Its time to strengthen Canada's manufacturing

by Maj (ret'd) CORNELIU E. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East Inflation has reared its ugly head and the Ukrainian war has the world in turmoil. Canada should think seriously about its manufacturing capabilities lost to the globalization fantasy. Global supply chains are shattered and Canada starts to see the unpleasant results. Relinquishing strategic manufacturing capabilities to other countries made Canada suffer in the pandemic due to lack of vaccine and personal protection production facilities. COVID-19 has made it clear that Canada needs a strong domestic strategic manufacturing sector to produce what our people need. Industrial production has been stagnant in this country for many decades and it's a must for Canada to create and sustain a resilient strategic manufacturing economy that will also be more competitive in global markets. In today's world there is a need for strong national strategic manufacturing that will create good jobs while minimizing environmental impacts and keeping expertise and essential skills at home. The COVID-19 pandemic and the war raging in Europe have revealed the fragility of the international economic arrangements we rely on in times of crisis. In its most acute sense, this took the form of lack of access to essential goods. Years of offshoring, outsourcing and just-in-time production has left us, and others, ill-equipped to deal with the pandemic and today's dangerous world. As a result, many countries have quickly turned inward, enacting policies mandating that personal protective equipment meant for export must now be used for domestic purposes, cutting off Canada's supplies of these essential goods. In Canada, both federal and provincial governments reacted slowly, lacking long-term planning for critical supplies. Ultimately, the pandemic has illustrated first hand, the importance of a strong domestic manufacturing sector to produce what Canada needs. It has also shone a light on the decline of the Canadian manufacturing sector over the last number of decades. Over the past 20 years in Canada, GDP from industrial production has essentially been stagnant due to political neglect, complacency, lack of expertise and mismanagement. Manufacturing presently accounts for roughly 10 percent of Canada's GDP, down from about 16 percent in 2000 and far lower than the high of 30 percent in the 1950s when we had politicians such as C.D. Howe who really meant business and created the wealth and standard of life that Canadians enjoy today. As a result, it took the Canadian manufacturing sector close to six years to recover from the 2008-2009 financial crisis. In contrast, Germany, a country with a domestic industrial strategy, has seen GDP from industrial production rise by more than 66 percent over the last 20 years, and its manufacturing sector rebounded from the 2008 crisis in less than three years. The decline in manufacturing has been a key contributor to the stagnation of wages in Canada and Canada's increased reliance on the extraction and export of unprocessed natural resources. Never mind that the extraction of these natural resources is also under threat from the liberal government, strangely enamored with fantasy driven environmental concerns. If these combinations of ill conceived political strategies are not changed, they will contribute to a wild recession and a sharp downgrading of the standard of life for Canadians. In 1980, almost 20 percent of all jobs in Canada were in the manufacturing sector. By 2021, that had dropped to 9 percent. In short, the era of globalization and liberalized trade regimes has not been kind to Canadian manufacturing. It is true that the pandemic has presented a challenge to a global economic order that too often relies on cheap labour, prioritizing cheap goods and short-term gain. Canada cannot ignore the fact that it is still party to dozens of international trade and investment treaties and our manufacturing sector is still heavily reliant on export markets. Therefore, Canada needs to create and sustain a resilient manufacturing economy that will also be more competitive in the global marketplace. Successful manufacturing economies such as Germany's, have supported advanced manufacturing that creates good jobs and cannot be offshored to low-wage countries. Following this model requires rethinking the role that the state and workers can play in the revitalization of manufacturing. This must start with the joint priority of creating good jobs, while minimizing environmental impact. Policy decisions must be made with those considerations at the forefront. With the creation of good jobs as the focus of a manufacturing strategy, it follows that Canada must ensure it has a properly trained workforce. Canada needs concerted training and apprenticeship policies that assure a highly qualified workforce. Government and employers have a responsibility to provide workers with training, apprenticeships, upskilling and reskilling. Union involvement is also critical when analyzing the real or potential impacts of automation. Automation and technological development is not inherently good or bad, but if the effects on employment, communities and environment are not considered, the potentially positive effects of automation can be lost. The federal and provincial governments should play key roles in ensuring the oversight and co-ordination of key industries and supply chains. In developing a national manufacturing strategy, the federal government should define made-in-Canada while considering the entire supply chain. One of the fears of strengthening environmental standards - and of the possible increased cost of using Canadian-made goods - is that they will simply be undercut by cheaper imported products, rendering higher standards counterproductive. A comprehensive manufacturing strategy must include mechanisms such as border carbon adjustments (BCA) to prevent undercutting of strengthened environmental standards. A BCA would apply to goods produced in countries that have no form of carbon pricing, in particular on trade-exposed products with high emissions such as steel and aluminum. This would help to reflect the true cost of imported goods. Where it really is unfeasible to re-shore a supply chain (for example, there is no prospect for domestic production or Canada simply does not have the raw materials), then supply chain diversification is an option. Rather than relying on one country or one global supplier, Canada needs to diversify. When it comes to ensuring markets for goods produced in Canada, one of the most promising means of augmenting demand for domestically manufactured products is to tie sustainability goals into procurement policies. Despite the lack of procurement policies in the CUSMA, Canada should work with U.S. allies to ensure a binational strategy for North American manufacturing. However, Canada cannot rely on the old mechanisms, such as offshoring or ever-expanding export markets, for the goods it does produce. This requires a rethinking of the role of the state and workers in revitalizing Canadian manufacturing. Ultimately, it requires directed policies that promote good jobs to benefit communities across the country, while reducing environmental impact. Politicians need to be focused on the progress of Canada and the well being of Canadians. If Canada does not seize this opportunity to rethink the role of manufacturing in our economy, it risks being left behind in a dynamically changing international economic order.