The Rise of Economic Nationalism in Canada: Protecting Local Industries

Canada’s economic history is, in many ways, a story of a nation constantly negotiating its independence. Flanked by a powerful southern neighbour and deeply integrated into global trade networks, Canada has repeatedly asked a difficult question: who actually controls our economy? The answer to that question gave rise to economic nationalism – a set of policies designed to keep Canadian industries, resources, and decision-making in Canadian hands. From John A. Macdonald’s 19th-century tariffs to Pierre Trudeau’s regulatory agencies of the 1970s, the push to protect local industries has shaped Canada’s economic identity in lasting ways.

What is economic nationalism?
The foundations: Macdonald’s National Policy (1879)
Regional costs of protectionism
The 20th century: growing fears of foreign ownership
The Watkins and Gray reports
FIRA and the Canada Development Corporation
The National Energy Program: peak economic nationalism
Free trade and the retreat of protectionism
Economic nationalism today: an unresolved tension

What is economic nationalism?

Economic nationalism is the idea that a country’s economic policies should serve its own national interests first. In practice, this means implementing protectionist measures – tariffs, subsidies, ownership restrictions – to shield domestic industries from foreign competition and limit the degree of outside control over key sectors. The goal is straightforward: maintain enough economic sovereignty to make independent decisions about jobs, resources, and long-term development. In Canada, this ideology did not emerge from a single moment. It developed gradually in response to real pressures – first from British trade dynamics, then from the overwhelming economic gravity of the United States.

The foundations: Macdonald’s National Policy (1879)

The clearest early expression of economic nationalism in Canada was the National Policy, introduced by Prime Minister John A. Macdonald. Canada’s economy in the 1870s was struggling. The global economic crisis of 1873 had hit wheat and timber – two of Canada’s most critical sectors – particularly hard. Wages fell, jobs disappeared, and Canadian manufacturers found themselves unable to compete with cheaper American goods flooding the market.

Macdonald’s response was decisive. After winning the 1878 election on a platform of economic protection, he introduced higher tariffs on foreign manufactured goods in his 1879 budget. The logic was simple: make imported goods more expensive so that Canadian consumers would turn to domestically produced alternatives, stimulating local industry and creating jobs. As The Canadian Encyclopedia notes, these tariffs were intended to broaden the base of the Canadian economy and restore national confidence in domestic development.

The National Policy was not just about tariffs. It also encompassed the construction of the transcontinental Canadian Pacific Railway and policies to promote western settlement – together forming a three-pronged strategy to build a self-sufficient national economy. The policy remained a cornerstone of Canadian economic thinking from 1879 until the Second World War, shaping the country’s manufacturing base and keeping American competition at bay, at least in the central provinces.

Regional costs of protectionism

The National Policy was not without its losers. While it helped build Ontario’s manufacturing sector, it came at a significant cost to other regions. Research on Canada’s economic history has identified a strong case that protectionism contributed to regional divergence – Atlantic Canada and Quebec began growing more slowly than the rest of the country following the protective tariff era. The Maritimes, which had easier access to Atlantic trade and had historically benefited from more open markets, found themselves disadvantaged by policies designed primarily around the industrial interests of central Canada.

The 20th century: growing fears of foreign ownership

By the mid-20th century, a new concern was gaining ground in Canada – not just competition from foreign goods, but foreign control of Canadian industries themselves. As the post-war economic boom accelerated, American corporations expanded rapidly into Canada, acquiring companies and extracting resources. The critical question shifted from “how do we compete?” to “who actually owns us?”

This anxiety found formal expression in 1957, when the Royal Commission on Canada’s Economic Prospects (the Gordon Commission) delivered a landmark report concluding that foreign control – particularly in the resource sector – posed a serious risk to Canada’s long-term economic independence. The commission recommended policies to ensure greater Canadian ownership of key industries. As Ottawa Life Magazine documents, Walter Gordon, who later served as Finance Minister under Lester B. Pearson, tried to act on these recommendations in the 1960s by proposing higher taxes on foreign-owned businesses and incentives for Canadian investors. The response from American business interests was sharp enough that Pearson’s government softened its approach – but the debate had been permanently opened.

The Watkins and Gray reports

Through the late 1960s, the concern over foreign investment continued to build. The 1968 Watkins Report formally called for a national policy capable of managing Canada’s interests in the era of the multinational corporation. It was followed by the 1970 Wahn Report, which pushed for a systematic screening process for foreign investments. Finally, the Gray Report provided the detailed rationale and framework for what would become the government’s most direct intervention in foreign ownership.

FIRA and the Canada Development Corporation

The Trudeau government’s response came in two parts. First, the Canada Development Corporation (CDC) was created in 1971 to increase Canadian investment in Canadian companies – essentially, building domestic capital capacity so Canadians could own more of their own economy. The second, and more consequential, move came with the Foreign Investment Review Agency (FIRA), established by Parliament in 1973.

