Canadian exporters have many reasons to be fearful and to pivot their business strategies right now. Anti-trade rhetoric continues to dominate the headlines; major trade agreements are being renegotiated or scuttled and there’s a real-time threat to Canada’s relationship with its largest trading partner.
And yet, despite elevated trade policy uncertainty, a stronger Canadian dollar, and softening Canadian merchandise exports in recent months, the overall confidence of Canadian companies in selling abroad was down only marginally in the last six months according to the Trade Confidence Index, a semi-annual report by Export Development Canada (EDC).
This latest survey dug deeper to find out what moves companies are making, if any, to protect against a highly-uncertain and rapidly-changing environment for global trade policy.
“We needed to ask more questions this time around to find out if companies are acting on what they’re seeing to determine how big of an impact the changing global trade context is having for Canadian exporters,” said Peter Hall, Chief Economist, EDC. “And while companies aren’t necessarily panicking, we found that almost one quarter of Canadian exporters said that the on-going NAFTA renegotiation was having a negative impact on their Canadian operations and they already are or plan to implement strategies to mitigate this.”
In the context of elevated U.S. trade policy uncertainty; this survey reveals a significant drop in the number of Canadian exporters planning to export to the U.S. market in the next two years. This new finding is part of emerging — albeit tentative — evidence that suggests slower growth in Canadian export capacity and interest.
“Despite a challenging external environment, the bottom line is Canadian trade confidence appears to be holding its own but is being pulled in different directions by opposing forces,” said Hall. “This is a direct reflection of the clash of conditions we now see in the global economy and we can only imagine what it would look like without the NAFTA uncertainty.”
The Trade Confidence Index (TCI), released today, is a pulse check of Canadian exporters’ level of confidence and their expectations of international trade opportunities over the next six months.
Almost one quarter of Canadian exporters reported that the on-going NAFTA renegotiation is having a negative impact on their Canadian operations. Negatively-affected firms say they are responding using the following strategies:
- contemplating moving their operations inside the United States to avoid potential border disruptions;
- proactively seeking to diversify their operations away from the U.S. market;
- taking a more conservative “wait and see approach” by doing nothing, or delaying investment or hiring.
With a new trade agreement now in force between Canada and the EU, and Europe’s economy continuing to improve, Canadian companies are paying more attention to the European market. They are planning to expand their existing exports to Europe, and/or are developing new products and services for the European market, as well as taking advantage of cheaper European imports due to tariff reductions.
At a time when Canada and China are engaged in exploratory discussions towards a possible bilateral trade negotiation, we asked Canadian exporters to China about the challenges they are facing in that market. The most common responses were: conforming with local regulations or standards; protecting intellectual property rights; language and cultural differences; building relationships; obtaining market information; securing payment; and competition from state-owned enterprises.
Rising interest rates could become a bigger issue for Canadian exporters in the future. Nearly one-quarter of respondents reported that higher interest rates were having a negative impact on export sales.
Sentiment fell marginally in all regions of the country with the largest decline in the Atlantic Canada, which fell from 73.5 to 70.8, and continued to have the weakest showing among the regions.
Export Development Canada (EDC) is a financial Crown corporation dedicated to helping Canadian companies of all sizes succeed on the world stage. As international risk experts, we equip Canadian companies with the tools they need – the trade knowledge, financing solutions, equity, insurance, and connections – to grow their business with confidence. Underlying all our support is a commitment to sustainable and responsible business. To help Canadian businesses facing extreme financial challenges brought on by the global response to COVID-19, the Government of Canada has expanded EDC’s domestic capabilities until December 31, 2021. This broader mandate will enable EDC to expand its support to companies focused domestically.
For more information and to learn how we can help your company, call us at 1-800-229-0575 or visit www.edc.ca.