauga: \u201cGiven that we can\u2019t control what other nations do, Canada\u2019s government is focused on what we can control.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"As trade negotiations with the United States sputtered over the summer, Prime Minister Mark Carney started talking about…\n","protected":false},"author":2,"featured_media":189617,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[1397,49,48,8400,44],"class_list":{"0":"post-189616","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-canada","8":"tag-appwebview","9":"tag-ca","10":"tag-canada","11":"tag-e-ny","12":"tag-news"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/189616","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=189616"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/189616\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/189617"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=189616"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=189616"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=189616"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}