Branch plant economy

The branch plant economy is the phenomenon of United States companies building factories (branch plants) in Canada, primarily to sell products in the Canadian market. In the period between the American Civil War (early 1860s) and World War I, U.S. companies began to look to Canada as a new market. The branch plants built in Canada were strictly under American rule. Canadian tariffs on imported products led U.S. companies to build factories in Canada, in effect bypassing the tariffs.

Some economists are concerned that this phenomenon means that Canada's manufacturing base may be too reliant on outside expertise and resources, and that it may lead to proportionately less research and development spending in Canada. Additionally, the degree to which Canadian manufacturing in particular is directed from outside of the country has raised concerns that it is more difficult to direct economic priorities in the interests of Canadians.

An upsurge of Canadian nationalism in the 1960s and early 1970s led the Liberal governments of Lester Pearson and Pierre Trudeau to implement policies aimed at regulating foreign investment. The views of Walter L. Gordon were especially influential in the 1960s. Further left, the Waffle emerged in the New Democratic Party on a program based on Canadian economic nationalism and independence. These developments led to measures such as the creation of Petro-Canada, a government-owned oil and gas company, implemented by the Trudeau government in the mid-1970s to increase Canadian control over the oil industry. The crown corporation was created as one of the demands of the NDP in exchange for their support of Trudeau's minority government. Trudeau also established the Foreign Investment Review Agency to regulate foreign investment in the economy and limit the takeover of Canadian-owned companies by foreign multinational corporations.

The election of Brian Mulroney's Progressive Conservative government in the 1984 election brought this period of economic nationalism to an end. Mulroney's government dismantled FIRA and moved to privatize Petro-Canada. The Mulroney government's negotiation and implementation of the Canada-US Free Trade Agreement resulted in increased economic integration between the US and Canada, and was opposed by economic nationalists in the 1988 election.

The Canada-US FTA, the North American Free Trade Agreement and the World Trade Organization may bring branch plants to an end as the elimination of many tariffs and trade controls makes it much easier for a foreign supplier to sell in the Canadian market without having a branch plant in the country. Numerous plants, particularly in the textile and manufacturing sector, have shut down and moved to Mexico or other countries with lower wages and costs of production.