Get serious about trade diversification
Tariffs have increased manufacturing costs throughout North American supply chains.
It has been a bumpy ride for trade since the real estate executive arrived in Washington, DC two years ago. Canada was insulted, kicked around and threatened by its neighbour, friend, ally and number one trading partner, but the nation held strong. Finally, a much-maligned NAFTA was settled and a renewed deal (USMCA) awaits ratification by the US Congress.
No chance to catch our breath, though. Now Canada finds itself in a rumble with its number two trading partner, as China expresses profound indignation over the arrest of Huawei Technologies executive Meng Wanzhou, in accordance with an extradition treaty with the US.
The Trump administration accuses the company of stealing technology and violating sanctions on Iran. China’s response has been to retaliate against us by issuing dark threats, detaining two Canadian citizens on trumped up charges (pardon the pun) and quick-marching another Canadian to death row after a dubious drug trafficking retrial. Meanwhile, an ongoing diplomatic spat with Saudi Arabia has prompted builder SNC-Lavalin to consider a retreat from the oil-rich desert kingdom, which is also looking like an iffy trade destination.
None of this makes exporting beyond North America seem all that appealing to reluctant manufacturers who have been urged to do so by governments, analysts, experts and assorted pundits. But it’s time to get serious about diversification.
Trade is one of several pressure points that came up in the PLANT Manufacturers’ Outlook 2019 study. It shows most revenue comes from Canada (67%) and most new market expansion is aimed at North America, which makes sense because of proximity, language, legal systems and the rule of law (a-hem, China).
Yet there are opportunities for entrepreneurs in Europe (CETA) and TPP countries, as well as other destinations. Here’s the challenge: most companies are small with sparse resources, limited capacity and rising costs, a top concern. Contributing to their angst are the US tariffs on steel (25%) and aluminum (10%). And some Canadian suppliers are slapping surcharges on top of the tariffs to further plague Canadian companies, a complaint that came up during the Outlook roundtable in October. On the US side, manufacturers are warning they’re quickly reaching a tipping point because of escalating costs and lost business from tariffs and retaliatory measures.
So, how to get small manufacturers to look farther a field?
Let’s start by lowering the temperature a bit. President Donald Trump said the tariffs would end when USMCA gets through Congress. Assuming his word is good (cough), that will help with the cost issue, which is preventing some manufacturers from investing in their businesses.
And Peter Hall, Export Development Canada’s vice-president and chief economist, predicts the US and China will eventually settle on a trade deal for both their benefit. That will calm some of the global upset.
Canadian Manufacturers & Exporters in a report (Stalled Trade: Gearing up Canadian exports) notes our small market and consumer base means suppliers and customers from abroad are needed to fuel growth. It has a plan based on three pillars: strengthen existing foundations with a focus on existing trade agreements; develop stronger support programs to encourage domestic investment and expand international growth opportunities; and attract foreign direct investment as well as global production mandates from large multi-nationals.
Good foundation, but what’s needed is action. There’s a federal election coming up – an ideal time for companies through their associations and networks, to make industry and trade a central issue during the campaign… as long as the slogan isn’t, “Make Canada Great Again.” Trade equals growth. That’s something everyone can get behind.
This editorial originally appeared in the January-February 2019 print edition of PLANT Magazine.