Industrial strategies across the world are being recast through the prism of economic security, and Canada is unmistakably part of that transformation. In an era marked by geopolitical rivalry, technological fragmentation, and increasingly brittle global supply chains, governments have grown acutely aware that concentrated dependencies can create significant vulnerabilities. Economic security – defined as the capacity to ensure stable access to the goods, technologies, skills, and infrastructures essential to a country’s economic functioning – has thus emerged as a central policy priority in today’s turbulent global economy.
But urgency must not override coherence. As Canada recalibrates its industrial strategy to address rising economic-security risks, it needs clear principles and a disciplined institutional framework. A well-crafted security-focused strategy should strengthen resilience without undermining the openness, dynamism, and global connectedness that underpin long-term prosperity. In this regard, the measures outlined in Prime Minister Carney’s 2025 Federal Budget mark a meaningful turn, though they remain an incomplete response to the scale and nature of the challenge.
The global rise of a security mindset
The security orientation of Canada’s new industrial strategy is woven throughout Budget 2025. The government frames its agenda as a move away from dependence on a single dominant trading partner – the United States – toward a more diverse and shock-resistant economic architecture. Flagship initiatives including the Trade Diversification Corridor, enhanced critical-mineral capabilities, a Buy Canadian procurement framework, and targeted support for sectors vital to national resilience are all consistent with the pivot toward security-motivated industrial policy.
Canada’s repositioning is part of a broader global realignment. A sweeping study by Simon Evenett and collaborators, covering more than 34,000 industrial policy interventions across 75 economies since 2009, documents a decisive structural break starting in 2020. The volume of new industrial policy interventions nearly doubled following the pandemic, led by the world’s major economies. Perhaps more importantly, the rationale behind these policies has shifted: whereas industrial policy in the 2010s focused primarily on innovation, green growth, and productivity, the post-2020 landscape is dominated by concerns about resilience, strategic dependence, and economic security.
This global trend is visible across advanced democracies. The United States’ CHIPS and Science Act, the European Union’s Green Deal Industrial Plan, Japan’s semiconductor-reshoring subsidies, Korea’s strategic-technology protection efforts, and Australia’s critical minerals strategy all blend conventional industrial tools with a new emphasis on friendshoring, onshoring, and strategic diversification.
Why security concerns must be taken seriously
Some observers interpret the rise of economic security as political theatre or thinly veiled protectionism. That view fundamentally misunderstands the structural fragilities embedded in contemporary global production networks. The production of some portions of strategically essential supply chains – such as semiconductors, battery components, health technologies, and critical minerals – are dominated by a limited number of countries or even a single jurisdiction. These concentrations may create chokepoints: segments of the value chain where substitutes are scarce, switching costs are high, and dependency generates strategic leverage for the country controlling the chokepoint.
Recent experience shows how swiftly that leverage can be weaponized for geopolitical purposes. In 2019, a diplomatic rift between Japan and South Korea prompted Tokyo to impose export controls on high-purity chemicals essential to Korean semiconductor and display production. Because Japan effectively dominated the global supply of these inputs, Korean firms had limited alternatives, revealing the depth of their dependence.
A comparable dynamic unfolded in 2020 when the United States tightened export controls on advanced semiconductors. By capitalizing on its global lead in chip design and electronic design automation tools, Washington restricted the sale of advanced chips and manufacturing equipment to firms listed on its Entity List if those products incorporated U.S.-origin technology. The goal was clear: protect America’s technological leadership and slow China’s ability to develop an independent advanced semiconductor ecosystem.
These cases underscore a simple truth: chokepoints are not simply hypothetical vulnerabilities. They are active tools of international statecraft. As geopolitical competition intensifies, the likelihood that supply chain dependencies will be exploited for strategic advantage increases. Governments that ignore these risks do so at their own peril.
Importantly, however, taking economic-security risks seriously does not require retreating from global markets or embracing protectionism. It requires careful diagnostics: identifying where vulnerabilities are material, when de-risking is essential, which strategic strengths Canada should reinforce, and how international cooperation can mitigate shared risks. A narrow, evidence-based industrial strategy is the only way to reconcile resilience with economic openness.
Canada should pursue resilience not through withdrawal from global markets, but by building smarter, more secure, and more strategically diversified connections with the world through select and limited industrial policies.
A 5P Strategy for Canada
To balance these competing demands, I have in a recent paper co-authored with Seungjoo Lee and Milad Shirvani proposed a 5P strategy built around five mutually reinforcing pillars: Pursuing trade liberalization, Protecting against chokepoints, Promoting strongpoints, Partnering internationally, and Pinpointing emerging risks. Collectively, they offer a principled framework for aligning economic efficiency with national resilience.
