Nearly Half of Canadian Manufacturers Are Moving to the US — A Self-Inflicted Wound from Tariffs, Uncertainty, and Costly Green Policies

Energy News Beat

A recent KPMG survey of 275 Canadian manufacturing firms paints a stark picture: 42% have already shifted some or all production to the United States or are actively planning to do so. Of those, 29% have made the move, while another 13% intend to follow — with 77% of the planners expecting the shift within the next two years.

Economist Peter St. Onge captured the moment on X (formerly Twitter) with a post that quickly gained traction: “Nearly half of Canadian manufacturers are moving production to America. Three-quarters are moving in the next 2 years. It turns out ‘elbows up’ means giving Trump all of Canada’s jobs.”

This exodus is not happening in a vacuum. It reflects immediate pressures from U.S. tariffs and trade uncertainty under President Trump, compounded by longer-term competitiveness challenges in Canada — including the cumulative effects of Net Zero-aligned energy and industrial policies pursued under Prime Minister Mark Carney’s leadership.

The KPMG Data in Detail

The survey, conducted in May 2026, shows manufacturers are in “endurance mode.” Key findings include:

• 57% have paused, reduced, or canceled capital expenditure (Capex) projects due to economic uncertainty and tariff threats.
• 42% have scaled back or paused research and development (R&D) spending.
• 52% describe their operations as being in “endurance mode.”
• 80% plan to keep headquarters in Canada, but 11% intend to relocate their head office to the U.S. within five years.
• 61% say their business cannot survive without reliable access to the U.S. market.

Top reasons companies have already moved production south:

• Avoiding or reducing high U.S. import tariffs.
• Ongoing trade uncertainty.
• Lower operating costs.
• A more favorable tax environment.
• Better supply chain integration and optimization.

Factors that would encourage firms to stay and grow in Canada include trade certainty/tariff relief, lower corporate taxes, improved housing affordability, access to cheaper energy, and a skilled workforce.

Manufacturing still accounts for more than 10% of Canada’s GDP and supports well over 1.5 million jobs, though the sector has faced declining output and employment in recent years amid broader pressures.

How This Plays Out for Canada: Jobs, GDP, and Consumers

The shift represents a significant hollowing out of domestic manufacturing capacity. Lost production means fewer high-value jobs, reduced tax revenue, and weaker supply chains for downstream industries. Investment flight — already evident in paused Capex and R&D — will compound Canada’s productivity challenges.

Consumers could face higher prices for goods previously made domestically, longer lead times, or greater exposure to global supply disruptions. A smaller manufacturing base also limits Canada’s ability to respond to domestic needs or export competitively.

Critics argue that aggressive Net Zero energy policies — including industrial carbon pricing, regulatory hurdles, and the push toward rapid decarbonization — have raised energy and compliance costs for energy-intensive sectors. While Carney’s government has rolled back some measures (such as the consumer carbon tax and the proposed oil and gas emissions cap in a deal with Alberta), the remaining industrial carbon pricing and clean technology mandates continue to influence cost structures and investment decisions.

The desire for “cheaper energy” as a retention factor in the KPMG survey underscores this point: U.S. energy advantages, combined with policy stability on that front, make relocation more attractive.

Greater Reliance on China?

Yes, a shrinking Canadian manufacturing sector increases the risk of greater dependence on imported manufactured goods, including from China. Canada already imports substantial volumes of consumer goods, electronics, machinery, and industrial inputs from China (China’s share of Canadian goods imports was around 11.5% in 2025, with resilience in industrial categories despite some targeted tariffs on EVs and steel).

As domestic production capacity declines, Canada would likely fill gaps with more imports. This heightens supply-chain vulnerabilities, especially for critical or strategic goods, and could expose consumers and industries to price volatility or geopolitical risks. Energy and mineral exports to China have grown, but that does not offset manufacturing losses on the import side.

Would President Trump Allow Unchecked Reliance on China?

Unlikely — at least not without countermeasures. Trump’s tariff strategy is explicitly designed to encourage onshoring and friend-shoring to the United States (and reliable North American partners). The very tariffs and trade uncertainty prompting Canadian firms to move production to the U.S. align with his “America First” goals of rebuilding domestic manufacturing and reducing dependence on adversarial supply chains, particularly from China.

Trump has shown little interest in allowing Canada (or any ally) to become a backdoor for Chinese goods into the U.S. market. Existing or expanded tariffs on Chinese products, strict rules of origin under USMCA/CUSMA, and potential further enforcement actions would likely continue or intensify. The June 2026 White House Executive Order on customs enforcement further incentivizes tangible U.S. presence for importers.

In short, Trump is not inclined to “allow” Canada to pivot heavily toward Chinese manufacturing imports without friction. His policies reward moves that strengthen North American production while penalizing reliance on China.

The Bigger Picture: Policy Choices Matter

While U.S. tariffs are the immediate catalyst, Canada’s underlying competitiveness issues — regulatory burden, tax environment, housing costs, and energy policy signals tied to Net Zero ambitions — make relocation decisions easier for firms. The KPMG findings show manufacturers are not abandoning Canada entirely (most keep HQs here), but they are redirecting future growth and investment southward.

For Canada, this trend risks becoming a vicious cycle: less manufacturing → weaker economy → even less attractive for investment. Reversing it would require decisive action on costs, regulatory certainty, affordable and reliable energy, and stable trade relations — priorities that extend beyond any single administration’s climate targets.

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