Fighting for survival, Canadian manufacturers expect governments to step up

As the U.S.-instigated trade war disrupts the manufacturing industry, Canadian manufacturers are determined to survive, saying they are willing to back Canada in a fight but expect governments to think big and be bold to build infrastructure in Canada and open up new markets, finds a recent KPMG in Canada survey.

“This isn’t just an existential threat to our domestic manufacturers but to the very heart of manufacturing itself,” says Tammy Brown, National Industry Leader for Industrial Markets, KPMG in Canada. “Under free trade, manufacturers achieved hard-won operational efficiencies that tariffs will unravel, impacting economies of scale, disrupting highly integrated supply chains, increasing production costs, and setting off wider economic repercussions, including job losses and higher inflation.

“Our survey shows only about half of the country’s manufacturers can withstand tariffs for more than one year, and are taking measures to ensure their survival, ranging from modelling price strategies and diversifying their revenue streams and distribution channels to identifying opportunities to optimize their operations. They are in survival mode. But what they need – and want – is a bold national economic strategy to reduce Canada’s reliance on the U.S. because even if this trade war ends tomorrow, our manufacturers will still be vulnerable to the unpredictability of U.S. trade policies. Instead, they want Canada to focus on building out a West-East-North infrastructure with pre-approved industrial zones to make it easier to sell within Canada and ship abroad to foreign markets.”

The manufacturing sector is the most vulnerable to tariffs. In 2024, Canadian manufacturers sold half of their products to foreign customers, with approximately 80 per cent of those exports going to the U.S., according to Statistics Canada. As part of a recent KPMG in Canada survey, 154 business leaders were interviewed in the manufacturing industry, including aerospace and defence, automotive, chemicals, and food and beverage processing.

The survey finds that domestic manufacturers want interprovincial barriers removed quickly, with more than three-quarters (76 per cent) saying the ability to expand their customer base within Canada is vital to their survival. They aren’t alone; 96 per cent of Canadians want them scrapped to make it possible for consumers to buy Canadian and have more choice.

“We know eliminating interprovincial trade barriers is exceedingly complex and challenging, but more than nine in 10 manufacturers in our survey not only expect governments to act on internal trade liberalization but want action taken immediately,” says Ms. Brown. “It will spur domestic competition, driving operational efficiencies, innovation, and productivity.”

Key findings

• 86 per cent of 154 Canadian manufacturing leaders say it’s time for Canada to start relying less on the U.S.
• 88 per cent think it’s time for increased pipelines and infrastructure to diversify energy export markets
• 86 per cent want Canada to move an increased volume of oil and gas (West to East pipelines) to reduce reliance on moving oil and gas through the U.S. to Eastern Canada
• 87 per cent want Canada to fight the U.S. with retaliatory tariffs and 85 per cent want a targeted dollar-for-dollar retaliatory response
• 54 per cent say they can withstand a tariff war with the U.S. that lasts more than one year – sharply below the national average of 67 per cent across 602 respondents in all industry sectors. The remaining 42 per cent expect to face significant profit losses and 4 per cent say their company would go out of business if it lasted more than one year
• 92 per cent expect “strong and determined political will” at all levels of government to finally open up trade within Canada
• 91 per cent want to see interprovincial trade barriers “eliminated as quickly as possible”
• 76 per cent say the elimination of interprovincial trade barriers is “vital to the survival of our business” and the remaining 18 per cent say it is “somewhat important” because it provides another option:
  • 28 per cent call removing trade barriers within Canada “extremely important – it would save our company”
  • 48 per cent say it is “very important – it opens up another market” for them

What are the options?

Almost a third (32 per cent) say they could redirect 11-to-25-per-cent of their sales to markets within Canada, if necessary, the survey finds.

“Indeed, all but 5 per cent could redirect a portion of sales to domestic customers,” says Alison Glober, a management consulting partner and KPMG in Canada’s National Manufacturing Sector Leader. “The industry proved during COVID that they can handle adversity and pivot. They will need the same resolve today and evaluate all options, including expanding into new global markets, evaluating if it makes sense to shift production to the U.S., undertaking a strategic review of operations, identifying cost reductions and finding ways to boost efficiency and productivity.”

Six in 10 manufacturers say the low Canadian dollar will partially or fully offset the tariff impact. But it also raises the cost of imported machinery and equipment, in an industry where it may not always be possible to find alternative vendors, says Ms. Glober.

Another mitigation strategy is to seek remission for relief from the payment of tariffs, or the refund of tariffs already paid. This strategy may be of most use in circumstances where component parts of a manufacturing process cross the Canada-U.S. border multiple times before the product is finished and in areas of national economic significance, she adds.

Other survey highlights

• 32 per cent say they could redirect between 11-25 per cent of their sales to markets in Canada, 25 per cent could redirect 6-10 per cent, 18 per cent could redirect 26-50 per cent, 8 per cent could redirect 4-5 per cent, 7 per cent could redirect over 50 per cent, and 5 per cent could redirect 1-3 per cent. The remaining 5 per cent say redirecting sales within Canada is not an option for them.
• 54 per cent would consider shifting some of the production activities to the U.S. as part of their tariff mitigation strategy
• 60 per cent say the low Canadian dollar will partially or fully offset the tariff impact and 8 per cent say they will be in a net positive position
• 98 per cent are concerned about managing prices and margins with customers
  • 88 per cent are extremely or very concerned
  • 10 per cent are somewhat concerned
• 96 per cent are worried they will lose U.S. customers
  • 81 per cent are extremely or very concerned
  • 15 per cent are somewhat concerned
• 80 per cent are extremely and very concerned about the logistics around tariffs, such as how tariffs are paid and collected, and getting goods physically across the border
• 80 per cent are undertaking a strategic review of their operations due to the uncertainty of trade disruption and 81 per cent will identify opportunities for acquisitions or divestitures
• 46 per cent were already reducing production and/or laying off employees when the survey was in field in February
• 59 per cent expect their company’s headcount in Canada to decline over the next year
• 79 per cent are assessing and managing trade risks associated with third-party suppliers
• 81 per cent say they need to build resiliency into their supply chains, for example, alternative sources, implementing technology to predict disruptions, optimize logistics, monitor risks, etc.

About the KPMG in Canada Tariffs Survey

KPMG in Canada surveyed 602 Canadian business leaders between February 13 and February 28 on Sago’s premier business panel, using Methodify’s online research platform. As part of the survey, KPMG sought the opinions of 154 CEOs in the manufacturing industry, including aerospace and defence, automotive, chemicals, and food processing. Ninety-two per cent of the manufacturers surveyed export to the U.S. Ninety per cent expect their company to be impacted by U.S. tariffs, 5 per cent do not, and the remaining 5 per cent are not sure if they will be impacted. A third of the manufacturing companies reported annual revenue between $100 million and $500 million, 32 per cent, between $10 million and $100 million, 25 per cent, between $500 and $1 billion, and 9 per cent with more than $1 billion.