Canada’s manufacturing sector & excessive regulations

 \Canada’s manufacturing sector, a cornerstone of the nation’s economy, is grappling with significant challenges that threaten its long-term vitality.

Economists at the National Bank of Canada point to excessive regulation as a primary driver of the sector’s decline, describing it as a “profound atrophy” that has weakened the country’s industrial base.

Also, the Fraser Institute has addressed Canada's regulatory overburden, arguing that excessive regulations stifle economic growth and deter business investment. Their analysis suggests that reducing regulatory complexity could help improve economic prosperity.

Remarkably, as an example, Canada’s manufacturing output has been surpassed by Ireland’s, a nation with just one-eighth of Canada’s population, underscoring the severity of the issue.

This erosion stems from a combination of regulatory overload, declining competitiveness, and external pressures like trade uncertainties, all of which have created a complex and often stifling environment for manufacturers.

Financial Post article cites a 37% rise in total regulatory requirements across all sectors from 2006 to 2021, totaling over 300,000.

This continuing escalation, felt at federal, provincial, and municipal levels, has been cited as a major barrier to growth and investment. Manufacturers face a labyrinth of compliance demands, with 71% reporting federal regulations and 62% citing provincial ones as increasingly burdensome over the past three years.

These regulations slow down operations, delay permit approvals, and raise costs, making it harder for Canadian firms to compete globally. Compared to jurisdictions like the United States, Canada’s higher labor and energy costs, coupled with less competitive taxation, further erode its appeal as a manufacturing hub.

Small businesses, in particular, bear the brunt of these challenges, as they lack the resources to navigate complex regulatory landscapes.

 The impact of this regulatory accumulation is measurable:

-Between 2006 and 2021, it contributed to a 1.7 percentage point decline in GDP growth and a 1.3 percentage point drop in employment growth in the business sector.

-Innovation, especially in emerging fields like plant-based ingredients, suffers as regulatory uncertainty discourages risk-taking and delays product development.

-Some firms, deterred by the complexity, choose to bypass the Canadian market entirely. Adding to these domestic challenges are external pressures, notably trade uncertainties stemming from U.S. tariffs and shifting policies.

-The deeply integrated Canada-U.S.-Mexico supply chain, particularly in the auto industry, faces investment uncertainty and job losses, with Ontario’s manufacturing sector hit especially hard.

In response, industry advocates like Canadian Manufacturers & Exporters are pushing for sweeping regulatory reform, including the creation of a dedicated “Minister of Regulation and Red Tape Reduction” to prioritize economic growth.

Some progress is evident at the provincial level. British Columbia’s “Manufacturing Action Plan” aims to bolster competitiveness through regulatory review, while Ontario has taken steps to cut red tape and foster “smart regulations.”

Nationally, the government under Mark Carney has introduced measures to address these challenges, including a $2 billion Strategic Response Fund to enhance competitiveness, protect jobs, and support worker upskilling.

Carney’s administration is also promoting an “All-in-Canada” auto manufacturing network to boost domestic production and reduce reliance on cross-border supply chains.

Efforts to streamline regulations include fast-tracking approvals for major resource projects, aiming to reduce wait times from five years to two, and removing interprovincial trade barriers to facilitate smoother operations.

However, the effectiveness of these initiatives remains uncertain. Industry analysts question whether these measures will gain sufficient support from stakeholders, including Indigenous groups, to drive meaningful change.

While the government emphasizes leveraging Canada’s abundant natural resources, such as steel, aluminum, and critical minerals, to strengthen manufacturing, the path forward requires balancing economic ambitions with practical implementation.

As Canada’s manufacturing sector navigates these challenges, the need for a streamlined, growth-oriented regulatory framework has never been more urgent.

 

SP

 

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