Trade Tensions: Procurement Can Be Canada’s Best Economic Weapon

By Laurent Carbonneau
CCI Director of Policy and Research

At CCI, 2024 was the Year of Procurement. It looks like 2025 is shaping up to be the Year of Procurement for Canadian governments, though I dearly wish it were under better circumstances.

When U.S. President Donald Trump announced tariffs on Canadian goods in early February, provincial governments quickly rediscovered the power of procurement as an instrument of policy. Ontario tore up a contract with Elon Musk’s Starlink (and then taped the contract back together after Trump postponed the tariffs.) B.C. and other provinces took American alcohol off liquor store shelves. Many provinces have vowed to block American companies from procurement opportunities as long as the crisis lasts.

Now, I think that this is basically the right idea. But we can take it a step further.

We’ve explored these topics at some length in two major reports last year, Buying Ideas and Building Winners, examining the economic benefits of strategic procurement, and the specific policy measures that can put us on a path to making it happen.  

Procurement is essentially the market for goods and services in the public sector – and it is big. In Canada, it’s about 15% of GDP. That’s roughly the size of the whole Alberta economy. But unlike Alberta, public sector procurement is not particularly dynamic or competitive.

If governments can become more effective at buying from the private sector, it would essentially create a much more competitive market within a huge chunk of our national economy. This is the other side of the coin of tearing down interprovincial trade barriers to make the private sector more competitive.

What’s more, government customers can be valuable for addressing a particularly important problem in the Canadian economy. Canada’s productivity problem, our biggest economic challenge, essentially comes down to not having enough firms that can scale-up successfully.

Leading-edge, innovative firms disproportionately drive productivity growth in their home economies. And in the modern economy those firms have intangible assets like IP, data, and networks underlying their business models.

But innovators often have to climb a learning curve and take advantage of economies of scale, and doing those things on tiny contracts with small customers is hard.

This is where governments can play a role.

To be a little reductive, markets are problem-solving engines. The job of governments is to solve problems that other people aren’t solving or can’t solve. Often, governments step in to solve problems because it is hard to make money solving them, even if technical solutions exist. An important lever that governments have is to create markets to solve these problems. We’ve seen huge progress made on climate action by creating markets for solutions. And of course, western militaries have enormous technological edges over most rivals because they have created an extremely large market for military technologies. Governments should see this as an opportunity not limited to these examples – we have lots of unsolved problems!

One way to screw this up, though, is to just buy from their own jurisdiction. It’s an easy temptation for any government to succumb to. Nova Scotia will buy a Nova Scotia solution, Quebec will buy from Quebec, and so on. But the iron laws of innovation economics work against this. Remember, you need big markets to help tackle the learning curve and scale-up innovative companies.

Instead, let’s think bigger. Let’s create a coast-to-coast-to-coast public purpose common market, with uniform and simplified procedures, best practices and standards.

Ideally, we’d cut down on incredibly onerous processes that do little but generate paperwork instead of guarantee accountability and leave more discretion to the people actually working on solving hard problems. End users in government should have more power to define what they need and work with providers to develop solutions. Let’s borrow best practices from places like Finland and the UK on building capacity and good process, and places like the US on the power of challenges to prove ideas and establish markets.

If we want to think really big, don’t just limit this to the federal and provincial governments – let municipalities, universities, hospitals, and nonprofits get in on it too.  

Creating this kind of infrastructure is not an easy overnight job. That’s true of all infrastructure. The long-term unreliability of our neighbour and largest trade partner is a real five-alarm crisis for Canada. We have to act like a real country for a change and start building the kinds of big things that can be force multipliers for us, even if they take a lot of hard work and involve getting lots of people to agree with each other.

If we’re serious about unlocking growth that doesn’t rely as much on our American neighbours, this would be an excellent place to start. And a bigger domestic common market for big ideas can help Canadian firms conquer the world in the many places we have trade agreements that are actually going to be respected by the people who signed them.

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Laurent Carbonneau is CCI's Director of Policy and Research. He can be reached at lcarbonneau@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here .

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