Export outlook by industry

Industry is by and large a neutral noun, but not these days. It’s giving many the shivers on our neo-protectionist planet. Why? Well, anti-trade policy is not yet undoing trade agreements, and isn’t likely to because of the costs. But it is taking aim at individual industries, and it’s a radar screen that no industry wants to be on – especially if you happen to be in a trade-intensive economy like Canada’s. Amid trade policy turbulence, what’s the outlook, by industry, for Canadian exporters?

Usually, protectionist rhetoric and policy moves occur when the economy is languishing. That was yesterday’s story, and is in our view the foundation for populist resentment of freer trade. In contrast, today’s growth laughs at backward-looking and backward-moving policies, complete with its soaring industrial output and plunging unemployment rates – occurring as they are in the very places where trade naysayers are most vocal. It’s a stunning juxtaposition; what are the actual impacts?

The aerospace industry is one that benefits from an upswing in global growth, as business travel accelerates and as rising disposable income boosts tourism. It was also among the first of Canada’s industries to get into the anti-trade crosshairs. Thankfully, the 300 per cent duties levied by the US Commerce Department were struck down by the US International Trade Commission. Uncertainty alone could upend export activity; not so in this case. Exports are forecast to rise smartly by 16 per cent this year, and to add a further 7 per cent in 2019.

Lumber is another embattled industry. Expiry of the Softwood Lumber Agreement with the US in October, 2015 led to announcements of stiff tariffs on Canadian producers about a year ago. That ought to be enough to shut things down – but it’s also up against a US housing market that is on the move. Starts of new dwellings are at their highest 6-month average level since the Great Recession – and there is still plenty of pent-up demand to spur the market to much greater heights. Canada is capitalizing: exports of forest products are forecast to rise 16 per cent this year, and to build that up by 2 per cent more in 2019.

Steel and aluminum were industries in a tizzy mere weeks ago when the US administration slapped tariffs on US-bound Canadian exports. True, we were given a temporary exemption but again, the turbulence can rattle activity. Metals are another case where the data argue the opposite: we see 13 per cent growth in 2018.

Not all recipients of protectionist pronouncements can sport double-digit projections, though. The auto sector faces back-to-back years of virtually zero growth, as increases in parts shipments are offset by lower exports of assembled vehicles. Weakness is due to the long-anticipated unwind of assembly facilities and the peaking of US sales, and is not currently related to threats of increasing US content requirements or political pressure to invest stateside.

Other industries that will perform decently include industrial machinery and equipment, slated to expand by 9 per cent this year and 5 per cent in 2019. Revived mining activity and tight US capacity constraints are two key reasons for this impressive showing. Chemicals and plastics should also perform well, sectors that typically benefit from rising US – and global – industrial production. 

Distribution of this growth across the provinces is understandably uneven. Both Alberta and Newfoundland & Labrador will benefit from the ramp-up of key energy projects. Quebec will also fare well, boosted by the performance of the aerospace and metals industries. Autos will keep Ontario muted, and the ups-and-downs of the agriculture sector will soften growth in both Manitoba and Saskatchewan.

EDC’s latest Global Export Forecast shows that the free market is currently doing what it does best: overall growth is trumping anti-trade tactics, and for the time being, Canadian exporters are capitalizing on good times.