The window to a new trade era is open

Now that the global commodity boom is blown, Canada is looking to manufacturing as a driver of economic growth. With a loonie swimming in the vicinity of 75 cents US and the US economy on a roll, it should be as simple as pressing the start button on the national production line and watching the money roll in.

The Conference Board of Canada is describing these conditions, reminiscent of the 1990s and early 2000s, as a new trade era.
But there are complications that need to be addressed.

The 2008-2009 recession kicked the stuffing out of developed economies resulting in job losses and plant closures, which has limited the Canadian survivors’ capacity to respond to growing demand from the US and the wider world.

A secret briefing document prepared for new economic development minister Navdeep Bains states there are significant structural obstacles interfering with a rebirth of the sector.

Like Jacob Marley’s ghost in A Christmas Carol, manufacturers have been dragging behind them – seemingly for an eternity – the burdens of poor productivity, poor innovation, a failure to scale up and weak participation in global value chains. Having avoided making adequate investments in these areas, they are adding to this list of impediments a lack of enthusiasm for advanced technologies.

Indeed, PLANT’s Manufacturing Outlook report reveals 22% of the companies responding to the survey aren’t collecting productivity data, and almost 50% are doing so manually rather than using new technology tools. And only 28% have connected the shop floor to the top floor.

A failure to address the “disruption” of technological change driven in part by Industry 4.0 and the Industrial Internet of Things will further weaken their performance in global markets where the list of competitors is growing. And demand in the US shouldn’t be taken for granted. Those competitors – notably China, which is moving into position as America’s number one trading partner – are cutting into Canada’s traditional markets.

The Conference Board benchmarked 38 industries based on their capacity to handle US demand.

Which industries are best equipped to exploit this new era? There are five, four of which are in the services area, and food manufacturing.

Six with strong demand but are short of capacity to quickly ramp up production are: wood products; pharmaceutical and medical; aerospace products and parts; other transportation (rail and shipbuilding); clothing; and motor vehicle parts.

But the Ottawa-based research firm also notes any industry can find lucrative niches in the US by approaching those markets strategically.

Manufacturers will likely be challenged to find the skilled workers they need. The Conference Board suggests looking within their firms for people they can train to fill new roles. And the loonie needn’t be an impediment to purchasing machinery and equipment. Source from places like Japan where the dollar has higher value. And governments are advised to recognize that exporting industries and the regions where they are located are shifting, which will impact the labour force and transportation networks north-south and east-west.

What’s the prognosis for manufacturers?

The Bains analysis suggests manufacturing rests on a solid foundation across the country and is on a firm footing to address opportunities, thanks to a solid science base and a highly educated workforce.

But Canadian companies must not put off investing in their competitiveness. The window of opportunity to capitalize fully on markets in the US and globally won’t be open forever.