Carney’s Buy Canadian policy is a mistake that will accomplish little

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral candidate at the University of California, Berkeley.

In the midst of a historic trade war, Canadians have rallied in support of a largely reasonable policy platform to retaliate and boost the domestic economy. But within this strategy, the federal government’s Buy Canadian procurement policy stands out as something neither economically justifiable nor particularly impactful.

Under Prime Minister Mark Carney’s Buy Canadian program, federal procurement contracts prioritize suppliers located in Canada and the use of Canadian materials. On contracts worth more than $5-million, bids by Canadian suppliers are evaluated at a 10-per-cent discount relative to foreign suppliers, and are evaluated more favourably based on how much of the contract can be attributed to value added in Canada. On defence and construction contracts worth more than $25-million, all steel, wood and aluminum inputs worth more than $250,000 must be made in Canada.

The problem with this is that it will cost Canadians much more than it will help, and also that it will barely help.

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Any time a customer – government or otherwise – offers preferential treatment to specific companies, those companies can charge higher prices. Forced domestic sourcing biases against foreign competitors that may have lower costs, and gives domestic firms space to charge higher markups to a customer with fewer options. All of us have to bear these costs, in the form of higher taxes, now or in the future.

Enforcement also takes significant red tape. Companies must now prove they are a Canadian supplier as defined by location, business-hours accessibility, tax residency, employment records, and lack of intent to subcontract to non-Canadian firms. This adds substantial administrative overhead, which must be paid either by the company or in the form of a more expensive contract. Since many of the federal government’s suppliers were Canadian before the policy, this administrative burden is falling precisely on those companies it is purporting to help.

Nor is domestic sourcing a particularly efficient way to create jobs and stimulate the economy. In a recent study, Berkeley economist Matilde Bombardini (who I worked for on a separate project, for full disclosure) and her co-authors found that a similar policy in the United States cost Americans more than US$111,500 per job created. The University of Wisconsin-Madison’s Miguel Acosta and Lydia Cox found in a 2024 study that less restrictive procurement spending actually led to greater regional stimulus than more restrictive spending. Supporting Canadian workers and businesses can be accomplished much more cheaply.

Even if Canadians are willing to bear higher costs, there are few contracts being given to foreign suppliers (defined by location) to begin with. In other words, federal procurement would not be very different in the absence of Buy Canadian. The current policy also exposes an inherent contradiction in the government’s sovereignty strategy; the more free-trade deals it signs with other countries, the fewer areas it is allowed to apply a Buy Canadian rule. Non-U.S. allies are already expressing concerns at the World Trade Organization about whether Buy Canadian complies with our free-trade obligations.

Out of more than $28-billion awarded in federal procurement contracts in 2025, only $970-million (3.43 per cent) went to foreign suppliers for sufficiently large contracts. Once we restrict the data to contracts that were actually competitive (where the government allowed multiple companies to bid and multiple companies may have actually shown up), this number falls to less than $350-million. That means only about 1 per cent of direct federal procurement dollars in 2025 was potentially available for redirection under a Buy Canadian policy. This does not account for federal dollars that are spent through provinces and municipalities, but it gives a sense of just how little was going to foreign suppliers before.

The good news is that this somewhat mutes the scale of the inefficiency the policy will lead to. The bad news is that it also means the policy will be a disappointment for those who view Buy Canadian as a serious solution to Canada’s sovereignty concerns.

A greater degree of economic sovereignty is a reasonable goal. The question is, sovereignty from whom? The Carney government’s flurry of trade deals and its Buy Canadian policy give entirely different answers to this question. Deepening ties with Europe, Asia and Latin America seems to suggest that it is greater sovereignty from the United States that Canada seeks. But Buy Canadian seems to be aimed at sovereignty from everyone, which is neither realistic nor economically justifiable. We want to improve diversification, not reduce openness.

It is unclear whether the Prime Minister rejects the inefficiency and limited-impact arguments, or is making a political play. The raucous cheers he gets every time domestic sourcing is brought up suggest the latter. But in the context of an overarching economic strategy that is largely sensible, Buy Canadian remains a bizarre anomaly.