With U.S. President Donald Trump having implemented near-universal 25 per cent tariffs on Canadian imports, politicians and pundits have focused on ensuring Canada remains “competitive” in its new economic landscape. This emphasis has ushered in a slew of familiar talking points around “unleashing” the private sector through tax cuts and deregulation.
Proponents portray such ideas as essentially the only means of bringing more Canadian goods, like its natural resources, to the international market. Conservative leader Pierre Poilievre and Liberal Party front-runner Mark Carney may find themselves unlikely bedfellows in their opposition to capital gains tax hikes and support for austerity programs.
Much of their visions hinge on as little state action as possible, and depict taxes and bureaucracy as the source of the country’s supposed lack of competitive edge. Yet, this framing breaks from what stakeholders, like the business community themselves, had been calling for just two years prior when it encouraged interventions similar to those being made by the Biden administration.
There is an appetite to break from many of the laissez-faire assumptions which have guided Canada’s economic growth, and for good reason. Massive tax cuts will do little to update our crumbling public and social infrastructure, most of which was built during the postwar era and has experienced funding cuts in the decades since.
How can goods get to market without the railways and ports to transport them? How can we support the consumption of Canadian services, including digital services, when many sectors are dominated by U.S. firms? Equally important, how can we continue to invest in the vital social institutions that produce the skilled workforce needed for success?
With the threat of an increasingly unstable American administration, our leaders must be willing to act boldly as we move beyond U.S. dependence. This requires a renewed emphasis on nation-building projects which can only be accomplished through more, not less, state involvement.
Lessons from Mexico
Policymakers should take lessons from Mexican President Claudia Sheinbaum’s “Plan Mexico.” Faced with a similar tariff threat, the country has pushed ahead with its ambitious industrial policy, allocating billions to the modernization of the economy and the breaking of its import dependence on China. This has translated into plans to create new industrial corridors, bolster domestic production, and create manufacturing hubs specializing in automobiles, electronics, and pharmaceuticals.
Rather than acquiesce to changing market—and Trump—pressures, Plan Mexico attempts to get ahead of the curve by stimulating domestic manufacturing in high value-added goods, like semiconductors. Such a mandate is consistent with the broader national objective of becoming the 10th largest economy in the world by 2030. While a long-term project, in the short-term, President Sheinbaum’s policies are increasing domestic consumption, ensuring money stays in the country and goes toward local businesses.
Canada has no real equivalent to the scale of Plan Mexico. The most substantive recent federal investment in infrastructure came in 2016 with the “Investing in Canada Plan,” which spent $180 billion over 12 years. This plan, however, is nearly 10 years old with almost all funding allocated and no intention to renew or broaden its scope. The same can be said of the billions in tax credits implemented to “stimulate” a clean economy.
Regardless of tax cuts or credits, Trump’s tariff threats are already causing private investments to decline. Continuing to rely on the private sector, rather than taking the initiative with public sector investments and planning, further jeopardizes this country’s economic future. There is no guarantee that private capital will come to our rescue just as there is no guarantee that such funds will be invested equitably.
Contrast this with Plan Mexico, with already US$277 billion in state-led investments lined up targeting several sectors and regions with long-term development strategies. Growing international uncertainty commands more than a wait-and-see approach to industrial policy.
Thinking beyond pipelines
Due to its trade dependence on the United States, Canada faces an existential threat to its economic sustainability. With Trump’s tariffs coming into effect, the country’s GDP could shrink by as much as five per cent, with as many as 600,000 job losses, largely in the resource, automotive, and speciality manufacturing sectors.
To address this challenge, our leaders must act boldly and think beyond the conventional wisdom. Officials must devise a comprehensive industrial policy to expand our nation’s productive capacity.
This means envisioning a greater role for the public sector beyond just pipelines. The recent federal openness to new fossil fuel projects is wrought with impracticalities. For starters, who will pay for such a project? The federal government’s Trans Mountain Pipeline ran massively over budget and is currently charging tolls below market value with no long-term plan for cost recovery. This is especially concerning since oil demand is projected to slow as countries pivot to renewable energies.
