While the U.S. has experienced a resurgence of reshoring in manufacturing activity through the pandemic, Canada has not benefited to the same degree. However, foreign direct investment into Canada’s manufacturing sector has accelerated in the last year-and-a-half, offering some hope that future gains may already be in the pipeline, says a report by TD Economics.
“The most obvious inroads are in the transportation space. If North America is to become a meaningful global player in the production of electric vehicles, establishing a domestic end-to-end battery supply chain is essential,” said the report.
“Given Canada’s abundance of natural resources, it stands well positioned to becoming an integral piece of the supply chain, which has the potential to attract other related high skilled electronic manufacturing industries.”
TD Economics said COVID pandemic upended global supply chains and has led to a resurgence in companies moving some or all elements of the production process back to domestic shores. This concept of “reshoring” has become most apparent in the U.S., with some estimates suggesting nearly 800,000 manufacturing jobs have already returned to America since 2020 – more than double the number seen in the three years preceding the pandemic.
But there is little evidence of Canada’s manufacturing sector gaining any ground in recent years. In fact, it’s been just the opposite, said the report.
“At present, the manufacturing sector accounts for about 1.7 million jobs in Canada, which is where it has hovered since 2010. Measured as a relative share of total employment, the manufacturing sector has lost a bit of ground, currently accounting for just 8.8 per cent of the workforce, compared to 9.2 per cent in 2019. Indeed, labour shortages have long been a factor hindering manufacturers’ ability to hire, reflecting a growing generational skills deficiency across most technical manufacturing industries. The pandemic further exacerbated this trend, accelerating the number of baby boomers who retired and leaving many industries at a net loss from an employment perspective in the post-pandemic world. This is why manufacturing’s employment share has continued to trend lower,” explained the report.
“While the hard economic data provides little evidence that the Canadian manufacturing sector is benefiting from the recent resurgence of U.S. reshoring, that doesn’t necessarily mean it won’t over the coming years. The U.S. may prove to be the “rising tide that lifts all ships”. Perhaps no better example illustrates this point than the transformation already taking place in the automotive sector. North American automakers have made significant investments in both existing and new manufacturing facilities in recent years, in an effort to scale production of electric vehicles. The investment dollars spent have not only been concentrated on the assembly side, but also on manufacturing facilities specifically intended to produce key components, such as semiconductors and lithium-ion batteries. If North America is to become a leading player in the global production of electric vehicles, developing fully integrated supply chains on both fronts is an essential first step.
“Given Canada’s abundance of natural resources, it stands to be a direct beneficiary, particularly on the battery production side. Seed investments from the Federal government have already been announced in last year’s budget specifically targeted at accelerating the mining and processing of critical minerals that are essential in the production of EV batteries. While small relative to what will actually be required to make mines operational, the initial investments do show a degree of commitment. Since last year’s budget announcement, interest among global cell manufacturers has grown, with several having already committed to building facilities in Canada. Moreover, Ontario’s Minister of Economic Development has recently said that the government is currently in talks with six other cell manufacturers, who are all actively pursuing building facilities in Canada. And this has the potential to be just the tip of the iceberg. If Canada were able to establish a stronghold in battery cell manufacturing, then it has the potential to create a waterfall effect of other electronic component producers also wanting to move to Canada, as suppliers typically like to have a close proximity to their customers.”
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