Canadian manufacturers are seeking government protection from U.S. tariffs as the countries’ cross-border trade war begins to escalate, KPMG reports.

According to a new KPMG survey of 154 Canadian manufacturing company CEOs, 54% would consider shifting some production to the U.S. and only half are confident that they can withstand a trade war lasting more than a year.

“This isn’t just an existential threat to our domestic manufacturers but to the very heart of manufacturing itself,” said Tammy Brown, KPMG in Canada’s national industry leader for industrial markets. “Under free trade, manufacturers achieved hard-won operational efficiencies that tariffs will unravel, impacting economies of scale, disrupting highly integrated supply chains, increasing production costs and setting off wider economic repercussions, including job losses and higher inflation.”

With the U.S. as Canada’s dominant trade partner—accounting for 80% of the country’s manufacturing exports—many firms are scrambling for ways to mitigate the impact of tariffs. More than three-quarters (76%) of respondents say eliminating interprovincial trade barriers is vital to survival, and 92% expect governments at all levels to take decisive action to expand domestic trade.

Beyond shifting operations, some manufacturers may consider applying for tariff remission from the federal government, according to KPMG. The federal program offers tariff relief and, sometimes, full refunds.

“The industry proved during COVID that they can handle adversity and pivot,” said Alison Glober, a management consulting partner and KPMG’s national manufacturing sector leader. “They will need the same resolve today and evaluate all options.”

She emphasized that businesses should consider diversifying markets, conducting strategic operational reviews, and finding efficiency improvements.

Six in 10 manufacturers believe the low Canadian dollar could offset some tariff impacts, though it also raises the cost of imported machinery and equipment. Meanwhile, 96% of respondents are concerned about losing U.S. customers, and 46% reported already reducing production or laying off employees as of February.

Amid the uncertainty, manufacturers are in “survival mode” and calling for a bold national economic strategy to reduce reliance on the U.S. and bolster infrastructure to improve access to alternative markets, said Brown. Even if the tariff battle were to end tomorrow, Canadian manufacturers would still be vulnerable to the unpredictability of U.S. trade policies.

“Instead, they want Canada to focus on building out a west-east-north infrastructure with pre-approved industrial zones to make it easier to sell within Canada and ship abroad to foreign markets,” she said.

KPMG’s report comes after Canadian Manufacturers & Exporters (CME) called in January for the federal government to introduce investment incentives and tax relief as U.S. President Donald Trump’s threat of sweeping U.S. tariffs puts the country’s industrial base at risk.

CME President and CEO Dennis Darby urged Ottawa to take a proactive approach by introducing incentives that encourage manufacturers to proceed with planned investments and reshore production to Canada. According to a survey, almost half (45%) of CME members expect to cancel or delay planned capital investments if Trump followed through on his threat.

A vast majority of manufacturers surveyed by KPMG want the federal government to fight the U.S. with counter-tariffs and a targeted dollar-for-dollar response.

The federal government has indicated that it could provide financial support to manufacturers and industries similar to aid offered during the COVID-19 pandemic. But significant measures would likely require legislation that cannot be passed until Parliament resumes sitting, probably later than Monday’s scheduled resumption date.

According to multiple reports Thursday, new Prime Minister Mark Carney intends to call a snap election Sunday for an April 28 vote.

Pictured: Manufacturing plant in Burlington, Ont.

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