As U.S. President Donald Trump’s trade war escalates, federal party leaders are pitching Canadians on plans that could re-imagine the country’s economy and core supply chains.
But can they work?
Trump announced another threatened round of tariffs, this time on automobile imports, earlier in the week, leading Prime Minister Mark Carney to pause his election campaign as Liberal leader to focus on Canada’s response as the April 2 tariff date nears.
Carney called for building Canada’s “economic autonomy” by building a fully-integrated Canadian supply chain.
Speaking to reporters on Thursday, Carney said he planned on “backwards integrating” the Canadian supply chain after stating that Canada’s “old relationship” with the U.S. “is over.”
Carney said Canada’s strategic response plan included “integrating the supply chain here domestically.”
He said, “I’m using fancy term — backwards integrating into steel, in aluminum to help our steel and aluminum industries that are used, and encourage that backwards integrating further into critical minerals and minerals that we’re going to develop.”
The concept of doing more here at home is one that continues to emerge on the campaign trail.
Conservative Leader Pierre Poilievre on Friday talked about increasing housing production in Canada, using Canadian lumber, which is a sector that also faces U.S. tariff threats.
“We can build millions of new homes with Canadian lumber that will get the workers at this mill and in the forests of Canada, can make bigger paycheques, which they could bring to houses that they can afford to buy,” Poilievre said, while at a campaigning event at a lumber mill in B.C.
NDP Leader Jagmeet Singh has said the NDP would use “every legal tool” to stop U.S. companies “who took public money (and) won’t be allowed to gut Canadian plants or ship out machinery and tools paid for by Canadians.”
“The NDP will mandate that federal departments and agencies—including Canada Post and the RCMP—purchase Canadian-made vehicles,” a party statement says.
“To support good jobs here at home, U.S. companies that want to sell vehicles in Canada would be required to use Canadian-made parts or assemble some of the vehicle in Canada. Singh also committed to exempting Canadian-made cars and trucks from the GST to support domestic manufacturing and encourage Canadians to buy Canadian.”
Ernan Haruvy, a marketing professor at McGill University’s Desautels Faculty of Management who holds a Ph.D. in economics, explained what the term “backwards integration” means.
“Backward integration just refers to integration between different suppliers and the supply chain,” he said.
“Essentially an integration of different parts of the supply chain into a single, cohesive, centralized unit that does everything.”
Campaigning as Liberal leader on Wednesday, before Trump announced his auto tariffs, Carney said his government would build an “all in Canada network for auto manufacturing components.”
The average car has around 30,000 individual parts that go through several steps on a single supply chain.
Raw materials, like steel and aluminum, are made in one facility, refined at another and added to a car part at a separate facility before it makes its way to an assembly plant to be fitted inside a car before you drive it out the dealership.
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According to one estimate, a single part crosses the border seven to eight times before it is assembled in a car.
Explaining his plan to respond to Trump’s auto tariffs, Carney said, “The core of that (plan) is to build out the auto sector and our auto supply chain in Canada as much as possible, instead of autos going back and forth across the border six times and getting a tariff each time.”
The term “backwards integration” would mean connecting a later phase of the supply chain, like a car assembly plant, with an earlier phase, like a steel or aluminum plant or critical minerals so Canadian supplies in those strategic sectors become part of the supply chain for other strategic sectors.
Moshe Lander, economist at Concordia University, said, “Backward integration, as I would understand it, is: let’s start at the consumer and slowly work our way backward through the supply chain and make sure that the things closest to the consumer are going to be produced here in Canada.”
Lander said it would be “extremely difficult” to have a separate supply chain in the modern economy.
“If we go back to the 1950s, it’s not that hard at all. But the fact is that because we have free trade with the U.S., Mexico and other countries, we realize that there’s certain parts of the production process that we shouldn’t be doing,” he said.
Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, said the supply chain is so integrated, it would be painful for industry to pry it apart.
“The steel might be made in Canada, stamped in the U.S. and then brought back in, assembled in a car here,” Darby said.
Drew Fagan, professor at the Munk School of Global Affairs and Public Policy at the University of Toronto, said until the 1960s, the Canadian economy produced goods and services primarily for domestic consumption, in addition to some exports to the United States and the United Kingdom.
“That changed in particular with regard to autos in 1965 when Canada and the United States did a sectoral free trade agreement (the Auto Pact) and then changed more again in 1988 with the free trade agreement (NAFTA),” said Fagan, who is also a senior adviser at McMillan Vantage Policy Group.
Fagan was also assistant deputy minister for strategic policy and planning at the Department of Foreign Affairs and International Trade, before it became Global Affairs Canada.
Lander said before the 1950s, the auto manufacturing process in North America was clunky and ineffective. Cars were made in one single factory, start to finish.
The rise of just-in-time inventory meant car companies didn’t need to stockpile parts and thousands of factories, each focusing on one or two essential parts, sprung up across the continent.
Trump’s trade war threatens to break up this streamlined infrastructure.
Experts say it would take a significant amount of investment to retool some businesses and build entire homegrown industries.
“Entire companies need to restructure the way that they run their operations,” Haruvy said.
Flavio Volpe, president of the Automotive Parts Manufacturing Association, is hopeful that Canada could continue to have a car industry even with U.S. tariffs.
“We don’t have a massive market, but we have enough to supply our own demand. All of that is rather complicated (and could take) 12 to 18 months to relocate supply,” he said.
Volpe said making everything within Canada was the more expensive option, but it’s a good contingency plan if Trump’s tariffs don’t go away.
Haruvy said the idea of building internal supply chain starts to look a lot easier when you think beyond the automobile.
For example, several Canadian breweries use cans that are manufactured in the United States using Canadian aluminum.
While there are still several steps in the supply chain, with the aluminum travelling from Quebec to be made into cans before coming back into Canada, it’s not quite as complicated as making a car.
Fagan added, “It may well be that cans end up being made in Canada because it’s now more economical because of the tariffs to make those cans in Canada than it is to send the aluminum to the United States to make the cans and bring them back.”
Haruvey said that Canada’s competitive advantage lies in being an exporter of raw material and intermediary goods. When it comes to consumer goods, Canada produces relatively little.
“We’re not exporters of finished goods, we’re importers of finished goods. So, all those imports we could replace with our own production. But it would take a major political undertaking on whoever is the prime minister to encourage domestic production,” he said.
More recently, Fagan said the Canadian economy proved quite nimble and was able to pivot to domestic production with one specific product — N95 masks.
“We saw during COVID, for example, that there was an importance that Canada or other countries produce their own masks,” he said.
“We didn’t have mask producers. Suddenly, masks become a matter of national security.”
