Canada's struggling manufacturing industry will not return to its glory days, and instead will become a smaller part of the overall economy in the coming years, Finance Minister Jim Flaherty suggests.

Flaherty says manufacturing will represent about 14 per cent of the overall Canadian economy in the future, a decline from about 17 per cent.

That estimate still represents a "strong manufacturing sector" presence, which will eclipse that of the United States, Flaherty told a National Club audience Friday.

"If you look at the numbers in the past 20 years or so, the Canadian economy held onto a larger percentage of manufacturing jobs than our competitors for the most part, except Germany," Flaherty said

But Canada's manufacturing sector has worn thin in recent years under the competitive disadvantage of a higher loonie in late 2007 and early 2008, combined with increased imports.

Ontario and Quebec have suffered the deepest wounds, especially when the global economic downturn led to major layoffs in the auto sector, steel makers and other production-based industries.

On Friday, the Canadian Auto Workers and General Motors reached an agreement to cut labour costs by freezing wages until 2015 and reducing benefits.

The union and company went back to the bargaining table after governments in the United States and Canada said they would not provide the automaker with billions of dollars in financial assistance unless it had more competitive labour costs.

Flaherty said Canada is also working with U.S. President Barack Obama to avoid protectionist measures that would stifle good terms of trade.

"The pressure is on countries, including Canada, to take populist steps and protectionist steps that look good on the surface and can garner short-term political gain," Flaherty said.

"We've established, I think, a good rapport with the new American administration, and there is a desire on the part of that administration to avoid protectionist measures that would harm the traditional relationship with Canada."