Pillar I: Pursuing Trade Liberalization
For the vast majority of goods, international trade and global supply chains pose limited to no economic security risks—and often even enhance resilience. Global value chains provide firms with multiple sourcing options, enabling them to shift production, re-route logistics, or renegotiate contracts in response to exchange-rate swings, tariffs, natural disasters, or geopolitical disruptions. This “flexicurity”—the combination of flexibility and security embedded in diversified supply relationships—is one of the defining advantages of an open trading system.
Trade is therefore foundational not only to Canada’s prosperity but also to its economic security. A resilient industrial strategy cannot rest on isolation, reshoring, or overcorrection. It requires deeper integration with diversified and reliable global markets. Open trade enables specialization, reduces costs, supports innovation through access to world-class inputs, and diffuses risk across borders rather than concentrating it domestically.
For these reasons, Canada’s industrial strategy must treat trade and globalized supply chains not as a vulnerability but as a strategic asset. The Trade Diversification Corridor that is central in Budget 2025 moves in this direction. The Buy Canadian Act, by contrast, risks sacrificing openness without delivering meaningful resilience.
Pillar II: Protecting Against Chokepoints
A security-driven industrial policy is warranted where Canada’s ability to deliver essential goods and services is threatened by chokepoints—highly concentrated, non-substitutable stages in supply chains that are especially vulnerable to disruption or coercion. Not every dependency merits intervention (should we truly care about chokepoints in the toy sector?), but when a single country or firm controls an indispensable input for products that are deemed strategic (say vaccines), the risks of coercion, cascading shortages, or prolonged economic disruption become significant.
Canada must therefore invest in rigorous mapping of the global supply chains of strategic sectors to identify existing or emerging chokepoints, assess the likelihood and severity of disruption, and deploy precise industrial policy tools to mitigate exposure. In some cases, diversification of international suppliers will suffice; in others, limited domestic production, targeted stockpiling, Early Warning Systems, or investment screening may be appropriate. The goal is not self-sufficiency but shock proofing – targeted interventions that address genuine vulnerabilities while preserving the efficiency and openness that drive long-term growth.
The 2025 Budget identifies support for strategic sectors – from the auto industry, to steel and aluminum, to forestry and agriculture – but more information is needed on why these are considered strategic and which security concerns are attempted to be de-risked.
Pillar III: Promoting Strongpoints
Canada is not only exposed to chokepoints that endanger its economic security; it also possesses strongpoints – segments of strategic supply chains where Canada plays an indispensable role for other countries. These include critical mineral resources, energy systems, advanced manufacturing capabilities, agri-food assets, and specialized medical and clean-technology capacities. These strongpoints are not simply economic assets; they confer strategic leverage to Canada in international negotiations and economic diplomacy.
Building up our strengths in these strongpoints requires identifying where Canada holds unique advantages in strategic sectors and reinforcing those positions through targeted investments in production capacity, innovation ecosystems, and value-added processing. Strengthening strongpoints enhances Canada’s bargaining power, improves our economy’s complementarities with other nations, and bolsters both domestic resilience and international influence. The 2025 Budget’s focus on strengthening critical minerals capacities is an excellent example of an industrial policy to promote strongpoints.
Pillar IV: Partnering Internationally
Because supply chains operate across borders, no country – least of all a middle power like Canada – can secure resilience alone. International partnerships are essential for coordinating risk monitoring and early-warning mechanisms, pooling resources for critical infrastructure and strategic technologies, and aligning standards for sustainability, traceability, and cybersecurity.
Canada should deepen cooperation with trusted partners, including the United States (if possible), the European Union, Japan, Korea, and key Indo-Pacific economies. Such collaboration is vital for reducing reliance on adversarial suppliers, securing access to critical minerals and advanced technologies, and shaping global norms in ways consistent with Canadian interests.
Pillar V: Pinpointing Emerging Risks
Resilience depends on foresight. The pandemic exposed the heavy costs of reactive crisis management. Canada must invest in advanced capabilities to monitor, model, and anticipate supply-chain disruptions in real time. This includes strengthening national data infrastructure, developing supply-chain mapping and scenario-modelling systems, and conducting public-private stress tests similar to those used in the financial sector. A national supply-chain observatory, anchored in public-private partnerships, would institutionalize these practices and support evidence-based policymaking.
Conclusion
Canada needs a resilience-focused industrial policy. But it must remain narrow, targeted, and grounded in clear principles. A strategy that tries to harness international trade and global supply chains across the board risks diluting focus, undermining competitiveness, and misallocating resources. A disciplined approach – rooted in the 5P framework and focused on chokepoints, strongpoints, international partnerships, and strategic foresight – can bolster Canada’s economic security while preserving the openness and efficiency essential to long-term prosperity.
In short, Canada should pursue resilience not through withdrawal from global markets, but by building smarter, more secure, and more strategically diversified connections with the world through select and limited industrial policies. Canada’s economic strategy presented in the 2025 Budget has taken steps in the right direction, but remains incomplete.