Forty-two percent of Canadian manufacturers have either transitioned production to the US or are thinking to do so in response to current trade volatility and rising pressure from competition.
Twenty-nine percent have already shifted some or all production, while 13 percent are making plans. Seventy-seven percent are expecting to relocate within two years. While 80 percent of Canadian manufacturers expect to remain headquartered in Canada, 11 percent are considering moving their bases to the US in the next five years.
This choice is driven by the desire for free trade certainty, tariff relief and remissions for US imports, corporate tax reduction, cost of living and housing affordability improvement, access to cheaper energy, and skilled worker access.
Economic uncertainty and trade and tariff concerns have spurred 57 percent of manufacturers to halt, reduce, or cancel capital expenditure projects; of these, 36 percent scaled back, 12 percent halted, and 9 percent cancelled. Forty-two percent have either pulled back or cut spending on research and development, with 27 percent scaling back and 15 percent pausing.
Fifty-two percent of Canadian manufacturers reported working on “endurance mode.”
“Last year, the conversation was about survival. This year, it’s about endurance. Manufacturers have shown incredible resilience, adapting to tariffs and uncertainty to navigate this period of heightened volatility. But businesses can only operate in endurance mode for so long,” said Anamika Gadia, national leader of industrial markets at KPMG Canada, in a statement. “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.”
Gadia noted that if Canadian manufacturers depart the country, it could significantly affect the local economy as the manufacturing sector accounts for over 10 percent of Canada’s GDP.
While endurance is a factor, the decision to relocate is also driven by Canadian manufacturers’ reliance on the US market. Sixty-one percent of manufacturers indicated that their businesses would wilt without this market.
Among the 86 percent of manufacturers exporting products outside Canada, 96 percent reported that their goods complied with the Canada-United States-Mexico Agreement, which would exempt them from 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, trade and customs partner at KPMG Canada. “The June 3, 2026 White House Executive Order on Strengthening Customs Enforcement creates another reason for companies to consider relocating production to the U.S."
The order requires that foreign-headquartered companies, including Canadian businesses, must maintain a minimum level of tangible US assets to import products under their own name.
"Otherwise, Canadian exporters may have to depend on U.S. customers to act as importer of record, potentially straining key commercial relationships,” Nott said.
CUSMA is presently being discussed, and according to Gadia, the government’s action on overall competitiveness, taxation, regulations and trade will determine the future of manufacturing investment in Canada.
KPMG Canada obtained responses from 275 Canadian manufacturing companies between May 11-29 for its manufacturing survey.