As the threat of Donald Trump’s tariffs looms (again), Canada’s governments have vowed to protect the country’s most affected industries. Doug Ford promised to protect auto jobs in Ontario. The Bank of Canada predicts that tariffs would reduce Canada’s GDP by 2-3% in the first year alone, with another 1.1% to 1.5% drop in the next year. Canadian governments have vowed to eliminate inter-provincial trade barriers to support the economy. However, they have another tool at their disposal: Canada’s governments can encourage Canada’s economy to be more productive.
Research from the Centre for the Study of Living Standards (my first employer after university) points out that it won’t be as easy as encouraging investment. Weak multifactor productivity (MFP) growth – a measure of the efficiency that businesses use all inputs – primarily explains Canada’s lagging productivity. MFP growth is driven by a diverse range of factors including:
- Economies of scale
- Labour composition (education level and skills)
- Regulation and administrative barriers
- Adoption and availability of technology
- Management and organizational structure
- Economic network effects
Canadian governments could target reforms to Canada’s most important input industries. According to the CLIO Model, a 4.2% to 6.1% MFP improvement across Canada’s top twenty input industries1 would be enough to offset the impact of Trump tariffs.
Certainly, some industries have more room for improvement than others. As TD noted in September 2024, Canada’s construction productivity is at a 30-year low. Canada’s telecommunications industry, on the other hand, has been a bright spot for productivity but red-tape barriers remain. Canada’s trucking industry faces different challenges. Trucking in Canada faces a driver shortage and drivers experience high turnover, reducing productivity.
Contact Eric, if f you are interested in learning how Envelope Economics and the CLIO Model can evaluate your industry or company’s impact.
1Canada’s top twenty input industries (out of the 234 identified by Statistics Canada) include:
- Petroleum refineries
- Oil and gas extraction (except oil sands)
- Repair construction
- Truck transportation
- Banking and other depository credit intermediation
- Lessors of real estate
- Architectural, engineering and related services
- Computer systems design and related services
- Financial investment services, funds and other financial vehicles
- Support activities for transportation
- Offices of physicians
- Crop production (except cannabis, greenhouse, nursery and floriculture production)
- Electric power generation, transmission and distribution
- Animal production (except aquaculture)
- Insurance carriers
- Plastic product manufacturing
- Architectural and structural metals manufacturing
- Management, scientific and technical consulting services
- Machinery, equipment and supplies merchant wholesalers
- Telecommunications
Envelope Economics 
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