Canadian manufacturers tend to live on the cautious side of life, playing it pretty safe, and sticking close to home. Their careful view of prospects and opportunities is a common thread running through successive PLANT Manufacturers’ Outlook surveys, and such is the case with the latest study.
Our companies are often described as more risk averse than their more productive (by 18% per worker) US counterparts, and that may be so. Most are small (less than 100 employees), family or owner run, they’re operating in a smaller pond with less access to giant pools of investment capital, and their costs are high.
Almost two-thirds of their revenue comes from domestic sources, and about 25% from the US, with a smattering coming from other parts of the world. Most (32%) find the chief impediment to more adventurous exporting is intense competition.
Despite all that talk about the need for companies to diversify their markets, there’s the backlash against global trade to consider. Britain pulled a Brexit, CETA was almost scuttled by the burghers of an obscure region in Belgium and the Trans-Pacific Partnership ran into trouble during the US election.
Then Trump happened.
The president-elect’s unlikely victorious bid for the White House points to a likely disruption of global trade and international relationships. That includes Canada.
Donald has made his position clear. America first. Make America great again. He’s bringing manufacturing jobs back to America. NAFTA is the worst trade deal in history. And “no” to the Trans-Pacific Partnership.
Suddenly the world is looking a lot more protectionist, especially in our neighbourhood.
There is nothing to indicate Trump’s version of fair dealing will be to Canada’s benefit. But if he tears up the NAFTA agreement, we still have the Free Trade Agreement (FTA) to ensure tariff-free commerce, right?
Don’t bet on it. Trump promised jobs for America. So what does that mean to the automotive sector? Unifor just wrapped up four-year contracts with the Detroit Three worth roughly $1.6 billion in Canadian investments. How will auto investments fit into Trump’s “America first” world? Ford has already walked back plans to shift Lincoln production from Kentucky to Mexico.
And Trump is a climate change denier. He intends to sweep aside Barack Obama’s environmental initiatives as the Trudeau government and the provinces prepare to levy carbon reduction costs on consumers and businesses – another potential competitive disadvantage for our home team.
Trump also plans to lower corporate taxes and repatriate cash from foreign profits. Mathew Wilson, vice-president of national policy at Canadian Manufacturers & Exporters, says that could have a direct impact on Canadian manufacturing’s competitiveness and ability to attract investment.
CME has released an ambitious plan for manufacturers that would double output and exports. Are companies ready to meet the challenge, especially in a Trump world?
The Outlook 2017 survey (and other studies) suggest we have some work to do. Manufacturers hesitate on matters of investment in machinery, equipment, technology and innovation; and they lag in the adoption of technologies that would make their businesses more productive.
“We are not investing enough,” Wilson warns, noting that since 2002, investment in new machinery has dropped 65% compared to the US – the worst in the G7.
That has to change. Manufacturers must become more competitive, which requires investments in hard and soft technologies that will drive up productivity. Diversifying markets outside the US is no longer a should do, but a must do. The potential for growth and expansion is out there – and it’s no longer safe to play it safe.