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Big changes are coming to the global economy and the stakes are high for Canada. Over many decades, we have built a successful, export-oriented economy where our largest-value goods exports are oil and gas, metals and minerals, and autos – all of which are primarily destined for the U.S. market. 

But these sectors and our entire trading relationship with the United States face significant uncertainty over the next decades as the world undergoes a reordering of trade patterns and a realignment of markets in the face of the rise of artificial intelligence, a changing climate, the global energy transition and U.S. tariffs. 

How Canada fares will depend largely on private companies. Those that anticipate, innovate, adapt and prepare will thrive, while those that stagnate will struggle. 

Governments can help by encouraging choices that are in our collective national strategic interest. Industrial policy – where governments deliberately support certain economic activities and outcomes – is an increasingly important tool. 

However, to achieve results and maintain public trust, industrial policy needs to be designed and executed using the highest standards of excellence. Fortunately, we have years of experience and a growing body of research to give us a better idea of what to do. That’s critical because for every success story, there is an example where industrial policy went wrong.  

Significant structural change in the global economy 

The rise of artificial intelligence will increasingly influence the global competitiveness of companies and countries. While there are growing opportunities in the development of AI products, the overall adoption of AI is equally important, including in stalwart Canadian economic sectors such as agriculture, oil and gas and auto manufacturing.  

As Evan Solomon, Canada’s first minister of artificial intelligence and digital innovation, said at an event in Montreal this summer, “Countries that master AI will dominate the future. You’re either part of the bulldozer or you’re part of the road.” 

IRPP conference | Canada’s Next Economic Transformation: Industrial Policy in Tumultuous Times 

Only targeted industrial policy will fulfil Canada’s value-adding potential  

Industrial policy and Canada’s uncertain future 

AI isn’t the only area where the global economy will face disruption. Climate change is set to play a growing role in supply chains and goods production. As drought, floods, fires and storms increase in frequency and intensity, companies will face growing challenges with their operations and with securing feedstocks, water and other supplies. 

Forestry, pharmaceuticals, chemicals and mining top the list for exposure to physical climate risks. If the pace of action to reduce emissions doesn’t accelerate, losses could reach eight per cent of global GDP by 2050. Companies and countries with strong adaptation strategies will fare better than those that don’t. 

The global energy transition also remains underway, despite backtracking in the U.S. While there is debate about the pace at which demand for fossil fuels will decline, there is general agreement on a downward trajectory over the rest of this century. 

Change may not come with a gradual price decline as some are envisioning. Instead, it could involve an extended period of volatility with mismatches between supply and demand leading to sudden price spikes and crashes that disrupt oil and gas producers as well as consumers. 

Clean energy and electric vehicles may also face periods of volatility as companies struggle to predict demand in an environment of shifting government policies

The energy transition continues to drive change in other markets as well, such as growing demand for the critical minerals needed for batteries and renewable energy. Making the right bets with the right timing will be critical, given the role energy and mineral sectors play in our economy.  

The cost of underinvestment  

Understanding trends underway is one thing, but doing something about them is another. Unfortunately, Canada has lackluster private sector investment in critical areas, such as AI adoption, clean technology adoption, technology commercialization, adaptation to climate change and critical mineral development

Without significant action, Canada could slip out of the Top 10 global economies and see a declining standard of living in the coming decades. 

It would be easy to blame the private sector, but companies often have good reasons to delay investment. Those facing an uncertain trading relationship with the U.S. may be making the right call in putting off investments in automation or AI adoption. China’s dominance of critical mineral markets keeps prices too low or uncertain to spur major investments in mining or processing.  

What can be done to overcome near-term barriers to private investments that are in Canada’s long-term national interest? That’s where smart industrial policy can play a key role.  

Private investment in the national interest 

Canadian governments are already actively using industrial policy to drive private investment toward certain activities, such as trade infrastructure, technology commercialization, critical mineral development or agricultural technology adoption.  

The governments are using tools such as investment tax credits, targeted procurement, contracts for difference, offtake agreements, below-market loans and more. The goal is to reduce the barriers holding back private investment in strategic areas and to design a policy that works at the least cost to the taxpayer.  

The use of industrial policy is likely to increase as governments seek to secure a foothold in new global markets, retain high-potential companies and improve lagging productivity. But given the stakes involved, it will be critical that governments do more to ensure they get industrial policy right. 

Canadian governments could learn from Australia’s approach. 

For example, when it introduced its critical minerals production tax incentive in 2024, the government published an impact analysis that analyzed the policy problem which the tax was aimed at solving; the barriers the private sector faced; the sufficiency of government intervention; and the need for additional government intervention, with a cost-benefit analysis of three policy options. 

It also listed a series of success metrics to ensure that the policy has the intended long-term effect.  

This type of analytical rigour and transparency could go a long way toward delivering industrial policy excellence and improving public confidence in the ability of Canadian governments to deliver results.  

Choosing to be the bulldozer requires a smart strategy 

Structural changes to the global economy are coming. If Canada wants to maintain its place as a Top 10 global economy, governments will need bold industrial policies that enable Canadian companies to seize opportunities. 

But those policies need to be smart, with careful design and implementation that achieve results without breaking the bank. Now is not the time for big announcements with little follow-through. Canada needs thoughtful, deliberate policy interventions backed by analysis and skilled teams to ensure smooth implementation. 

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Rachel Samson photo

Rachel Samson

Rachel Samson is the vice president of research at the Institute for Research on Public Policy. Previous to her current role, she was clean growth research director at the Canadian Climate Institute. Rachel also spent 15 years as an economist and executive with the federal government, and five years as an independent consultant. Twitter @rachel_e_samson

You are welcome to republish this Policy Options article online or in print periodicals, under a Creative Commons/No Derivatives licence.

Rachel Samson photo

Rachel Samson

Rachel Samson is the vice president of research at the Institute for Research on Public Policy. Previous to her current role, she was clean growth research director at the Canadian Climate Institute. Rachel also spent 15 years as an economist and executive with the federal government, and five years as an independent consultant. Twitter @rachel_e_samson

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