From the Fraser Institute

By Jock Finlayson

Since 2015, the number of American manufacturing jobs has actually risen modestly. However, as a share of total U.S. employment, manufacturing has dropped from 30 per cent in the 1970s to around 8 per cent in 2024.

Donald Trump has long been convinced that the United States must revitalize its manufacturing sector, having—unwisely, in his view—allowed other countries to sell all manner of foreign-produced manufactured goods in the giant American market. As president, he’s moved quickly to shift the U.S. away from its previous embrace of liberal trade and open markets as cornerstones of its approach to international economic policy —wielding tariffs as his key policy instrument. Since taking office barely two months ago, President Trump has implemented a series of tariff hikes aimed at China and foreign producers of steel and aluminum—important categories of traded manufactured goods—and threatened to impose steep tariffs on most U.S. imports from Canada, Mexico and the European Union. In addition, he’s pledged to levy separate tariffs on imports of automobiles, semi-conductors, lumber, and pharmaceuticals, among other manufactured goods.

In the third week of March, the White House issued a flurry of news releases touting the administration’s commitment to “position the U.S. as a global superpower in manufacturing” and listing substantial new investments planned by multinational enterprises involved in manufacturing. Some of these appear to contemplate relocating manufacturing production in other jurisdictions to the U.S., while others promise new “greenfield” investments in a variety of manufacturing industries.

President Trump’s intense focus on manufacturing is shared by a large slice of America’s political class, spanning both of the main political parties. Yet American manufacturing has hardly withered away in the last few decades. The value of U.S. manufacturing “output” has continued to climb, reaching almost $3 trillion last year (equal to 10 per cent of total GDP). The U.S. still accounts for 15 per cent of global manufacturing production, measured in value-added terms. In fact, among the 10 largest manufacturing countries, it ranks second in manufacturing value-added on a per-capita basis. True, China has become the world’s biggest manufacturing country, representing about 30 per cent of global output. And the heavy reliance of Western economies on China in some segments of manufacturing does give rise to legitimate national security concerns. But the bulk of international trade in manufactured products does not involve goods or technologies that are particularly critical to national security, even if President Trump claims otherwise. Moreover, in the case of the U.S., a majority of two-way trade in manufacturing still takes place with other advanced Western economies (and Mexico).

In the U.S. political arena, much of the debate over manufacturing centres on jobs. And there’s no doubt that employment in the sector has fallen markedly over time, particularly from the early 1990s to the mid-2010s (see table below). Since 2015, the number of American manufacturing jobs has actually risen modestly. However, as a share of total U.S. employment, manufacturing has dropped from 30 per cent in the 1970s to around 8 per cent in 2024.

Economists who have studied the trend conclude that the main factors behind the decline of manufacturing employment include continuous automation, significant gains in productivity across much of the sector, and shifts in aggregate demand and consumption away from goods and toward services. Trade policy has also played a part, notably China’s entry into the World Trade Organization (WTO) in 2001 and the subsequent dramatic expansion of its role in global manufacturing supply chains.

Contrary to what President Trump suggests, manufacturing’s shrinking place in the overall economy is not a uniquely American phenomenon. As Harvard economist Robert Lawrence recently observed “the employment share of manufacturing is declining in mature economies regardless of their overall industrial policy approaches. The trend is apparent both in economies that have adopted free-market policies… and in those with interventionist policies… All of the evidence points to deep and powerful forces that drive the long-term decline in manufacturing’s share of jobs and GDP as countries become richer.”

This brings us back to the president’s seeming determination to rapidly ramp up manufacturing investment and production as a core element of his “America First” program. An important issue overlooked by the administration is where to find the workers to staff a resurgent U.S. manufacturing sector. For while manufacturing has become a notably “capital-intensive” part of the U.S. economy, workers are still needed. And today, it’s hard to see where they will be found. This is especially true given the Trump administration’s well-advertised skepticism about the benefits of immigration.

According to the U.S. Bureau of Labor Statistics, the current unemployment rate across America’s manufacturing industries collectively stands at a record low 2.9 per cent, well below the economy-wide rate of 4.5 per cent. In a recent survey by the National Association of Manufacturers, almost 70 per cent of American manufacturers cited the inability to attract and retain qualified employees as the number one barrier to business growth. A cursory look at the leading industry trade journals confirms that skill and talent shortages remain persistent in many parts of U.S. manufacturing—and that shortages are destined to get worse amid the expected significant jump in manufacturing investment being sought by the Trump administration.

As often seems to be the case with Trump’s stated policy objectives, the math surrounding his manufacturing agenda doesn’t add up. Manufacturing in America is in far better shape than the president acknowledges. And a tariff-driven avalanche of manufacturing investment—should one occur—will soon find the sector reeling from an unprecedented human resource crisis.

