With reciprocal tariffs on roughly $28 billion in goods now in place in an all-out trade war with the United States, we need to look beyond the positive headlines about defending economic interests and take a closer look at what’s at stake in a prolonged standoff: Canada’s manufacturing edge.

An overwhelming majority of Canadians support the government for having walked away from the trade negotiations with the U.S. and believe counter-tariffs were appropriate to the circumstances. Many also believe that Canada will emerge stronger by lessening its dependence on the U.S. 

These findings mask mounting concerns over the impact an escalating tariff environment will have on trade that is dependent on deeply integrated North American supply chains. The numbers are staggering. $3.6 billion in goods and services cross the border between Canada and the U.S. every day, as part of $1.3 trillion in annual trade that supports millions of jobs on either side. Manufacturing is at the heart of this: in 2024, more than $28.9 billion in equipment was traded across North America using supply chains that have components cross the Canada-U.S. border multiple times before final assembly. 

In large part fueled by the Canada-United States-Mexico Agreement (CUSMA), Canada and the U.S. have built the world’s most integrated cross-border manufacturing ecosystem, supporting jobs, driving investment and powering economic growth across North America. CUSMA, at face-value a trade agreement, is now a cornerstone of Canada’s economic security and resilience, supporting a stable investment climate for businesses and workers which are the economic engine of small towns across the country. Turning away from CUSMA would have a severe impact on Canada’s economy, reducing real GDP by 1.6 per cent, or $402 billion over a decade. This cannot be the way forward. 

The longer this standoff continues, the greater the likelihood of long-term ramifications for North American supply chains and Canadian businesses. Continued trade uncertainty and escalating tariffs pose serious challenges for equipment manufacturers and businesses that depend on cross-border supply chains, all of which take years and sometimes decades to establish. Foreign businesses who move their supply chains from Canada due to the lack of American market access are not likely to shift them back again in the near future. The trickle-down effect of retaliatory tariffs on manufacturing runs the risk of permanently unraveling the supply chain Canadian manufacturers have spent decades building. 

Uncertainty comes at a cost beyond the tariffs themselves: a recent KPMG survey of Canadian manufacturers found that 57 per cent of respondents had already reined in capital expenditures and 42 per cent had pushed pause on research and development (R&D) spending. This was even before the Section 338 tariffs and counter-tariffs had taken effect. The same survey found that 61 per cent of respondents said their business could not survive without access to the U.S. market. Without a stable, predictable trade environment, investors will increasingly go elsewhere to find integrated supply chains and economies of scale.

There are also concerns over the impact on small-to-medium sized businesses. In a recent member survey, the Canadian Federation of Independent Business found that roughly half of Canadian exporters and importers are affected by the reciprocal tariffs. The survey also found that 18 per cent of exporters and 11 per cent of importers said they would stop being financially viable if the standoff were to last three months or more. Add stressed supply chains to the financial impact from tariffs and many small-to medium-sized businesses may not survive. 

Tariffs imposed at any stage of our highly integrated supply chains generate cumulative cost increases, create supply chain uncertainty and reduce investment confidence. Federal financial relief will help offset some of this financial burden, but such measures are merely a short-term fix. Canada ultimately needs trade, not aid. 

Businesses large and small need Canada and the U.S. to get back to the negotiating table to end the uncertainty and disruption by removing the tariffs and strengthening CUSMA as the cornerstone of North American competitiveness.

The only way out of this standoff is to secure a predictable, rules-based agreement that provides the long-term certainty needed to make investments, create jobs and strengthen North American competitiveness in an increasingly uncertain global marketplace. 

Anything short of this could permanently harm the viability of Canada’s manufacturing sector as a competitive force on the global stage and a destination for investment, with losses that may be difficult, if not impossible, to reverse.

Kip Eideberg is the senior vice President of government & industry relations for the Association of Equipment Manufacturers (AEM), which represents over 1,100 equipment manufacturers and suppliers across North America.

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