Trade uncertainty pushes more Canadian manufacturers to consider moving south
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Canada’s manufacturing sector has demonstrated remarkable resilience through years of supply chain disruption, inflation and changing trade policies. Factory output is expanding again, new orders are improving and hiring has strengthened across parts of the sector. On the surface, the industry appears to be regaining momentum.
Beneath those encouraging indicators, however, manufacturers are making decisions that could have far greater consequences than quarterly production figures. A recent KPMG Canada survey of 275 manufacturing business leaders suggests executives are no longer responding to trade uncertainty with temporary operational adjustments. They are reconsidering where future investment, production capacity and innovation should be located.
The findings point to a sector entering a new phase. Tariffs may have triggered the disruption, but investment confidence has become the defining issue. Where manufacturers choose to build their next facilities, install new automation or fund research programs will shape Canada’s industrial competitiveness long after current trade disputes are resolved.
The survey suggests Canadian manufacturing has entered a new investment cycle
The headline figure is striking. Forty-two percent of manufacturers have already moved production to the United States or are considering doing so. Among those evaluating relocation, 77% expect to make that move within the next two years.
Viewed in isolation, those figures suggest production is steadily shifting south. The broader survey tells a more nuanced story.
Fifty-seven percent of manufacturers have paused, reduced or canceled capital investment. Another 42% have reduced research and development spending, while 52% describe their businesses as operating in “endurance mode.” These findings suggest uncertainty is affecting much more than production decisions. It is influencing how companies allocate capital, manage risk and plan for long-term growth.
Manufacturing investment is rarely driven by a single economic factor. Decisions involving new facilities, advanced machinery, automation or digital technologies often represent commitments measured over decades rather than years. When business leaders face uncertainty over tariffs, market access or future trade policy, postponing investment becomes an understandable strategy.
Access to the US market remains central to those calculations. Sixty-one percent of respondents said their businesses could not survive without reliable access to American customers. While Canada remains home for most manufacturers, many executives increasingly view expanding production inside the US as a way to reduce future uncertainty rather than simply lower costs.
The survey also challenges the perception that manufacturers are abandoning Canada altogether. Eighty percent intend to keep their headquarters in Canada, while only 11% are considering relocating their head office within the next five years. For many businesses, this is not a corporate migration. It is a reassessment of where future production assets and investment should be concentrated.
That distinction matters. Headquarters may remain in Canada, but new factories often determine where future employment, supplier networks, engineering expertise and technological development take root.
The bigger warning sign is the slowdown in investment
Plant relocations inevitably attract headlines, yet the survey’s most significant finding may be the decline in capital investment.
Manufacturing competitiveness is built through continuous investment in equipment, robotics, automation, artificial intelligence and production efficiency. Delaying those projects may strengthen short-term cash flow, but it can weaken productivity over time.
Capital expenditure often determines how quickly manufacturers adopt advanced technologies, increase output and improve quality. Research and development spending performs a similar role, supporting new products, improved manufacturing processes and future commercial opportunities. When companies postpone both forms of investment simultaneously, the effects can extend well beyond the immediate trade environment.
This is where the survey provides valuable insight into the industry’s mindset. Manufacturers are not simply reacting to tariffs already in place. They are responding to uncertainty about what comes next.
Business leaders can usually adapt to known costs. Persistent uncertainty is considerably more difficult to manage because it complicates investment planning. Major manufacturing projects typically require years of preparation, making stable policy environments almost as important as competitive operating costs.
The result is an investment pause that could become more significant than any individual tariff measure. Manufacturers rarely lose competitiveness because of a single trade policy. More often, competitiveness gradually erodes when investment decisions are repeatedly delayed.
A growing disconnect between factory performance and executive confidence
Recent manufacturing data present a more optimistic picture than executive sentiment alone would suggest. Canada’s manufacturing sector has returned to expansion, supported by improving production, stronger demand and renewed hiring activity.
Ordinarily, improving business conditions would encourage companies to accelerate investment.
Instead, manufacturers appear to be separating today’s operational performance from tomorrow’s strategic planning.
A factory may be operating at healthy capacity while its leadership questions whether the next production line should be built domestically or closer to its largest export market. Existing facilities can continue performing well even as future expansion shifts elsewhere.
That distinction creates an important paradox for Canadian manufacturing. Current production data reflect the health of today’s operations. Investment decisions determine the industry’s future capacity.
The survey indicates executives are weighing a broader range of considerations than tariffs alone. Energy costs, labor availability, taxation, infrastructure, financing conditions and regulatory certainty all influence where manufacturers deploy capital. Trade uncertainty has become another critical factor in an increasingly complex investment equation.
Canada’s manufacturing sector still possesses significant strengths. Manufacturing contributes roughly 10% of national GDP, and the overwhelming majority of surveyed companies continue exporting successfully under the Canada-United States-Mexico Agreement. Many businesses remain committed to domestic operations and continue adapting to changing global markets.
The challenge is converting operational resilience into renewed investment confidence.
Canada’s next manufacturing challenge is restoring confidence to invest
The survey ultimately raises questions that extend beyond current trade negotiations.
If uncertainty continues to delay investment, Canada risks losing more than individual production contracts. Future factory developments, automation projects, research programs and supplier ecosystems may increasingly be established elsewhere. Those investments often create long-term economic benefits that extend across regional economies and industrial supply chains.
Equally, the findings should not be interpreted as evidence of an industry in decline. Manufacturers have repeatedly demonstrated their ability to adapt to disruption, whether through supply chain shortages, inflation or changing customer demand.
The greater challenge now is creating an environment where businesses have sufficient confidence to commit long-term capital. Predictable trade relationships, competitive tax policies, efficient permitting processes, reliable infrastructure and clear industrial strategies all contribute to that confidence.
The latest KPMG survey suggests Canadian manufacturers have moved beyond managing today’s tariffs. Their attention is turning to where they can invest with certainty over the next decade. Those decisions may prove far more significant than the trade disputes that prompted them, shaping where North America’s next generation of manufacturing capacity is ultimately built.
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