Race to export beyond U.S. picks up as tariff squeeze grips Canada

It was a bumpy hebdomad for the canadian river economic system.

GM set off 500 workers at a plant in Oshawa, Ont. New threats from the White House targeted Canada’s aerospace industry. And Statistics Canada announced its preliminary estimates show gross domestic product contracted in the fourth quarter of last year. 

Looming over all that bad news is a question about how much and how quickly Canada can realistically expect to diversify its exports.

The federal government has announced plans to sharply increase its trade with countries around the world, bolster internal trade and boost investment in this country by as much as a trillion dollars over the next five years.

The problem is, those changes take time. And the squeeze on Canada’s economy is happening right now. Can the new plans actually deliver benefits quickly enough to offset the damage?

Consider Canada’s auto industry. 

GM cuts 1 of 3 shifts at Oshawa plant, final shift for some wrapped this morning

That sector is one of the worst hit though the trade war. Thousands of jobs have been lost. Shifts have been idled. Windsor, Ont., had the highest unemployment rate in the country.

"Manufacturing jobs as a share of Ontario’s total employment recently fell below 10 per cent for the first time since record keeping began in 1976," wrote the Ontario government’s financial accountability officer in a report last year.

As part of its diversification efforts, the federal government signed a memorandum of understanding with South Korea last week. It said the deal included the "intention to co-operate on advancing a Korean automotive industrial footprint in Canada."

Right now, no Korean automaker has a production facility in Canada. And the move was seen by many as a small flicker for hope for an industry that’s had such a tough year.

"Canada is an auto nation — today, tomorrow and in the future — so our government is making strategic investments to protect jobs and strengthen the auto sector across the country," wrote the government in a release.

But the reality may be less promising than first implied.

"We are reviewing a range of co-operation opportunities, including potential collaboration in the hydrogen energy sector to support Canada’s clean energy transition."

Hyundai has heavily invested in hydrogen-fueled cars. They have longer range and can refuel faster than electric vehicles. But they lack the kind of infrastructure required for widespread adoption.

Squaring the potential of diversification with the reality of finding new partners will be among the biggest challenges facing Canadian businesses and policymakers this year.

The Bank of Canada says firms in this country are trying to diversify.

"This shift is likely to occur gradually. Finding new markets and building new export supply chains will take time and be costly," wrote the central bank in its recent business outlook survey.

RBC economist Claire Fan says the companies that have managed to pivot are those that were already exporting to non-U.S. Markets.

"In other words, firms with established trade channels and infrastructure to non-U.S. Markets were able to leverage those to ramp up their exports to those markets while those without access were left behind," she said.

At a recent panel discussion put on by the Canadian Club of Toronto, industry experts heralded attempts to grow Canada’s export markets.

Tracy Robinson, president and CEO of the rail company CN, said expanding trade requires expanding supply chains.

"If you think about 50 per cent of our trade going to global markets in the future, that means we're going to need port capacity and terminals at the ports. It means we'll need rail capacity," she said.

Canada has struggled to approve and build big infrastructure projects. The recent Trans Mountain pipeline expansion, for example, took 14 years to approve and build. Its costs ballooned after the federal government bought the project in order to get it completed.

Sean Strickland from Canada’s Building Trades Unions says harbours at ports need to be dredged to ensure ships can move at capacity. 

"In order to dredge the channel, it's going to take four years of permitting, for four months of work. So this is a problem that we have in Canada," he told the luncheon.

The panel also agreed that maintaining benefits of the Canada-U.S.-Mexico trade deal should be a top priority. A review of the CUSMA agreement is set to take place this summer.

Strickland says Canada needs to be careful and that no deal is better than a bad deal. But CUSMA has been good for Canadian workers and Canadian businesses, he says.

Diversification can help some industries cushion the blow of the trade war. It can help negotiators make a deal with the U.S. But Canada’s business community has been clear, the priority must remain preserving the best deal possible with Canada’s biggest trading partner.

"So, we need to get a decent deal on CUSMA for sure. That's got to be job number one," said Strickland.

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