Manufacturing descent: Canada’s industrial comeback won’t be easy

Between the feds rolling out the red carpet for global money managers in September and Ottawa using the occasion to announce a corporate tax “mega deduction,” there’s a growing sense that the country has turned a corner on business investment.

Over the past 15 years, Canada has lagged its OECD peers when it comes to deploying private capital on buildings, machinery, infrastructure and IP—the types of investments needed to drive long-term economic capacity and productivity. It’s that prolonged slump that Mark Carney’s Investment Summit and the new tax deduction, which allows companies to immediately write off the cost of investing in new business assets, is meant to reverse.

Canada’s industrial comeback won’t be easy, however, a point National Bank hammered home in a recent report. With the country three years into a manufacturing recession and the number of factory businesses dwindling, “the magnitude of Canada’s decline is striking,” a trio of the bank’s economists wrote. “Among advanced economies, Canada has experienced one of the sharpest contractions in the share of its manufacturing sector since China joined the World Trade Organization.”

One way to put the decline in perspective is to look at the UN Competitive Industrial Performance Index, a global benchmark that measures the capacity of a country to produce and export manufactured goods competitively. By that metric, Canada has suffered the worst deterioration among advanced economies since 2000, plunging from fifth to 22nd place in 2024.

The U.S. also slipped, but not nearly as sharply, from first to sixth. Over the same period, which included China joining the WTO in 2001 and emerging as the so-called “world’s factory,” China skyrocketed from 24th to second.

That’s the hole Canada must dig itself out of. The federal changes should help, but with Trump et al. intent on knee-capping Canada’s industrial ambitions, the road back will be even tougher than it was already going to be.