FIRA gave the federal government the power to review and potentially block foreign takeovers of Canadian businesses. As Fordham International Law Journal describes, the agency was a direct response to growing nationalist sentiment in the early 1970s – specifically, resentment of the apparent omnipresence of foreign business in the Canadian economy and fear of the long-term consequences of such dominance. When assessing a foreign investment application, FIRA weighed factors including the effect on Canadian employment, the degree of Canadian participation in management, the impact on competition, and compatibility with national economic policies.

The concerns FIRA addressed were concrete, not abstract. Foreign-controlled subsidiaries often limited exports to avoid competing with their parent companies. They supplied raw materials to parent firms abroad, which then processed those materials into finished goods outside Canada – meaning Canada lost both manufacturing jobs and value-added activity. Transactions between subsidiaries and parent companies were often structured to benefit the parent, sometimes resulting in lost tax revenue for the Canadian government.

FIRA became a flashpoint in Canada-US relations. Declassified CIA documents, reviewed by historians, show that American intelligence attributed FIRA, Petro-Canada, oil export controls, and the National Energy Program to what it described as a threatening “Canada First” brand of economic nationalism – and briefed senior US policymakers, including the president, accordingly. From Washington’s perspective, these were barriers to American investment; from Ottawa’s, they were reasonable assertions of sovereignty.

The National Energy Program: peak economic nationalism

The most ambitious – and most controversial – exercise in Canadian economic nationalism came in 1980 with the National Energy Program (NEP). Introduced by the Trudeau government in the context of global oil price shocks, the NEP had three explicit objectives: increase Canadian ownership of the oil industry, price energy fairly for Canadian consumers, and achieve Canadian energy self-sufficiency. As Fiveable’s history resource notes, the NEP aimed to reduce dependency on foreign investment and assert Canadian sovereignty over natural resources.

The NEP was deeply divisive. In Alberta, which bore the brunt of the policy’s restrictions on oil revenues, it generated lasting resentment. In the broader Canada-US relationship, it reinforced American perception that Trudeau’s government was hostile to US investment. When Brian Mulroney came to power in 1984, he moved quickly to dismantle the apparatus of economic nationalism – FIRA was renamed Investment Canada and given a significantly narrower mandate, signalling a pivot toward attracting rather than screening foreign capital.

Free trade and the retreat of protectionism

The 1988 Canada-US Free Trade Agreement, which later evolved into NAFTA, marked a decisive turning point. It reflected a broad shift in economic thinking – that growth was better achieved through open markets than through managed nationalism. Academic research on trade and economic nationalism identifies this period as part of a wider global trend toward liberalization that characterized the late 20th century, though one that has since faced significant pushback.

The debate over economic nationalism never fully disappeared, however. It re-emerged around questions of cultural protection, the ownership of media and broadcasting, restrictions on foreign ownership in telecoms and airlines, and the rules around strategic industries. Recent analysis from the Frontier Centre for Public Policy points out that Canada still maintains significant barriers – including interprovincial trade restrictions – that reflect the enduring instinct toward economic protection, even among governments that officially champion free trade.

Economic nationalism today: an unresolved tension

Canada’s experience with economic nationalism highlights a tension that has never been fully resolved. On one side is the legitimate concern that a small-population economy sitting next to the world’s largest economy is always at risk of becoming a resource supplier rather than an independent economic actor. On the other is the evidence that protectionist policies carry real costs – higher consumer prices, regional inequalities, and slower productivity growth.

The rise of US tariffs in 2025 reignited this debate sharply. Research published in the Review of Economics and Political Science projects that the current round of US tariffs could reduce Canadian trade significantly, with knock-on effects for GDP and employment. In response, Canadian political leaders across the spectrum called on citizens to buy local and support domestic industries – language that would have been entirely familiar to Macdonald in 1879 or Trudeau in 1973. The instinct toward economic self-protection, it turns out, is one of the most durable features of Canadian political culture.

What the history of economic nationalism in Canada ultimately shows is that the desire to maintain meaningful control over a national economy is not simply a matter of ideology – it reflects genuine structural pressures faced by a mid-sized nation in a world dominated by larger economic powers. The specific tools have changed, from tariff walls to investment review agencies to content rules in broadcasting, but the underlying question has remained constant: on whose terms does Canada develop?

What do you think? Has Canada’s long history of protectionist policies ultimately helped it maintain economic independence, or have those same policies held certain regions and industries back from reaching their full potential? And as trade tensions with the United States intensify again in 2025, is a renewed push for economic nationalism the right path forward for Canada – or does it risk repeating the costly mistakes of the past?

References

PDF 📄

Table of Contents

What is economic nationalism? 🔗

The foundations: Macdonald’s National Policy (1879) 🔗

Regional costs of protectionism 🔗

The 20th century: growing fears of foreign ownership 🔗

The Watkins and Gray reports 🔗

FIRA and the Canada Development Corporation 🔗

The National Energy Program: peak economic nationalism 🔗

Free trade and the retreat of protectionism 🔗

Economic nationalism today: an unresolved tension 🔗