In the second half of 2024, manufacturers in the U.S. and Mexico were in contraction according to PMI readings while Canada showed continual expansion. The Purchasing Managers’ Index (PMI) is based on a survey of private sector executives and measures the health of the economy. Canada has scored in expansion territory (greater than 50 percent) since September while the U.S. and Mexico have been declining (less than 50 percent). The U.S. finally showed signs of recovery in 2025 with a reading over 50 percent with Mexico still trailing.

What is Canada doing well and how will tariffs impact progress? Canadian manufacturing employs almost two million people and is around 10 percent of Canada’s GDP. However, when excluding energy trade, the U.S. runs a trade surplus with Canada. Canada’s largest exports excluding energy include chicken eggs, SUV and light truck manufacturing, aircraft, engine and parts manufacturing and mineral and phosphate mining. Although Canada is a large trading partner with the U.S., it is number two behind Mexico. On the other hand, Canada is the most important hub for U.S. exports

Canada plays a crucial role in supporting U.S. supply chains, particularly in critical industries. For example, Canada has an abundance of natural resources essential to the North American battery supply chain. Among the 50 critical minerals identified by the U.S., 84 percent are imported, with China supplying over half of them. However, Canada also contributes significantly, providing more than 50 percent of key minerals such as zinc, tellurium, nickel and vanadium.

Beyond minerals, Canada is deeply integrated into U.S. automotive supply chains. According to the Congressional Research Service, North American auto parts cross the borders of Canada, the U.S. and Mexico as many as seven to eight times before a vehicle reaches final assembly.

Foreign direct investment (FDI) has grown since the pandemic in Canada. The U.S. has led the way although other countries such as the United Kingdom, Japan and Germany have invested as well. Canada expects to gain from the push to renewables with its robust supply chains. Canada has a skilled workforce, access to natural resources and comparably affordable utilities. Thus, Canada is less dependent on the U.S. than Mexico.

Mexico’s Manufacturing Follows the U.S.

Since Mexico is the U.S.’s top export market but imports significantly less in return, it remains highly dependent on the U.S. market. Thus, as the U.S. manufacturing activity decreased, Mexico’s declined as well. Both were below 50 percent PMI readings, for the last six months. However, the most recent data shows Mexico lagging behind expansion in manufacturing for the U.S. That is most likely due to concerns surrounding tariffs. China has been heavily investing in Mexico’s manufacturing capabilities and backed off as tariffs became more likely.

What Is Likely to Occur with Tariffs?

There is a case to be made that U.S. President Donald Trump is using tariffs as a negotiating tool. Although he talked about moving forward with 25 percent tariffs with Canada and Mexico, both were postponed for a month. Since Trump appears to be more concerned about the borders and geopolitical risks, tariffs may have a minimal impact on North America — assuming the countries work collaboratively to mitigate those risks and develop win-win strategies supporting manufacturing growth.

What is the Future of North American Manufacturing?

Manufacturing in North America has vast potential as regional manufacturing growth gains steam. If the geopolitical risks associated with China ramp up and national security concerns in North America are heightened, reshoring, nearshoring and regional manufacturing will gain momentum. Considering the strengths of Canadian natural resources and integrated supply chains, the U.S.’s ability to produce at scale and Mexico’s lower labor costs, the region could become a manufacturing powerhouse with a combined, cohesive strategy. Regional manufacturing would dramatically shorten lead times and provide improved customer service levels. Given this advantage, the region could better respond to changing conditions more quickly. Since China is the world’s largest manufacturer, even small gains in the region could be substantial.

As energy becomes a dominant factor in the expansion of artificial intelligence and automation becomes vital in the growth of manufacturing with limited resources, North America is well-positioned for success. Since the U.S. economy is robust, the demand could push a collaborative region to unparalleled growth. Canada has significant energy and natural resources, and the U.S. has huge opportunities to expand its use of energy, powering its economy with exports to Europe and other countries. Mexico has been the dominant player in lower-cost manufacturing and has surpassed China as the U.S.’s number one trading partner. Mexico can leverage this expertise and ramp up quickly to support the region.

Originally published in Brushware Magazine, March/April 2025

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