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As U.S. President Donald Trump escalates the trade war, federal leaders are promoting plans to reimagine the country’s economy and core supply chains.
But can they work?
Trump announced another threatening tariff, this time about automobile imports, and earlier this week Prime Minister Mark Carney suspended his campaign as a liberal leader, focusing on Canada’s response as the April 2 tariff date approaches.
Carney calls for a fully integrated Canadian supply chain to build Canada’s “economic autonomy.”
Speaking to reporters on Thursday, Carney said he plans to “integrate” the Canadian supply chain “backward” and noted that Canada’s “old relationship” with the United States is “end”.
Carney said Canada’s strategic response plan includes “integrating supply chains domestically.”
“I’m using fantasy terms – backwards into steel, aluminum to help the steel and aluminum industries we use and encourage us to further integrate into the key minerals and minerals we are going to develop,” he said.
The concept of doing more at home is the concept that continues to emerge in the campaign.
Conservative leader Pierre Poilievre spoke on Friday about the rise in Canadian timber, an industry facing the threat of U.S. tariffs.
“We can build millions of new homes using Canadian timber, which will allow factories to make larger wages in this factory and in the forests of Canada, and they can bring them to homes they can buy,” Poilievre said.
NDP leader Jagmeet Singh said the NDP will use “every legal tool” to prevent U.S. companies from “people taking public funds (and) not allowing Canadian factories to gut plants or ship out machinery and tools that Canadians pay for.”
“The New Democrats will require federal departments and agencies, including the Canadian Post and the RCMP, to purchase Canadian-made vehicles,” a partisan statement said.
“To support good work at home, U.S. companies that want to sell vehicles in Canada must use Canadian-made parts or assemble some vehicles in Canada. Singer is also committed to exempting Canadian-made cars and trucks from GST to support domestic manufacturing and encourage Canadians to buy Canadians.”
What does “backward integration” mean?
Ernan Haruvy, a professor of marketing at McGill University’s School of Management, School of Management, holds a Ph.D. In economics, the meaning of the word “backward integration” is explained.
“Backward integration is just about integration between different suppliers and supply chains,” he said.
“Essentially, integrating different parts of the supply chain into a single, cohesive, concentrated unit that does all the work.”
Carney, a campaign for liberal leaders on Wednesday before Trump announced his auto tariffs, said his administration would build a “network for all Canadian components for auto-made components.”
An average car has about 30,000 individual parts that can go through several steps on a single supply chain.
Raw materials (such as steel and aluminum) are made in one facility, refined in another, and added to the car section in a separate facility before entering the assembly plant and installing it inside the car before it can be driven out of the dealer.
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According to one estimate, a part crosses the border seven to eight times before assembling it into a car.
Carney explained his plan to respond to Trump’s automatic tariffs, saying: “The core of (the plan) is to build the automotive industry and our automotive supply chain in Canada as much as possible, rather than every car that goes back and forth on the border and gets tariffs every time.”
The term “backward integration” will mean connecting the later stages of the supply chain (such as automotive assembly plants) to the earlier stages (such as steel or aluminum plants or critical minerals), so Canadian supply from these strategic sectors becomes part of the supply chains of other strategic sectors.
“As far as I know, backward integration is: Let’s start with consumers, slowly backward through the supply chain and make sure that there is something closest to consumers here in Canada,” said Moshe Lander, an economist at Concordia University.
Can it be done in a modern economy?
Rand said it would be “very difficult” to have a separate supply chain in the modern economy.
“If we go back to the 1950s, it’s not a little difficult. But the truth is, because of our free trade with the United States, Mexico and other countries, we realize there are some parts of the production process that we shouldn’t do that,” he said.
Dennis Darby, president and CEO of Canadian manufacturers and exporters, said supply chains are so integrated that it would be painful for the industry to pry it off.
“The steel may have been made in Canada, stamped in the United States, and brought back and filled with cars here,” Darby said.
Drew Fagan, a professor at the University of Toronto’s School of Global Affairs and Public Policy, said that until the 1960s, the Canadian economy mainly produced goods and services for domestic consumption, and some were exported to the United States and the United Kingdom.
“In 1965, when Canada and the United States signed a sectoral free trade agreement (automatic agreement), then it was changed again in 1988 with the Free Trade Agreement (NAFTA).
Fagan is also the Deputy Minister of Strategic Policy and Programs of the Ministry of Foreign Affairs and International Trade, before becoming a Canadian global affairs.
Rand said that before the 1950s, North America’s automobile manufacturing process was clumsy and ineffective. The car is made in a single factory and starts to be completed.
The rise of instant inventory means that auto companies do not need to stock up on parts and thousands of factories, each concentrated on one or two basic parts throughout the continent.
Trump’s trade war threatens to break this simplified infrastructure.
Experts say re-engineering certain businesses and building an entire local industry will require significant investment.
“The entire company needs a way to reorganize operations,” Haruvy said.
Flavio Volpe, president of the Auto Parts Manufacturing Association, hopes that Canada can continue to own the automotive industry even if there are US tariffs.
“We don’t have a large-scale market, but we have enough markets to meet our needs. All of this is quite complex (and it can take 12 to 18 months to relocate supply,” he said.
Walp said it would be a more expensive option to make everything in Canada, but it would be a good contingency plan if Trump’s tariffs don’t go away.
Can Canadian aluminum be made here to make cans or bicycles?
Haruvy says the idea of building an internal supply chain looks much easier when you think outside of the car.
For example, Canadian breweries use several use tanks made from Canadian aluminum.
While there are still several steps in the supply chain, aluminum travels from Quebec before returning to Canada, it is not as complicated as building a car.
“It is likely that the cans made in Canada are more economical now, because the tariffs on making these cans in Canada are more than sending aluminum to the US to make cans and bringing them back to the US,” Fagan added.
Haruvey said Canada’s competitive advantage lies in becoming an exporter of raw materials and intermediate goods. In terms of consumer goods, Canada produces relatively little.
He said: “We are not exporters of finished products, we are importers of finished products. Therefore, we can replace all imports with our own production. But no matter who is the Prime Minister who encourages domestic production, it will require a major political cause.”
Fagan recently said the Canadian economy has proven to be very agile and able to switch to domestic production using one specific product, N95 mask.
“For example, we saw the importance of making our own masks in Canada or other countries during common times,” he said.
“We don’t have mask producers. Suddenly, masks become a national security issue.”
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