Canada must be more ambitious in supporting key industries

Canada’s largest trading partner enters the 2020s with an ambitious agenda, which could reshape our nation’s prospects for prosperity in the post-pandemic economy. How we adjust our trade, investment, and business policies in the coming months will be critical. The United States wants to restore its manufacturing might and, in turn, reverse decades of job losses. It’s not just about jobs in “flyover” America, however. The U.S. is out to “win the future” in areas of strategic importance, such as national security, technological dominance, and the environment. Notably, these ambitions mark a clear shift away from the industrial economy of yesteryear to advance the technology economy of the future. These ambitions will require America to re-engineer critical supply chains supply chains at the heart of global trade, and establish itself as the epicentre of innovation in areas like electric vehicles, batteries, 5G networks, and semiconductors. Canada is uniquely qualified to help fulfil America’s agenda. For instance, we possess a world-renowned expertise in clean technologies, and an abundance of every critical mineral used in the production of EV batteries. Canada has also produced the most artificial intelligence patents per million people among G7 nations and China, a key advantage in the fourth Industrial Revolution. Moreover, we start from a position of strength. Canada enjoys preferential access to the U.S. market under our free trade agreement. And we are deeply integrated in North American military and auto supply chains. In developing a new continental strategy, Canada will need to carefully manage our trade relationship with China, which is vying to usurp America as the world’s technology-intensive manufacturing powerhouse. And we must continue to promote greater use of our existing trade pacts, and open up new markets in keeping with our export diversification strategy. But securing a significant role in a U.S. agenda will help re-establish Canada’s export sector as a key driver of economic growth. Indeed, a new report from RBC Economics estimated our exports could grow 10 per cent over the next 10 years if we get our policies right and regain our own export propensity. That could add as much as $1-trillion over the decade to GDP. Success is not guaranteed, however. Canada’s share of the U.S. market has declined in the face of fierce competition, and we are not a major supplier of higher-value items to our largest trading partner. Shifts in global trade could further compound challenges facing our export-oriented sectors. The pandemic has accelerated protectionist sentiments and sharpened policymakers’ intentions to build secure sources of supply. This has led many countries to advance specific sectors, as well as establish national footholds in growing supply chains. Government funding for the pandemic recovery is helping to facilitate their industrial policies. Canada, too, must be more ambitious in supporting key industries in high growth areas. Efforts to spark an EV boom in the U.S. speak to the urgency of this approach. U.S. President Joe Biden is using a combination of purchase incentives, fuel-economy standards, along with grants to retool factories and reinstate tax credits to increase consumer demand. As Canada’s share of traditional North American auto assembly has declined, it has also lagged other countries in expanding EV output. Tens of thousands of Canadian jobs will hinge on a transition to domestic EV production. Ottawa has tiptoed around industrial policy over the decades. Most recently, it unveiled a supercluster strategy that put $1-billion into five specific sectors in hopes of developing high-potential Canadian technologies. We don’t need industrial strategy like it used to be. But we do need to be much more strategic about industry. Three important distinctions need to be made from past approaches. First, any new approach must focus on where Canadian goods and services can derive the highest economic value in a global supply chain, and then protect it through patents, trade secrets, and other IP strategies. This is in stark contrast to previous policies designed to promote regional economic development. Second, the federal and provincial governments must work in true partnership with the private sector. A recent announcement between Ottawa, Quebec, and Lion Electric, a Quebec-based firm, exemplifies the new model. All three parties will help fund the creation of a $185-million battery plant facility and innovation centre to advance Canada’s leadership aspirations in energy and clean transportation. But it is Lion’s ingenuity that will enhance the performance, reduce the costs, and rapidly develop new solutions that are essential to the electrification of vehicles. Finally, Canada must adopt a more holistic—and bolder—approach than previous models. For instance, we should ensure trade measures enable Canadian industry to help lead North America’s transition to net zero. Canada should establish priority sectors for public and private investment, and ensure competitiveness without wasting public money by competing with bigger governments. A more robust and targeted Canadian R&D strategy, including greater contributions from the private sector, is needed to fuel domestic innovation. Universities and colleges must become even greater strategic partners in clusters. The most successful companies find ways to fulfil the unmet wants and needs of their customers. The same could be said about global trade. Canada’s largest customer seeks to grow and transform its economy. Its ambitions represent our opportunity. If we get it right, we could add one trillion dollars to our economy in 10 years’ time. It represents our most prosperous path forward. We must take it. Yet our success depends on reimagining industrial policy. In the fourth Industrial Revolution, it’s all about deriving value in global supply chains, developing working partnerships between public and private sectors, and bolstering our competitiveness. These efforts will do more than grow exports over the coming decade, they will accelerate our economy into the future. Canada will be ready to compete, win, and grow for generations to come. John Stackhouse is a senior vice-president at Royal Bank of Canada. Editor's note: Due to an editorial oversight, an earlier version of this story carried Mr. Champagne's former ministerial title. The Hill Times