Energy and manufacturing are the twin pillars of the Canadian economy.
During the best of times, the Western pillar (energy) and the Eastern pillar (manufacturing) underpin economic growth, exports, employment, and generate spin-offs to sectors like housing, education, professional services, and non-profits to the benefit of all.
But these are not the best of times.
Both pillars are under immense pressure, creating deep uncertainty for not only the regions that depend directly on these mega-industries, but for our entire economic identity and global competitive positioning.
The Trump trade war has been so far more damaging to the auto, steel, and aluminum layers of the Eastern pillar than the Western energy side, but the outlook for the latter is far from clear.
The question of how to respond to the tariff threat is proving to be highly divisive. Some suggest that oil and energy are a “weapon” in the broader trade negotiation with the U.S. Yet what makes a good negotiating tool also might damage national economic strength and unity at the very time we need it the most, by pitting one pillar against another.
There is an urgent need to develop a national strategy that benefits both pillars. Manufacturing faces the most immediate threat, but a return to the “spirit of Sarnia” would link energy and manufacturing, West and East, more directly and set a path for a stronger, more resilient economy.
Why Sarnia? Many of us remember the old ten-dollar bill, with the Polymer Corporation petrochemical plant proudly represented. How apt given that petrochemicals represented then, and still represent now, the integration point between West and East, between the upstream oil and gas sector and downstream industries like plastics and automotive.
If we are going to be in a trade war, it is worth remembering that Polymer Corporation was also born as a wartime exercise during the Second World War. It was a crown corporation designated to supply a vital defence material, synthetic rubber, that happens to consume a lot of oil.
Today we are in a different war, but the principles of industrial policy and the opportunity for an East-West partnership in the energy-intensive manufacturing industries remain compelling.
With a federal election underway, the time is right for a national debate on the manufacturing-energy nexus. Bold thinking, a 21st-century equivalent of Polymer and other public-private partnerships, is urgently needed. The following questions might help frame the debate.
First, will the next government remain committed to last government’s green industrial strategy anchored by industries like solar, wind, hydrogen, and electric vehicles? The early returns are somewhat challenged by the bleak outlook for EV incentives in the U.S. and the struggles competing with the Chinese green industrial machine that dominates industries like solar and battery materials.
But if we are not going to double down on Biden-Trudeau green industrial policy, what is the alternative path? What will be the Canadian definition of advanced manufacturing? High tech, defence, and agribusiness all can contribute, but there is another candidate: materials and energy-intensive manufacturing.
In that vein, our second question should be: if there are going to be trade barriers making it more difficult to move our energy south, can those “stranded” oil, gas, and electricity resources incentivize a boom in energy-intensive materials manufacturing closer to home? Fertilizer, petrochemicals, cement, steel, aluminum, minerals processing, glass, and plastics are competitive global manufacturing and materials sectors where low-cost energy often makes the difference.
Europe and Asia need these materials just as much as the US. They want to source them from a politically stable, tariff-free jurisdiction. These sectors are also sources of innovation on multiple fronts, from finding lower cost pathways to compete with China to new technologies to minimize environmental impact. The materials industries of today must set a better environmental standard.
To be sure, it will also take a lot of work to address the workforce development, regulatory, and tax issues that are also critical to these sectors—to name but a few—but cheap abundant energy would be a tremendous head start.
That is certainly true for energy-intensive data centres, the darling of energy industry leaders and governments everywhere who understandably dream of selling natural gas or hydroelectricity to Google.
But data centres are not the only ones that would benefit from cheap energy. If anything, we need to be sure that new entrants from the tech sector do not strain the affordable energy supply for price-sensitive households and trade-exposed industries.
A third question is access to capital. What is the fate going to be for the Strategic Innovation Fund, Canada Growth Fund, and similar programs? What is a potential role for our world-leading pensions and infrastructure funds to work with governments and industry on a new manufacturing strategy? This type of industrial policy is sometimes dismissed as corporate welfare or picking winners, but it is nonetheless critical to explore at a time when the U.S. is obsessed with reshoring and reindustrialization, while China is reaping the rewards of its state capitalist “Made in China 2025” plan, while getting ready for the sequel.
President Trump has laid down the economic gauntlet, but it is up to Canadian voters to decide how we respond. Hopefully, the campaign will be an opportunity for a new vision on not only how to make our energy and manufacturing sectors stronger, but also a moment for a plan showing how they can be even better working together.
