Make the leap into new export markets
Not just the US. Diversify. Spread around the risk.
Most Canadian manufacturers are small (under 500 employees) with limited resources, multiple challenges and a disposition for caution. That’s why 67% derive most of their revenue from Canada, and 27% from the US, with the remainder of their business scattered among various global markets (according to the PLANT Manufacturers’ Outlook 2019 study).
Safety first, right? Or maybe this is a good time to do what the federal government and numerous prognosticators and experts have urged manufacturers to do for years: wade into new export markets, and not just the US. Diversify. Spread around the risk.
We’re almost three years into the world according to US President Donald Trump and his apparent America Only doctrine that has included threats, tariffs, NAFTA brinkmanship, and a trade war with China. Welcome aboard the crazy train. Little wonder manufacturers have been operating with a yellow caution light flashing. And with a US election on the horizon, expect the crazy train to pick up speed.
Those who export are certainly experiencing some anxiety. The latest Trade Confidence Index from Export Development Canada (EDC) shows confidence at its lowest point since the European debt crisis seven years ago. Tariffs and trade barriers are top concerns with 34% of companies who say protectionism is affecting their export and international investment strategies. Most (90%) see protectionist measures worsening.
Well, there’s always the USMCA – or not. When Trump announced in October the successful completion of the trade agreement that would replace NAFTA, he said, “I have long contended that NAFTA was perhaps the worst trade deal ever made.”
No surprise, he is wrong. And, oh the irony! If NAFTA was bad, it’s replacement is worse for all the participants, according to research by the C.D. Howe Institute. Its analysis shows US GDP will take a US$17.4 billion hit, followed by Mexico ($14.9 billion) and Canada ($10 billion).
That’s assuming all of the partners ratify the deal. So far Mexico is the only one of three to do so. The Trudeau government is in no hurry and the deal failed to clear the US House of Representatives before the summer recess. The United States-Mexico-Canada Agreement is unlikely to sail through the House when it does reconvene because the Democrats want changes, and they have the numbers to hold up ratification. Since NAFTA is a better deal for Canada than the USMCA, as long as it remains in place, we’re okay. Of course, Trump might decide in a fit of pique to cancel the whole thing and plunge our mutual trade into some kind of chaos.
Whatever. Trump the tariff man has reset the global order. We can expect more protectionist behaviour globally and a move to more bilateral agreements. That’s why it’s important for Canadian companies to take advantage of the trade deals we have in place.
The CPTPP agreement with 10 countries in the Asia-Pacific region and the CETA deal with the European Union offer huge markets.
Yes, small manufacturers lack resources and expertise, but there is a lot of help available (see page 20, Making it here) to speed entry. Benefits? Between 2009 and 2011, EDC says one out of 10 grew at an annual rate that exceeded 20%.
It’s no longer business as usual. Don’t assume the world will snap back into place if we can just wait out the next American election and Trump is sent packing. He could win, and crazier things have happened (as in the 2016 election). The world has changed and so must small Canadian manufacturers. Assume greater risks to reap greater rewards.