Jock Finlayson

Senior Fellow, Fraser Institut

From the Macdonald Laurier Institute

By Stephan Nagy for Inside Policy

The path to Canadian prosperity lies not in economic decoupling from the US but in strategic modernization within the North American context.

President Donald Trump’s ongoing tariff threats against Canadian exports has sent shockwaves through Ottawa’s political establishment. As businesses from Windsor to Vancouver brace for potential economic fallout, a fundamental question has emerged: Should Canada diversify away from its overwhelming economic dependence on the United States, or should it instead use this moment to modernize and upgrade its economic hard and software within the North American context? The evidence overwhelmingly supports the latter approach in which Canada reduces interprovincial trade barriers and regulations, builds infrastructure to move energy and other resources within Canada, and invests in Canadian human capital and relationships with the US to maximize synergies, stakeholder buy-in and mutual benefit.

The knee-jerk reaction to blame Trump’s economic nationalism misses a crucial point: America’s retreat from championing global free trade began well before his unorthodox political ascendance in 2016. The Obama administration’s signature Trans-Pacific Partnership (TPP) faced mounting bipartisan skepticism before Trump withdrew from it in 2017. Hillary Clinton, during her presidential campaign, explicitly stated she would oppose the deal, reversing her earlier support. “I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership,” Clinton declared during a campaign speech in Michigan in August 2016.

When President Joe Biden took office, rather than resurrect the TPP, his administration proposed the Indo-Pacific Economic Framework (IPEF). Unlike traditional trade agreements, the IPEF conspicuously omitted market access provisions while emphasizing supply chain resilience and environmental standards. During the IPEF ministerial meeting in Los Angeles in September 2022, U.S. Trade Representative Katherine Tai specifically noted that the framework “moves beyond the traditional model” of free trade agreements.

These policy evolutions reflect a deeper transformation in American economic thinking: a bipartisan consensus has emerged around industrial policy aimed at rebuilding domestic manufacturing, securing critical supply chains, and maintaining technological leadership against authoritarian competitors such as China.

Prime Minister Justin Trudeau and his Cabinet fundamentally misunderstood these shifts, leading to a series of diplomatic missteps that have damaged Canada-US relations. Most damaging has been a pattern of public rhetoric dismissive of both Trump personally and his MAGA supporters more broadly.

In June 2018, following the G7 summit in Charlevoix, Quebec, Trudeau declared in a press conference that Canada “will not be pushed around” by the United States, characterizing Trump’s tariffs as “insulting.” This prompted Trump to withdraw his endorsement of the summit’s joint statement and label Trudeau as “very dishonest and weak” on Twitter.

Former Deputy Prime Minister Chrystia Freeland repeatedly aligned the MAGA movement with authoritarianism. In an August 2022 speech at the Brookings Institution, she characterized Trump supporters as part of a global “anti-democratic movement.” In October 2023, she went further, drawing parallels between MAGA and authoritarian regimes like Russia and China. These statements resonate poorly with nearly half of American voters who supported Trump in recent elections and are borderline disinformation with such exaggerated mischaracterizations of American voters.

Former Foreign Affairs Minister François-Philippe Champagne was caught on camera in December 2022 referring to Trump’s policies as “deranged” while speaking with European counterparts. The video, which social media users circulated widely, further inflamed tensions between the administrations.

Such diplomatic indiscretions might be dismissed as political theatre if they didn’t coincide with concrete policy failures. The Trudeau government neglected critical infrastructure projects that would have strengthened North American economic integration while reducing Canada’s vulnerability to U.S. policy shifts.

To illustrate, Japan and Germany approached Canada to secure liquefied natural gas (LNG) exports as part of their efforts to reduce reliance on Russian energy supplies. Japan expressed high expectations for Canadian LNG during Prime Minister Fumio Kishida’s visit, while Germany explored LNG opportunities during Chancellor Olaf Scholz’s visit, emphasizing the urgency of diversifying energy sources due to geopolitical tensions. However, Trudeau rejected these requests, citing a weak business case for LNG exports from Canada’s East Coast due to logistical challenges and lack of infrastructure. Instead, Trudeau shifted focus to clean energy initiatives and critical minerals, reflecting Canada’s evolving industrial policy priorities.

The economic relationship between Canada and the US represents perhaps the most thoroughly integrated bilateral commercial partnership in the world. The statistics alone tell a compelling story: daily two-way trade exceeds $3 billion, supporting approximately 2.7 million Canadian jobs – roughly one-in-six workers in the country.

This integration manifests in countless ways across industries.

For example, in automotive manufacturing, a single vehicle assembled in Ontario typically crosses the Canada-US border seven times during production. A Honda Civic assembled in Alliston, Ontario, contains components from both countries, with engines from Ohio and transmissions from Georgia integrated with Canadian-made bodies and electronics.

