Outlook for 2025 in the manufacturing sector and the impact of trade policies

The Canadian manufacturing sector, representing 10 % of GDP and employing over 1.7 million people, is at a decisive turning point. Faced with structural challenges, trade tensions and political uncertainties, the sector must navigate an ever-changing global economic environment. With the outlook for 2025 uncertain, the industry must adopt proactive strategies to maximize opportunities and minimize risks.

A changing manufacturing dynamic

Canada has shown impressive resilience in its manufacturing sector despite the global turmoil. In 2023, manufacturing exports reached $354 billion, an increase of 3 % over the previous year (Statistics Canada). This growth was mainly driven by technology industries and consumer durables.

However, challenges remain. Rising energy (+9 % in 2023) and materials costs (+15 % since 2021) are holding back profitability, particularly for SMEs, which account for 90 % of the sector's players. These constraints are forcing companies to review their supply chains, which are often dependent on international suppliers.

The impact of US trade policies

The potential reintroduction of protectionist policies in the United States, should Donald Trump return to power, could have significant repercussions for Canada. In 2018, tariffs imposed on steel (25 %) and aluminum (10 %) cost the Quebec economy over $300 million, severely affecting exports. These measures also led to a 7 % drop in export volumes in these critical sectors.

Although Canada has diversified its markets, the United States remains its main trading partner, accounting for almost 75 % of manufacturing exports. Economic dependence on the United States exposes the Canadian sector to significant risks in the event of escalating trade tensions.

Response from provincial and federal governments

Ontario Premier Doug Ford recently unveiled a plan to protect the manufacturing industry from external pressures. The plan includes subsidies for the purchase of green technologies and incentives to locate more supply chains. However, these measures have been criticized for their lack of coordination with federal initiatives and for their potential to further fragment the Canadian domestic market.

At the federal level, Justin Trudeau's government has responded by stepping up investment in manufacturing innovation. The Canadian Industrial Transformation Plan allocates $4 billion to projects aimed at modernizing manufacturing infrastructures and accelerating the transition to renewable energies. However, these investments will need to be stepped up to offset the possible impacts of trade tensions.

Innovation and market diversification

Technological innovation has become an essential lever for the manufacturing sector. Smart factories, integrating automation, the Internet of Things (IoT) and artificial intelligence, increase productivity while reducing costs. According to a study by KPMG, companies that adopt these technologies see a 15 % increase in operational efficiency.

However, adoption remains uneven. Large companies are leading the charge, while SMEs, often limited by budget constraints, are struggling to keep up. To remain competitive, the sector will have to invest heavily in workforce training to integrate these innovations.

Diversifying markets is also a key strategy. Europe and Asia offer growing opportunities for Canadian exports. For example, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, in force since 2017, has led to a 23 % increase in manufacturing exports to Europe in five years.

The economic impact of trade tensions

Experts are divided on the impact of future trade tensions. Some predict that the strength of the U.S. economy could offset tariffs, stimulating an increase in Canadian exports in other sectors such as energy and consumer goods.

Others believe that the tariffs could have a domino effect, increasing costs for Canadian businesses and reducing their international competitiveness. An analysis by the Conference Board of Canada indicates that a 5 % increase in U.S. tariffs could result in a loss of 0.7 % of Canadian GDP, or around $15 billion.

Local issues and the resilience of Quebec manufacturers

Quebec, with a manufacturing economy centered on aluminum, aerospace and clean technologies, is particularly exposed. Companies such as Bombardier and Alcoa rely heavily on exports to the United States. However, these local players are showing signs of resilience by diversifying their products and adopting more flexible production models.

For example, Bombardier has invested in 3D printing technologies to reduce production times and costs, while Alcoa has introduced low-carbon aluminum manufacturing processes to meet the growing demand for sustainable materials.

Strategic outlook for 2025

To maximize its potential, the manufacturing sector must adopt a multi-pronged strategy:

Investing in advanced technologies : Increase adoption of smart factories, especially among SMEs, through targeted subsidies.
Strengthening the resilience of supply chains : Encourage supplier localization and diversification.
Increasing interprovincial collaboration : Avoid fragmented manufacturing policies to create a coherent, competitive internal market.
Diversifying exports : Exploit Asian and European markets to reduce dependence on the United States.

Conclusion:

The Canadian manufacturing sector is at a decisive crossroads. Trade tensions and structural challenges pose significant risks, but the opportunities offered by technological innovation and market diversification are immense. By adopting a proactive strategy and strengthening collaboration between governments, businesses and institutions, Canada can transform these challenges into engines of sustainable growth.