Value Chain Governance and Semi Peripheral Strategy: Historical Insights for Automotive Industrial Policy Under Technological and Geopolitical Disruption

Résumé:

Purpose and Theoretical Contribution

This paper advances a synthetic, historically informed analysis of how technological disruption is reshaping automotive value chain governance, with particular implications for semi peripheral economies. Rather than introducing a new theoretical model, the paper integrates well developed frameworks – global value chains (GVCs), core–semi periphery–integrated periphery hierarchies, the commoditization of assembly, headquarters centric R&D clustering, and the contemporary industrial policy literature – and demonstrates their combined explanatory power through a focused case study of Canada. The aim is not to explain Canada per se but to use the Canadian experience as an analytically revealing lens through which to understand the structural constraints and opportunities facing semi peripheral automotive producers as new technologies reconfigure the hierarchy of the global industry.
Two conceptual pillars underpin the contribution. First, the paper argues that historical industrial policy trajectories shape the absorptive capacity and strategic room to maneuver of semi peripheral states. Canada’s long policy lineage – from the Canada-U.S. Auto Pact in the 1960s to the duty remission architecture of the 1970s and 1980s; from the calibrated pressure and performance based incentives used to attract Japanese OEMs to the integration dynamics of NAFTA/CUSMA – insight is offered into how policy tools succeed when they complement lead firm governance and fail when they attempt to substitute for it. Understanding this historical lineage is essential for diagnosing the limits of policy in moments of disruption: trade-related, technological-oriented or otherwise.
Second, the paper foregrounds the global disciplining effect of China’s ascendance, arguing that China’s rise as a system governing actor in EVs, batteries, and now software defined vehicle architectures is reshaping the set of industrial policy options available to non core producers. China’s dominance across EV sales, battery materials processing, midstream and downstream battery manufacturing, and automotive patenting is not merely a shift in market share but a restructuring of technological authority within the automotive system. This reordering conditions strategic possibilities for countries like Canada and constitutes a form of structural governance that interacts with, and often supersedes, traditional regional (i.e. North American) dynamics.

Research Questions

The paper addresses three interrelated questions.

(1) How have historical industrial policy instruments shaped the trajectory of a semi peripheral economy like Canada, and what does this lineage reveal about which tools retain traction or lose efficacy in the context of technological disruption?
(2) How do new technologies, especially batteries, software defined architectures, and AI enabled subsystems, reconfigure governance power in the automotive value chain and re rank locations within it?

(3) What are the realistic pathways and limits for semi peripheral automotive economies in an era increasingly shaped by China’s technological and market dominance?
Design and Methodology

The study employs an embedded historical–comparative case design. It reconstructs Canada’s automotive policy trajectory across critical junctures – Auto Pact integration (post 1965), duty remission schemes, the 1980s attraction of Japanese automakers, the NAFTA/CUSMA period, and the post 2020 battery investment cycle – using process tracing to identify the conditions under which industrial policy instruments aligned with lead firm incentives. To map Canada’s evolving structural role, the paper draws on long run production, sales, and production to sales (P/S) ratio data, supplemented by ecosystem and employment indicators. Innovation capacity is assessed using patent based indicators to 2022 that capture the headquarters centric nature of automotive R&D and the scale of China’s rise. The analytic frame integrates GVC governance, core–semi periphery structure, and industrial policy literatures emphasizing complementarity, conditionality, and path dependence.
Findings

The analysis demonstrates that Canada’s historical industrial policy successes were anchored in alignment with lead firm governance structures. The Auto Pact enabled Canadian operations to gain scale by embedding value added and production for sales requirements directly into cross border allocation decisions. In the 1980s, calibrated market pressure combined with targeted performance based incentives encouraged Japanese OEMs to localize production, deepening Canada’s role in the North American manufacturing constellation. In each case, policy worked because it complemented broader governance logics rather than attempting to reconfigure them.
Since 2000, however, structural pressures have constrained Canada’s position. The long term decline in its P/S ratio, from strongly export oriented levels (1.85–2.0) in the 1990s to roughly 0.70 by 2024, reflects a regional division of labour in which the United States anchors demand and Mexico anchors cost based export assembly. This realignment is consistent with the commoditization of assembly: convergence in manufacturing routines has made final assembly widely transferable, encouraging OEMs to shift production to lower cost nodes without jeopardizing quality.
Simultaneously, innovation patterns have consolidated core region dominance. Patent data to 2022 reveal persistent headquarters clustering, while China’s emergence as the single largest locus of automotive patenting, accounting for roughly half of global output, signals a decisive reordering of technological leadership. Canada’s output, by contrast, remains below one third of one percent, underscoring the structural limitations faced by semi peripheral economies seeking to capture high order functions.
Technological disruption intensifies these asymmetries. China now dominates EV sales, battery materials processing, precursor/cathode/anode production, cell and module manufacture, and much of the rapid cycle innovation underlying software defined vehicle platforms. The rise of vertically integrated Chinese automakers reflects a governance shift in which control over batteries and power electronics ecosystems provides leverage across downstream value chain stages. These developments also shape industrial policy feasibility elsewhere. Canada’s decision to match U.S. IRA style production incentives preserved investment options in the short term but at high contingent fiscal cost and without altering governance dynamics driven by headquarters regions and China’s global ascendancy. Compounding this challenge is the decoupling of market and production: policy led domestic objectives – such as accelerating EV adoption – do not directly translate into production mandates, a disconnect visible in recent Canadian plant allocation outcomes.
Significance and Implications

The findings point toward strategic realism. A robust extension of CUSMA—with clear, trilateral rules of origin—is Canada’s most powerful tool for reducing investment risk in a volatile regional system. Meanwhile, incentives must be disciplined, conditional, and focused on durable comparative advantages rather than interpreted as mechanisms for structural upgrading. Also, in a global environment where China dominates technology cost curves, supply chain architecture, and innovation tempo, semi peripheral states must calibrate expectations accordingly. Managing the transition also requires sustaining profitable ICE and hybrid production during the interregnum while building EV relevant capabilities, and avoiding the conflation of domestic market aspirations with production strategy. Finally, given the concentration of Canadian output in two Japanese OEMs, policy must prioritize predictability and risk mitigation while acknowledging that headquarters level R&D functions remain structurally anchored in core regions.
Theoretical Value

The paper demonstrates that technological disruption deepens governance asymmetries rather than democratizing them; that semi peripheral constraints persist across technological regimes; and that historically grounded analysis clarifies which policy instruments remain viable. More broadly, the study shows how China’s rise is reshaping the structural boundaries within which industrial policy must operate, not only in Canada, but across the semi periphery.