Manufacturers’ Outlook: Now is NOT the time for exporters to throw in the towel
As far as Canadian manufacturing exporters were concerned, 2016 was rife with possibilities. At the end of 2015, oil prices—and the loonie—were in free-fall, and the US was poised to make a significant rebound. Historically, these have been ideal conditions for Canadian manufacturers; low energy costs and a positive foreign exchange impact on exports. But the manufacturing upswing was fairly underwhelming.
With the US dollar up 12% on a trade-weighted basis in 2015, fewer were buying US exports—which put the rebound on hold and, thanks to trade integration, negatively impacted US demand for Canadian manufactured products. To add insult to injury, the Canadian dollar appreciated against many foreign currencies during 2016, adversely impacting global demand for Canadian goods. As a result, manufacturing output rose only 0.03% in the second half of 2015 and the first half of 2016.
Many Canadian manufacturers are thinking through their exporting strategies in 2017, according to PLANT’s Manufacturers’ Outlook 2017. When manufacturers were asked which countries they intend on entering over the next 3 years, 32% plan to enter the US market, while a significant number of companies are planning to enter other markets globally.
With a seemingly protectionist US president now in office—and NAFTA, as we know it, potentially going through some sort of unfavourable changes—Canadian manufacturers should further explore trade options beyond our southern neighbour. In spite of this, when it comes to looking beyond North America, Canadian manufacturers are apprehensive—32% are deterred by intense competition, 26% cite currency fluctuations as their reason for avoiding foreign markets and 24% believe transportation/logistics issues just aren’t worth the hassle.
Here’s the thing: although there are notions of protectionism coming from the political rhetoric in the US and elsewhere, there are a number reasons why manufacturers should take strides not to overreact. For starters, while some additional challenges to Canadian exporters may result from eventual actions and policies, the basic foundation of globalization is not going away—it’s here to stay. Secondly, it’s important to remember that the Made in Canada sign carries with it a very positive impact globally. With it comes trust and quality, and global consumers have proven over and over again that they are willing to pay for products made in Canada.
So, now is not the time for Canadian manufacturers to throw in the towel on exporting. To the contrary—there is no question that the US economy has experienced an upswing since the recent election. Most pundits believe that will continue at least for the next couple of years. Even if there is some type of border tax or other action taken, there are many instances where Canadian manufacturers will still gain advantage by selling into a growing US economy. On top of that, with the positive forecasts expected for a number of other markets globally, particularly China, Canadian exporters have many reasons to be optimistic.
NOTE: All of the data points in this post come from the Manufacturers’ Outlook 2017 report.