Pipelines are multi-year, capital-intensive projects—meaning that they will not be a quick fix for current hardships. There is also the added risk of tying federal dollars to initiatives with shrinking likelihoods of breaking even. It additionally raises questions about climate change objectives and commitments to reconciliation as the government forges closer ties to companies accused of violating Indigenous treaty rights.
Capitalising on opportunities through industrial policy
Outside of oil, Canada has access to 34 critical minerals essential to the green and digital economy. Not only is this a source of international demand but accelerated development could create internal supply chains in refining and the manufacturing of high-value commodities like batteries or semiconductors.
This is not to say that governments should support any mining project, regardless of its impact on the environment or treaty rights. Instead, they should embrace greater specialization in refining or the recycling and refining of minerals, as some companies are already attempting to do. Localized investments could capitalize on international demand while not exacerbating environmental concerns.
The government could also commit more money toward researching and developing new technologies and pharmaceutical products. Among OECD nations, Canada consistently ranks below average in research and development (R&D) investments. Contrast this with the United States which trends much higher and has reaped the benefits as a result. From the internet to innovations in semiconductors, all were made possible through state-led initiatives, placing America at the forefront of these emerging sectors.
Canada’s lagging R&D investments jeopardize the country’s competitiveness as it risks falling behind in green technologies and artificial intelligence. While indicative of decreasing public financing, the private sector should not be let off the hook as U.S. or European-owned patents funnel money away from the country. If Canada is going to pick up the slack, it should find new ways to commercialize domestic IP and ensure that the wealth generated remains in the country.
Similarly, Trump’s regressive stance on climate initiatives presents an additional opportunity in manufacturing. His opposition to electric vehicles, by rolling back tax credits and funding for charging stations, can be a boon for Canadian manufacturers. Global investments in clean energy reached $2 trillion in 2024, roughly $750 billion of which went to electrified transport. In recent years, federal and provincial governments have secured significant investments, but there are likely greater opportunities as Trump tries to pull America out of the EV race.
Canada can become a real player in the sector given declining U.S. competition. To capitalize, it could partner with Mexico’s planned “Olinia” EV as we already have the infrastructure, workforce, and manufacturing supply chains. The government could also champion the Auto Parts Manufacturers Association’s made-in-Canada Project Arrow. The prospect of a Canadian automaker should be especially appealing after decades of U.S. dependence. The APMA offers one potential model and with significant investments, Canada could develop its own EV line as Mexico is attempting.
Toward a Plan Canada?
To be effective, these policies must be harmonized into one comprehensive industrial policy. It is this tying together which is missing from Canada’s approach to a number of sectors.
Research and development, manufacturing, public infrastructure, and green technologies should all be considered necessary components in a broader project to modernize the economy and its competitiveness. An industrial strategy must be more than tax cuts, credits, or even subsidies. It requires coordinated strategies and investments with a sector-by-sector vision for future growth, development, and awareness of our changing climate.
This is already the case for Mexico—with Plan Mexico affording the country a considerable head start in dealing with an increasingly belligerent and protectionist U.S. administration. Canadian policymakers could learn from this and work to emulate its best elements. The point is to have an industrial policy that is focused on building up our autonomy and economic capacity, period.
Industrial planning in Canada, as in Mexico, can be a vehicle for socio-economic progress and stability. It can reduce our trade dependence on the U.S., combat poverty and inequality, and advance a just transition away from fossil fuels.
As of 2023, Canada had one of the lowest net government debt-to-GDP ratios in the G7. This places the country in a position to invest in these sectors if our politicians can muster the courage to break from the flawed conventional wisdom of laissez-faire opposition to all industrial planning.
Promises to cut taxes and deregulation are ambiguous and hollow. What is needed is not another public-private partnership but a concrete, government-led vision for the nation’s future. Trump’s tariff chaos is an opportunity for Canada to invest in itself. The skilled workforce and resources are there—if our leaders are bold enough to harness them through a state-led investment and development strategy. Maybe they could call it Plan Canada.