The energy infrastructure between the two nations functions essentially as a single system. The North American power grid delivers Canadian hydroelectricity to major US markets, while Canadian refineries process crude oil from both countries. TransCanada’s natural gas pipeline network serves both markets seamlessly, with approximately 3.2 trillion cubic feet flowing between the countries annually.

In aerospace, Bombardier’s commercial aircraft division collaborates with American suppliers like Pratt & Whitney and Collins Aerospace, creating integrated supply chains that span the border. Montreal’s aerospace cluster works in close coordination with counterparts in Seattle and Wichita.

Beyond traditional industries, American-Canadian technological collaboration has accelerated in recent years. For example, the Vector Institute in Toronto has established formal research partnerships with MIT’s Computer Science and Artificial Intelligence Laboratory, collaborating on foundational AI research. Their joint papers on neural network optimization have been cited more than 3,000 times since 2020.

Quantum computing initiatives at the University of Waterloo’s Institute for Quantum Computing maintain ongoing research exchanges with Google’s quantum computing team in Santa Barbara, California. Their shared work on quantum error correction protocols has advanced the field significantly.

In clean technology, Hydro-Québec’s energy storage division and Massachusetts-based Form Energy announced in 2023 a $240 million joint venture developing grid-scale iron-air batteries to enable renewable energy deployment across North America.

The SCALE.AI supercluster, headquartered in Montreal, includes American tech giants like Microsoft, Amazon, and IBM collaborating with Canadian start-ups on supply chain optimization technologies.

Against this backdrop of deep integration, calls for Canada to diversify away from the US toward markets like China reflect wishful thinking rather than economic reality. Dezan Shira & Associates in its China Briefing advocated expanding commercial ties with Beijing despite China’s documented history of economic coercion toward Canada.

This recommendation ignores the painful lessons of recent history. The arbitrary detention of Michael Kovrig and Michael Spavor for over 1,000 days in Chinese prisons, the imposition of punitive restrictions on Canadian agricultural exports following the arrest of Huawei executive Meng Wanzhou, and documented interference in Canadian domestic politics all demonstrate the risks of economic dependence on China.

The CD Howe Institute’s March 2025 analysis cites the overwhelming preponderance of trade flows: 76 per cent of Canadian exports go to the United States, compared to just 3.7 per cent to China, 2.4 per cent to the UK, and 2.32 per cent to Japan. As the report notes, “Given geographic proximity, linguistic compatibility, and complementary regulatory frameworks, any significant trade diversification away from the United States would require decades of sustained effort and acceptance of considerably higher transaction costs.”

Rather than pursuing illusory diversification, Canada should focus on strategic economic modernization that positions it as an indispensable partner in America’s industrial revitalization.

First, Canada must dismantle internal trade barriers that fragment its domestic market. The Canadian Federation of Independent Business estimates these interprovincial trade barriers cost the economy $130 billion annually – nearly 7 per cent of GDP. Harmonizing regulations and procurement practices would create a more efficient national market better positioned to integrate with the US economy.

Second, Canada should leverage its critical mineral resources – including lithium, cobalt, and rare earth elements – as strategic assets for North American supply chain security. The Minerals Security Partnership launched in 2022 provides a framework for such co-operation, but Canada has yet to fully capitalize on its geological advantages.

Third, Ottawa should accelerate east-west energy infrastructure development to enhance continental energy security. The proposed Energy East pipeline, which would have transported Western Canadian crude to Eastern refineries, fell victim to regulatory hurdles in 2017. Reviving such projects would reduce Eastern Canada’s dependence on imported oil while creating more resilient North American energy networks.

Finally, Canada should position itself as a key contributor to emerging technology initiatives. Trump’s proposed $500 billion AI infrastructure investment represents an opportunity for Canadian AI researchers and companies to integrate more deeply into US innovation ecosystems.

The path to Canadian prosperity lies not in economic decoupling from the US but in strategic modernization within the North American context. The integrated nature of the two economies – built over generations through geographic proximity, shared values, and complementary capabilities – represents a competitive advantage too valuable to abandon.

As American industrial policy evolves to address 21st-century challenges, Canada faces a choice: it can either adapt its economic framework to remain an essential partner in this transformation or risk marginalization through misguided diversification efforts. The evidence overwhelmingly supports the former approach.

For Canada, the answer is smarter, not less, North American integration.

Dr. Stephen Nagy is as a professor at the International Christian University, Tokyo and a senior fellow at the Macdonald-Laurier Institute. Concurrently, he is a visiting fellow with the Japan Institute for International Affairs (JIIA). He serves as the director of policy studies for the Yokosuka Council of Asia Pacific Studies (YCAPS), spearheading their Indo-Pacific Policy Dialogue series. He is currently working on middle-power approaches to great-power competition in the Indo-Pacific.