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Is Canada Losing Out To US And Mexico On Nearshoring Boom?

Is Canada losing out to US and Mexico on nearshoring boom?

Is Canada losing out to US and Mexico on nearshoring boom?

Since 2021, the U.S. and Mexico have attracted a wave of high-tech factories related to gas-powered cars, electric vehicles and chip manufacturing, while Canada has attracted only a few. (Photo: Shutterstock) Canada scored a major victory earlier this year when German automaker Volkswagen announced that it was building a $14 billion battery plant for electric vehicles in St. Thomas, Ontario. Slated to open in 2027, the Volkswagen EV battery factory will be the first of its kind in Canada. “With this historic project, we’re not just bringing back manufacturing, we’re bringing back a strong, thriving economy for this community,” Prime Minister Justin Trudeau said during a news conference in St. Thomas on April 21. “We’re delivering a national anchor for Canada’s electric vehicle supply chain.” Canada outbid the U.S. and other locations to secure the Volkswagen EV battery plant, which will create more than 3,000 direct jobs and could bring in about $150 billion to the Canadian economy, Trudeau said. Yet the Volkswagen plant is one of the country’s few major successes in attracting billion dollar manufacturing plants in recent years. While parts of the U.S. and Mexico have benefited from unprecedented interest in reshoring and nearshoring of high-tech manufacturing because of shifting supply chain strategies, the movement hasn’t progressed as quickly in Canada. “There is very little activity, or at least very little written, about reshoring to Canada,” Rosemary Coates, founder and executive director of the Reshoring Institute , told FreightWaves. “While labor is less expensive in Canada versus the U.S., labor is way cheaper in central Mexico. That is where companies are interested in moving to now.” Workforce, wages and automation keys to attracting megafactories Since 2021, the U.S. and Mexico have attracted a wave of high-tech factories related to gas-powered automotives, electric vehicles and semiconductor manufacturing. More than 50 EV battery plants alone are slated to open in the U.S. and Mexico by 2030 , according to data from the U.S. Department of Energy. States such as Kentrucky, Tennessee, Georgia, Michigan, Arizona and Texas are expected to see the highest growth in EV battery manufacturing capacity in the next decade. Over the last two years, Arizona, Kansas, Ohio, Texas and other U.S. locations have also attracted EV makers and semiconductor manufacturers , such as Tesla, Lucid Motors, Samsung, Intel, Taiwan Semiconductor Manufacturing Co. and Panasonic. South of the border, nearshoring has been a boon to Mexico, with officials attributing more than $30 billion last year in foreign direct investment in the country from businesses looking to move their manufacturing operations closer to customers. “Mexico has attracted between 75 and 100 U.S., Canadian, Chinese, Korean and Japanese companies, which have moved or expanded their operating plants in the country [in 2022],” Sergio Arguelles, president of the Mexican Association of Private Industrial Parks, said during a recent episode of the Norte Economico podcast. Arguelles said most of the manufacturing companies arriving in Mexico are part of the automotive, electronics, industrial machinery, furniture and textile industries. The next decade could see even more nearshoring movement into Mexico, with some analysts predicting between $60 billion and $150 billion flowing into the country from new manufacturing operations, according to a report from the Brookings Institution . In comparison, Canada lost about $13 billion during the past few years due to a nationwide labor and skill worker shortage in the manufacturing sector, according to an October report from the Canadian Manufacturers & Exporters Association (CME). Experts said the Canadian government needs to be more proactive in securing investments in areas where it has advantages, such as supplies of lithium used for electric vehicle batteries. (Photo: Grace Sharkey/FreightWaves) “More than 90% of Canadian manufacturers are small businesses and play a crucial role in the supply chain of larger companies,” Dennis Darby, CME president and CEO, said in a statement . “We need more targeted government support for these companies to help accelerate technology adoption in our manufacturing sector or risk our economic competitiveness and standard of living.” Coates, who founded the Reshoring Institute in 2014, said several factors have helped Mexico and the U.S. attract more manufacturers back to North America, including automation, labor costs, labor productivity and a need to diversify supply chains. The Reshoring Institute is a nonprofit and nonpartisan organization aimed at helping companies decide where they should manufacture, with a focus on bringing production back to the U.S. “When we’re talking about reshoring, particularly to the U.S., you have to talk about automation, because by automating processes you improve […]

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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