Canada - A New Path?
By: Mike Doyle, President, CAGC
2015 November Recorder article. Can also be found here: https://www.cagc.ca/index.php?DP=recorder_articles
Now Canadians are starting to suspect
that much of what they lost may never come back. In 2000 manufacturing
accounted for 18% of GDP, not much lower than the share in Germany; by 2013 that
had dropped to 10%, about the level in Britain and the United States. Factory
employment has fallen by about 500,000 since 2005, to 1.7m. In the decade to
2012, some 20,000 factories shut down.
One big problem is that Canada mostly makes components, not final products. That leaves manufacturers vulnerable when their customers move. Car-parts makers used to be well-placed for deliveries to carmakers in Michigan, but many of their customers have moved south.
Another reason the loonie’s decline did not help more is that the currencies of competitor countries have also fallen. And industry has been hurt by the rising cost of inputs, often priced in American dollars, and by higher electricity prices, especially in Ontario. Canada’s high wages are another burden.
The candidates in Canada’s national
election, to be held on October 19th, have so far had little to say about
manufacturing’s listlessness. In part, that may be because there is not much
that government can do. Harmonising regulations and easing border crossings
with the United States would help. Some companies are helping themselves by
investing heavily in new machinery and technology, hoping to make
higher-value-added products. Manufacturing in Canada will not disappear.
Neither, sadly, will the rust.
2015 November Recorder article. Can also be found here: https://www.cagc.ca/index.php?DP=recorder_articles
Let’s talk about Canada’s economy. The commodities
boom, which had shielded Canada from the worst effects of the global financial
crisis, has ended, revealing economic malaise. GDP and productivity have been
growing at a plodding pace, firms do not innovate enough and infrastructure is
overburdened. Consumer debt and house prices are very high. Business investment
and exports have yet to take over from indebted consumers as motors of economic
growth. Prairie conservatism has been replaced with power shifting back to
central Canada. Can manufacturing come back? Will embarking on a new path move
us forward to a better place? The Trans-Pacific Partnership (TPP), a legacy
from the previous government, may yet survive under the new regime. However
trade agreements always come with winners and losers and each country has to
balance such internal issues. The Economist provides some broader perspectives
as follows:
The Economist - Oct 10, 2015 - Every Silver Lining
has a Cloud
Until this week, the world had
not seen a big multilateral trade pact for over 20 years. The deal that has
broken the drought—the Trans-Pacific Partnership (TPP), which comprises 12
countries in Asia and the Americas, including the United States and Japan—is welcome.
But those who believe in free trade, and the benefits it brings, ought not to
miss the bigger picture. The backdrop to this week’s deal is a bleak one.
First, the pact itself. It has
flaws—what compromise doesn’t?—but the advantages are greater. The negotiators
who brokered the agreement in Atlanta did not just lower tariffs in coddled
sectors such as agriculture, but also drew up shared rules on everything from
visas for business travellers to competition policy. The deal limits veiled
forms of protectionism, such as special treatment of state-owned firms and
arbitrary import bans after safety scares. The benefits of such steps are hard
to quantify, especially as the fine print of the deal has not yet been
released, but the most comprehensive assessment thus far reckons they could
boost the GDP of its members by 1% by 2025. The impact on emerging-market
signatories to the deal is likely to be by far the biggest.
Viewed from a different angle,
however, the tale of TPP tells a different story. First, there is the fact that
the agreement has been so hard to sell in America. It took months, and several
legislative setbacks, before Barack Obama won the authority to fast-track a
congressional vote on TPP. The deal may still be voted down, in America or elsewhere.
Those who would succeed Mr Obama as president know that TPP holds few votes.
This week Hillary Clinton, the Democratic front-runner and once a promoter of
TPP, came out against it. The beneficiaries of TPP—consumers, as well as
exporters—are numerous, but their potential gains diffuse. By contrast,
inefficient firms and farms, about to be exposed to greater foreign
competition, are obvious and vocal. Canada, for example, limited the threat to
its dairy farmers and doled out a big new subsidy. The saga is a reminder of
how hard free trade is to champion.
Second, the TPP deal underscores
the shift away from global agreements. The World Trade Organisation, which is
responsible for global deals, has been trying, and largely failing, to
negotiate one since 2001. Reaching agreement among its 161 members, especially
now that average tariffs around the world are relatively low and talks are
focused on more contentious obstacles to trade, has proved almost impossible.
Regional deals are the next best thing, but, by definition, they exclude some
countries, and so may steer custom away from the most efficient producer. In
the case of TPP, the glaring outcast is China, the linchpin of most global
supply chains.
Third, good news on TPP stands in
contrast to bad news elsewhere. Cross-border trade today is as much about the
exchange of data as it is the flow of goods and services: this week saw the
annulment by a European court of a deal that had enabled American firms to
transfer customer data across the Atlantic. Conventional trade faces even
stronger headwinds. The volume of goods shipped in the first half of this year
was just 1.9% higher than in the same period of 2014, far below its long-term
average growth of 5%. This reflects not only China’s soggy demand for imports—a
threat to the developing economies that supply it—but also the accumulation of
minor measures that silt up global trade.
Deals like TPP are the most
effective way to reverse this sorry trend, by reducing tariffs and other
obstacles to trade. Optimists hope it can now be expanded, to include China and
others. Sadly, experience suggests that will be hard.
The Economist - Aug 29, 2015 - The new rustbelt - The
puzzling weakness of manufacturing
If you visit south-western
Ontario and the Niagara peninsula you will see scenes of industrial decay.
Steel mills, vehicle-parts factories and food processors sit abandoned, their
car parks studded with tufts of grass. The region has the look of a rustbelt,
and that has Canadians worried.
Manufacturing took a beating in
the late 2000s and early 2010s, when high oil prices drove up the value of the
Canadian dollar, making factories less competitive. But Canada should now be
recovering from that bout of Dutch disease. The “loonie”, as Canadians call
their currency, has been dropping along with oil prices. On August 25th it fell
to its lowest level in a decade against the American dollar. That, plus the
strong economy in the United States, the market for three-quarters of Canada’s
exports, should have scraped off much of the rust.
So far it has not. Factory sales
rose 1.2% in June, but were 3.1% below their level of a year earlier. The
failure of manufacturing to respond to the tonic of a weaker currency is one
reason why the economy probably contracted during the first half of 2015.
One big problem is that Canada mostly makes components, not final products. That leaves manufacturers vulnerable when their customers move. Car-parts makers used to be well-placed for deliveries to carmakers in Michigan, but many of their customers have moved south.
Another reason the loonie’s decline did not help more is that the currencies of competitor countries have also fallen. And industry has been hurt by the rising cost of inputs, often priced in American dollars, and by higher electricity prices, especially in Ontario. Canada’s high wages are another burden.
Canada’s
strength lies in its diversity, its geographic vastness, and its resources. The
same fundamentals make up our challenges as we begin to try to transition
ourselves and our economy in a new direction. The future will be interesting.
From The
Thursday File
Avoid popularity; it has
many snares, and no real benefit.
William
Penn
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