A new study by KPMG has found that 40% of Canadian manufacturers have moved production to the United States or are considering doing so, as they adapt to ongoing trade uncertainty and competitive pressures.
Key Findings on Manufacturing Exodus
The survey of 275 manufacturers reveals that 57% have paused, reduced, or cancelled capital expenditure projects due to economic uncertainty, trade, and tariff threats, while 42% have scaled back or paused research and development spending. Fifty-two per cent say they are currently operating in “endurance mode.”
“Manufacturers have shown incredible resilience, adapting to tariffs and uncertainty to navigate this period of heightened volatility,” said Anamika Gadia, Partner and National Leader of Industrial Markets at KPMG Canada. “But businesses can only operate in endurance mode for so long. Companies can delay investments, absorb higher costs and adjust their operations, but they can’t remain in a holding pattern indefinitely. At some point, uncertainty begins to shape long-term decisions about where investment, production and growth will occur.”
Reasons for Relocation and Conditions to Stay
Top reasons for the exodus include avoiding or reducing high import tariffs, ongoing trade uncertainty, lower operating costs, and a more favourable tax environment. Companies were asked what would encourage them to stay in Canada. Respondents cited ensuring certainty around free trade, continuing tariff relief and remissions for imports from the U.S., lowering corporate taxes, improving cost of living and housing affordability for employees, and improved access to skilled workers.
On Canada Day, the Trump administration announced that the U.S. would not join Canada and Mexico in extending the free trade deal for another 16 years. The agreement remains in effect for 10 years while the three sides either negotiate changes or decide to withdraw from the pact.
Dependence on U.S. Market
The survey indicates that Canadian manufacturers remain heavily dependent on the U.S. market, with 61% agreeing their business cannot survive without access to it. Eighty-six per cent of manufacturers export goods outside Canada, and among exporters, 96% say their products are CUSMA-compliant, meaning they are not subject to tariffs.
“While tariffs are an obvious factor, Canadian manufacturers are making long-term decisions about where to locate based on a broader assessment of where they are most likely to have a competitive advantage,” said Joy Nott, Partner, Trade and Customs at KPMG Canada.
Future Investment Decisions
The study also noted that 80% of Canadian manufacturers plan to keep their headquarters in Canada. However, 11% plan to move their headquarters to the U.S. within the next five years.
“The greater risk isn’t where companies are today, but where future investment decisions are being made,” Gadia said. “Many manufacturers are pausing Canadian investments and reassessing where future growth and production capacity should be located.”
“Sustaining Canada’s manufacturing sector will require businesses to continue investing in productivity, technology and market diversification, while governments work to reduce uncertainty and improve competitiveness,” Gadia added. “The question now is whether Canada can create the conditions that give manufacturers the confidence to keep building, investing and staying here.”
