Are US tariffs bringing manufacturing back to Canada?

In Canada, the "Made in Canada" label is now ubiquitous on store shelves, a result of the trade war with its northern neighbor triggered by former U.S. President Trump's tariff policies. This trade friction has sparked a wave of Canadian patriotism, with some consumers and businesses beginning to boycott American products, supporting local industries.

Meanwhile, some Canadian companies operating in the U.S. are facing a choice: continue to endure the uncertainty, or move their businesses back home? Joanna Goodman, head of Toronto-based bedding and sleepwear company Au Lit Fine Linens, said: "I'm a little angry right now and don't want to invest in American companies. It's like putting all your eggs in one basket, and right now, that basket is very unstable and full of risk," indicating a growing concern about the business climate south of the border.

Ms. Goodman, while touring one of her two stores, showcased exquisite bedding, models in silk pajamas, and shelves filled with scented candles, most of which are made in Canada. Currently, about one-fifth of the company's inventory comes from the United States. Goodman emphasized, "You see how big the store is, even 20% is a lot." She said she has had 20-year partnerships with some American brands and will not easily give up these inventories, but she is considering whether to continue ordering, weighing the benefits of long-standing relationships against current economic realities.

To demonstrate Au Lit Fine Linens' commitment to Canadian manufacturers, its stores now prominently display all Canadian-made products. The company's website also has a "Made in Canada" section, with the slogan "Made Right Here at Home." In recent years, global events, from Houthi attacks in the Red Sea to the war in Ukraine, have spawned a new phenomenon - "reshoring," the act of moving businesses back to their home country, a reversal of offshore outsourcing, which aims to strengthen domestic economies.

Sandra Pupatello, a newly appointed Canadian Senator and business leader, believes that supporting business reshoring is "obvious." Pupatello, who previously served as Ontario's Minister of Economic Development and Trade, pointed out that trade rules "completely failed" during the COVID-19 pandemic. She specifically mentioned the case of U.S. mask manufacturer 3M being pressured by the White House in 2020 to stop exporting to Canada and Latin America, highlighting the vulnerability of relying on foreign supply chains.

Pupatello realized at the time: "We have to prepare for the worst." Shortly thereafter, she founded Reshoring Canada, a non-partisan group advocating for Canada to build a more resilient supply chain. Pupatello told the BBC, "If things get tough, Canada is on its own. If we know that, let's plan for it," emphasizing the need for self-reliance in critical sectors. The U.S. had previously imposed a 25% tariff on Canadian aluminum and steel, impacting cross-border trade.

A Canadian government report last year found "no indication of a large-scale or significant increase in corporate reshoring," but the situation may be changing. Ray Brougham, who founded Rainhouse Manufacturing Canada in 2001, has been trying to break into the Canadian automotive manufacturing industry. The company, located in British Columbia, produces parts for various industries, aiming to bolster local manufacturing capabilities.

The integrated supply chain of the North American auto industry means that parts may cross the U.S., Mexico, and Canada multiple times before final assembly into vehicles. U.S. President Trump had said he would temporarily exempt Canadian and Mexican automakers from new 25% import taxes, but implemented them just one day after the tariffs took effect, creating uncertainty for businesses. In the shadow of the trade war, Brougham said he had "good communication" with a major Canadian auto parts company for the first time.

"Suddenly, they are interested in working more closely with other Canadian companies." For Brougham and others, the benefits of corporate reshoring are obvious, including helping small companies that struggle to compete with overseas manufacturers, ensuring fair wages, and reducing the environmental benefits of importing and exporting goods. These factors make reshoring an appealing strategy for long-term sustainability.

Graham Markham, head of a food industry supplier, believes that the key to reshoring is to add value to products that Canada already produces. His Canadian company, New Protein International, is currently building Canada's first soy protein manufacturing plant in southwestern Ontario, just miles from the U.S. border. Canada is the world's fourth-largest soybean exporter, but most of its soybeans are processed overseas, missing out on opportunities for domestic value creation.

Markham said, "We are not processing these value-added ingredients into more valuable components." He believes that from critical minerals and uranium to timber and soybeans, now is the time to change. "For a long time, Canada has been a successful supplier of raw materials to the world. The opportunity now is to stop exporting the jobs and innovation that come with processing these materials," advocating for Canada to become a hub for value-added manufacturing.

So, will manufacturing start to return to Canada? Economist Randall Bartlett says it is too early to tell. Bartlett, Senior Director of Canadian Economics at Desjardins Bank in Quebec, said, "There is far more hype than actual action in terms of actual restructuring of supply chains and reshoring," suggesting that the reality on the ground may not yet match the level of discussion and anticipation.

In addition, there are significant obstacles. For example, the highly integrated automotive industry would take years to untangle. Bartlett believes that achieving the reshoring of automotive manufacturing would require "hundreds of billions, if not trillions of dollars in private and public sector investment." Furthermore, there is the reality of global trade. Bartlett said, "Some countries are better at producing certain things," implying that complete self-sufficiency may not be feasible or desirable.

He believes that Canada should focus on "industries where we have a comparative advantage," including renewable energy and the processing of steel and aluminum. Currently, these two metals exported to the United States are subject to a 25% tariff. Back at Au Lit Fine Linens in Toronto, Joanna Goodman walked into a huge warehouse filled with the sound of cardboard boxes being packed, preparing for upcoming shipments.

"We are shipping orders to the United States that were received before the tariffs were implemented," she explained, then paused. "We did receive an order on the day the tariffs started, and it was a large order." She said she doesn't know if the American buyer understands that tariffs will now apply. "He has to ask Mr. Trump (why)." As for what happens next? "These tariffs could be lifted at any time. Let's see how things develop before we start making decisions," Ms. Goodman said, adopting a wait-and-see approach.

Like many Canadian businesses, she is waiting for the dust to settle before deciding where to buy, where to sell, and what "Made in Canada" means for the future, acknowledging the ongoing uncertainty and the need for adaptability in the face of changing trade policies.