Why are Canada's car plants clustered within a few hours' drive of Toronto, and not in Winnipeg or Halifax? Why are there giant aluminium smelters in Quebec's Saguenay region, when the ore used to make aluminium is shipped in from other continents? Industries do not land on the map by accident. Companies compare places, looking for the location where their total costs are lowest and their access to customers is best. This lesson shows you how to explain those choices, and how they tie Canada's economy to the rest of the world.
Factors that decide where industries locate
| Factor | Why it matters | Canadian example |
|---|---|---|
| Raw materials | Industries that use heavy, bulky inputs that lose weight during processing locate near the source to save shipping | Pulp and paper mills near boreal forests; smelters near Sudbury's nickel mines |
| Market | Industries whose products are bulky, fragile or perishable, or that need close contact with customers, locate near buyers | Bakeries and soft-drink bottlers in big cities; auto plants close to buyers in Ontario and the US Midwest |
| Labour | Some industries need many workers; others need specific skills | Software firms in Waterloo and Toronto; skilled auto workers in Windsor and Oshawa |
| Transportation | Cheap, fast access to suppliers and markets cuts costs | Hamilton's steel mills receive iron ore and coal by ship on the Great Lakes; Highway 401 links Windsor to Montréal |
| Energy | Energy-hungry industries locate where power is cheap and reliable | Aluminium smelters near Quebec's hydro dams |
| Water | Some processes need huge amounts of water for cooling or processing | Steel mills, pulp mills and nuclear stations on lakes and rivers |
| Government | Tax breaks, grants, rules and trade agreements can attract or block industries | Federal and provincial subsidies for electric-vehicle battery plants in Windsor and St. Thomas |
Case study: the auto industry in southern Ontario
Five global automakers (Ford, General Motors, Honda, Stellantis and Toyota) have assembly plants in southern Ontario, in places such as Oakville, Oshawa, Alliston, Windsor, Cambridge and Woodstock, supported by hundreds of parts makers. Almost every location factor points here. The market is close: tens of millions of North American buyers live within a day's drive. Transportation is excellent: Highway 401, rail lines and the bridges and tunnel to Detroit let parts cross the border several times while a car is being built. There is a large, skilled labour force, steel from Hamilton, and government policy has mattered since the 1965 Auto Pact with the United States, which let cars and parts cross the border tariff-free if production stayed in Canada. Recently, governments have offered large subsidies for electric-vehicle and battery plants, while US tariffs on vehicles and parts since 2025 have put new pressure on the industry.
Canada's trade connections
Canada's industries depend on trade. Oil flows south through pipelines, Ontario-built cars are sold across North America, Prairie wheat and canola are shipped to Asia, and Canadians import phones, machinery, clothing and winter fruit. By far the largest partner is the United States: in 2024, on average about 76 percent (75.9 percent) of Canada's exports went there (Statistics Canada). The two economies are knit together by shared supply chains, pipelines, power lines and bridges. Trade with the US and Mexico is governed by CUSMA, the Canada–United States–Mexico Agreement (called USMCA in the US), which replaced NAFTA on July 1, 2020 and set a joint review by the three countries for July 2026. At that review the United States did not agree to extend the agreement for another 16 years, so CUSMA stays in force but is now reviewed every year, and it is set to end in 2036 unless the three countries agree to extend it. Canada also has trade agreements with the European Union (CETA) and with Pacific countries such as Japan, Australia and Vietnam (CPTPP).
| Export | Where it comes from | Main markets |
|---|---|---|
| Crude oil | Alberta and Saskatchewan; offshore Newfoundland and Labrador | Mostly the United States, with more now shipped to Asia from the BC coast |
| Motor vehicles and parts | Southern Ontario | Almost entirely the United States |
| Lumber and wood products | BC, Quebec, Ontario and other forest provinces | Mostly the United States |
| Aluminium | Quebec and BC | Mostly the United States |
| Wheat, canola and pulses | The Prairies | Asia, the US, Europe, Latin America and Africa |
| Potash | Saskatchewan | The United States, Brazil, China and many others |
- A huge, wealthy market right next door
- Short, cheap transportation by truck, rail, pipeline and ship
- Shared supply chains (a car's parts cross the border several times)
- Millions of Canadian jobs depend on exports
- US policy changes, such as tariffs, hit Canadian industries and towns quickly
- Less bargaining power in disputes, such as the long softwood lumber dispute
- A US recession reduces demand for Canadian goods
- Diversifying to Europe, Asia and other markets takes time and new infrastructure