Ongoing political tension between Canada and the United States has affected many aspects of cross-border trade, investment, and economic cooperation between the two countries. In April, the Ontario Government was quick to respond to new U.S. tariffs on Canadian goods. One of the most visible policy levers used to apply pressure on the United States was the implementation of a Procurement Restriction Policy, which limits Ontario public-sector organizations purchases from U.S.-based businesses. Ontario’s public procurement market is significant, with ministries, agencies, hospitals, school boards, and other publicly funded organizations spending an estimated $30 billion annually.
On September 5, the federal government announced a suite of measures under a new Buy Canadian Policy designed to strengthen Canada’s economy, build resilience to global tensions, and support Canadian workers and businesses. We expect these measures to appear in the fall budget, with implementation as early as November.
While Canada and Ontario remain bound by certain commitments under international trade agreements such as CUSMA and CETA, both governments retain the flexibility, below certain dollar thresholds, to prefer domestic suppliers.
“OECD data from 2021 shows Canada spending 13% of GDP on procurement, slightly above the 12.9% average.”
This spending drives investments in defence, energy, mining, critical infrastructure, health, and education, which all depend on public purchasing to achieve ambitious policy objectives.
Procurement enables governments to build hospitals, advance transit projects, and adopt new healthcare technologies. Disruptions caused by trade disputes or supply chain shocks can quickly drive up prices and limit access to essential goods and services.
Both the Ontario and the federal governments are re-evaluating how they can use public sector procurement to meet operational needs and operate as a strategic lever to strengthen domestic supply chains and mitigate risks from global trade disputes.
Procurement Restriction and Buy Canada Policies
Ontario’s procurement restriction policy presents a unique opportunity for Ontario- and Canadian-based businesses to gain an advantage when responding to public-sector opportunities in the province. Ontario now reviews procurements it might once have automatically renewed, to ensure it buys from Ontario or Canadian suppliers whenever possible. Exceptions require senior-level sign-off, meaning executives are acutely aware of the dollar value of contracts awarded to U.S. businesses and can redirect the spend to Canadian alternatives.
The province has already embedded this mindset in legislation. The Building Ontario Business Initiative Act, 2022 (BOBI) gives Ontario-based businesses an advantage in public procurements below a mandated threshold. The procurement restriction policy uses the BOBI definition requiring a headquarters or main office in Canada, or at least 250 full-time employees here. Some U.S multinational corporations fit this definition of a Canadian business. They are companies with a significant Canadian footprint that employ Canadians and invest domestically.
“U.S. suppliers may be chosen when no Canadian alternative exists or in urgent procurements.”
The federal government, which manages approximately $37 billion in annual procurement, has introduced similar buy-Canadian content requirements in areas such as defence, IT, and infrastructure. These measures mirror longstanding buy-American provisions in the United States, which recent legislation has strengthened. The federal government has also explored reciprocal procurement restrictions where Canadian firms face barriers in the U.S. market, signalling that Canadian dollars should support Canadian jobs and supply chains whenever possible.
Beyond tariffs and procurement, Canada has used other levers in the ongoing trade dispute, including reciprocal tariffs, energy supply threats, and targeted bans on certain U.S. goods. Ontario’s procurement strategy directly hurts the bottom line of some American businesses; these may in turn pressure their government or increase their investment in Canada to qualify as Canadian-based entities.
Risks and Realities of Canada’s Procurement Shift
The buy-Ontario and buy-Canada policies are not without criticism. Canadian businesses continue to cite ongoing challenges in doing business with different levels of government, including outdated requirements, lack of adaptability to new trends in technology, and difficulty navigating online systems. Policies to support domestic businesses do not mitigate these difficulties.
The silver-lining is that these Canada-centric policies signal a willingness by both governments to discuss how they can use public sector procurement more strategically to strengthen Canada and Ontario’s resiliency and economic development. This could help modernize public sector procurement processes.
Another key risk is the potential lack of Canadian alternatives for some goods or a significantly higher price for the domestic option. Over-reliance on domestic supply chains without competitive pricing could increase costs for governments and taxpayers.
Governments will need to evaluate these risks as they arise, and sectors with an over-reliance on foreign imports may prove to offer opportunities for investment to grow Canada’s domestic capacity.
Opportunity Ahead: Strengthening Canada’s Innovation Economy
Despite these risks, the policies create significant opportunities. Over the past several years, Canada has made deep investments in its start-up and scale-up ecosystem through federal and provincial funding programs. Domestic preference in procurement can help these companies sell their products at home, reducing the risk of Canadian firms being bought by U.S. competitors or losing top talent to foreign markets.
Both the federal and Ontario governments are signalling openness to policy changes that give domestic businesses an advantage. This supports Canadian start-ups and scale-ups, provides a reliable market for innovation, and encourages Canadian use of Canadian products and services.
Final Thoughts
As Canada continues to navigate tense relations with the United States, Ontario has an opportunity to strengthen supply chains, create jobs, and support Canadian innovation through strategic use of public sector procurement. These policies reinforce Canada’s competitive advantage and help position Ontario and Canada as two of the most resilient and self-sufficient jurisdictions in the G7.
While tensions remain unresolved, Canadian and Ontario-based businesses are rising to meet the demand and demonstrating that they can compete with U.S. companies. The impact of these procurement strategies may signal a broader, more permanent shift in the prioritization of domestic businesses and help to keep jobs and manufacturing in Canada and expand opportunities for start-ups and scale-ups to grow Canada’s innovation and manufacturing capacity.
