Canadian trade confidence falls to lowest level in seven years: EDC survey

Trade confidence among Canada’s exporters fell to its lowest level since the European debt crisis seven years ago, according to the latest Trade Confidence Index from Export Development Canada (EDC).

All five components of EDC’s index were down again, continuing the decline seen in the 2018 year-end survey. The slide was broad-based, led by a weaker outlook for international business opportunities, but also reflects softer expectations for the Canadian and global economies.

Taken together, the drop of 5.3% brings the trade confidence index down to 69.8, almost four points below the series’ historical average.

“Disruptive international trade policies have clearly shaken the confidence of Canadian exporters,” said Peter Hall, Chief Economist with EDC. “One third of respondents are already negatively impacted by protectionist measures now in place, and an overwhelming majority see no resolution of major global trade issues within the next year.”

Removal of steel and aluminum tariffs a positive development since survey

Tariffs and trade barriers remain the top concern reported by Canadian companies contemplating growing or maintaining their business outside of Canada.

More than one third (34%) of the survey’s respondents say protectionism is affecting their export and international investment strategies, while a similar share (31%) say the U.S.-China trade dispute is negatively affecting their export and investment activities.

Looking ahead, few Canadian exporters said they expect any respite. In fact, more than 90% of respondents either said they expect protectionism measures to worsen (47%) or stay the same (45%) over the next 12 months.

One bright spot, however, is the recent decision by the United States to reverse the steel and aluminum tariffs, which were still in place when EDC conducted this survey in March and April. The Trade Confidence Index found the tariffs were having negative impacts for some companies in those industries directly affected; they reported seeking alternate markets and suppliers—including sourcing locally to avoid the tariffs—as well as raising prices.

“The removal of North American steel and aluminum tariffs is great news, raising the likelihood of the trade agreement between Canada, the U.S. and Mexico (CUSMA) passing into law—which, at the time of our survey, showed that a slim majority of respondents, 55%, expected CUSMA passage in 2019 or 2020,” Hall said.

“Indeed, uncertainty during the NAFTA negotiations and the ongoing CUSMA ratification process appears to be causing an investment hesitation among some Canadian exporters, who are awaiting additional clarity on the rules of North American trade.”

Elevated diversification push during CUSMA talks subsided

Though the push for diversification has waned since last year, Canadian exporters are still contemplating new markets, with many respondents saying they’re looking to take advantage of Canada’s new trade deals. 18% said they’re planning to expand their exports to the European Union, which is covered under the Comprehensive Economic and Trade Agreement (CETA). 15% said they’re looking at countries in the Asia-Pacific, which are covered under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Findings were similar for those businesses who said they’re are looking to start exporting to these countries, with 14% mentioning the European Union and 12% mentioning the Asia-Pacific region.

After seeing more interest in diversifying during the CUSMA negotiations, however, the proportion of Canadian businesses now planning to export to a new market or invest abroad has returned to historical averages.

Respondents who said they were planning to export to new markets dropped to 50% from more than 60% a year ago. Further, the share of those who said they plan to invest outside of Canada dropped to 11% from 20% a year ago.

EDC knows the risks that come with being an entrepreneur, and recognizes the challenges many face when taking—or even thinking about taking—their business international. That is why EDC has carefully curated a toolbox, available to Canadian exporters of all sizes and from all sectors, to show exporters where the opportunities to grow exist and to provide support along the journey.

More takeaways

• More than 40% of respondents with an opinion said they anticipate the next global recession to occur within the next two years.
• Although trade confidence fell across most regions of the country, the index was up in Atlantic Canada, which is now the most optimistic region regarding future international business opportunities.
• Of the exporters surveyed, 36% said they were experiencing growing difficulties finding skilled labour—a number which has grown steadily since 2017.

Click here to access the survey.

About EDC’s Trade Confidence Index

EDC surveys 1,000 Canadian exporters twice a year for the Trade Confidence Index, providing insights otherwise unavailable through traditional trade statistics. The results are a pulse check of Canadian exporters’ level of confidence and their expectations of international trade opportunities. Respondents are a mix of small and medium- to large-sized companies across the country. The telephone survey was conducted from March 19 to April 15, 2019.

Note: While EDC’s survey was conducted, a six-month extension of the Brexit deadline was announced on Apr. 10. Since the survey was conducted, North American steel and aluminum tariffs were eliminated on May 13.