By: The Globe And Mail
Jim Stanford is an adviser to Unifor, Canada’s largest private-sector trade union, and Harold Innis Industry Professor of Economics at McMaster University in Hamilton.
By any definition, 2015 was a lousy year for Canada’s economy, complete with a technical recession, plunging oil prices and big stock market losses. Lurking in the statistics, however, is an unreported but encouraging good news story.
There is growing evidence that the national economy is starting to pivot away from its past over-reliance on the extraction and export of raw natural resources, energy in particular. Instead, Canada’s high-technology industrial base is starting to flex its muscles once again. And the first place this economic reorientation is becoming visible is in recent data on international trade.
We all know that energy and mining have been hammered by the global commodities collapse. But other exports are now starting to fill the gap. Statistics Canada defines five broad categories of “value-added” merchandise exports – industries that rely primarily on technology, productivity and skilled labour, instead of just the availability of natural resources. These sectors include industrial machinery, electrical and electronic products, motor vehicles and parts, consumer goods, and aircraft and other transportation equipment. These technology-intensive products typically command premium prices on global markets, in contrast to depressed commodity prices.
Based on the most recent trade data (up to October), Canada’s exports in these five sectors are growing like gangbusters: up nearly 15 per cent year-over-year, on top of impressive 12-per-cent growth recorded in 2014. In just two years, therefore, Canadian value-added exports surged by a compounded 28 per cent. In contrast, exports of “primary” products (minimally processed resources, including agricultural, energy, mineral and forestry products) declined 9 per cent over the same time – dragged down by slumping commodity prices.
In January, 2014, the five value-added categories accounted for just 35 per cent of total Canadian merchandise exports. By late 2015, they accounted for half. In fact, once the year-end numbers are in, it seems certain that Canadian value-added exports will set a new annual record (about $240-billion), finally surpassing the previous peak set back in 2000.
Auto is still the king of Canada’s value-added exports. Exports of vehicles and parts this year will total $85-billion – almost twice the depressed levels recorded in 2009. Even more spectacular growth has been recorded by other transportation equipment producers. These exports (led by aircraft) surged 42 per cent in the past two years. In fact, aerospace is one of the only high-tech sectors where Canada generates a trade surplus.
The value-added export boom is also evident in industrial machinery (up 22 per cent in two years), electrical and electronic products (22 per cent), and consumer goods (33 per cent). Thanks to the strong turnaround in these key sectors, we are proving once again that Canada can be more than just a supplier of raw materials to the rest of the world. Given the right economic conditions and policies, we can produce (and export) technology-intensive, value-added products with the best of them.
Two key factors explain this impressive expansion in value-added exports. The strong U.S. economy (still the destination for most of our manufacturers) is opening great opportunities for Canadian products. And the loonie’s return to Earth (after a decade at unsustainable heights) has boosted exporters’ margins and restored the cost competitiveness of Canadian products. In fact, in auto and most other value-added industries, Canada is once again very attractive on cost grounds relative to other industrial countries (including the U.S. itself). This should spur more investment in Canadian facilities, and hence more production and exports, in the years ahead.
The export surge from these strategic sectors is not yet translating into robust hiring or gross domestic product (GDP) growth across manufacturing as a whole. But it’s the leading edge of a process that should eventually translate into more investment, output and jobs. Canadian factories are busier, the quality and appeal of Canadian output is on display and the foundation is being laid for longer-term expansion.
There is a surprising policy lesson from this good news story. For years, the federal government was obsessed with negotiating new blockbuster trade deals – like the Comprehensive Economic and Trade Agreement with Europe and the Trans-Pacific Partnership. Neither is in place, and there’s considerable doubt they ever will be. In the meantime, surprisingly, it turns out that our high-value exports could be boosted more effectively through other means.
Perhaps Ottawa should worry less about trade deals (which may actually hurt value-added industries more than it helps them) and focus on delivering concrete, immediate support to strategic export-oriented industries. By cementing new investments and product mandates, and supporting domestic high-tech exporters (from BlackBerry to Bombardier), government would make a much bigger difference to Canada’s revitalized value-added exports than by barking up more free-trade trees.