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Canada’s diversifying export base a step in right direction

The usual tale surrounding Canada's manufacturing exporters is one of cutthroat global competition, closing factories and disappearing jobs. But a new Statistics Canada report shows that this is only one side of the story – the one tied to our biggest trading partner, the United States. Canadian manufacturers are doing just fine in the rest of the world, thank you very much.

Overall, Canada's manufacturing exports from 2002 through 2012 fell by $20.7-billion, or more than 7 per cent. The declines in exports to the United States were much more pronounced – down $44.8-billion, or 17 per cent. This slide coincided with the loss of a half a million Canadian manufacturing jobs.

But outside the United States, the story for Canadian manufacturing exporters is more triumphant than tragic. The value of shipments to non-U.S. markets rose by $24.1-billion in the decade – a stellar 69-per-cent gain that offset more than half of the decline in shipments to the U.S.

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In 2002, the U.S. accounted for 88 per cent of Canada's manufacturing exports, versus 12 per cent for all other countries combined. By 2012, the U.S. share had fallen to 78 per cent, and the non-U.S. share had risen to 22 per cent.

Five years into the economic recovery, manufacturing exports to the U.S. have yet to bounce back to their pre-recession levels; yet the recession doesn't appear to be the villain here. The Statscan report notes that the downturn in Canada's shipments to the U.S. actually predated the economic downturn. And the auto sector has been at the heart of the decline.

Transportation equipment exports (made up mostly of motor vehicles and auto parts) to the U.S. fell by $28-billion, or nearly 30 per cent, from 2002 to 2012, the report said – at the same time as sales of transportation equipment by U.S. manufacturers rose 20 per cent. More that two-thirds of Canada's drop took place prior to the recession. During the same period, according to U.S. Department of Commerce Statistics, Mexico's sales of vehicles and parts to the U.S. nearly doubled – surpassing Canada as a supplier.

The evident loss of a big chunk of the automotive business to Mexico is unquestionably disconcerting, especially to Ontario's auto-heavy manufacturing core. Nevertheless, the decline in Canadian manufacturers' diversification away from a single (albeit huge and wealthy) market is, on the whole, a positive development.

In the 15 years following the 1988 Canada-U.S. free-trade agreement (and the subsequent North American free-trade agreement in 1994), Canada's exposure to the U.S. market grew from 73 per cent of its total exports to nearly 85 per cent. Such a concentration of risk in a single market made many observers more than a little nervous.

Now, Canada's manufacturing sector has not only reversed that trend and reduced its dependency on the U.S. market, it has also become less reliant on exports in general to drive the bulk of its sales. In 2012, exports accounted for 46 per cent of manufacturers' total sales, down from 52 per cent a decade earlier.

Overall, it's a healthier situation than what Canadian exporters were looking at a decade ago – and one more attuned to the emerging trends in the global marketplace. U.S. economic growth is expected to lag the global average over the next decade (the U.S. Conference Board pegs annual U.S. growth averaging only about 2 per cent to 2025, versus about 2.75 per cent for the world economy overall), while key recent growth markets for Canadian manufacturers, such as China, are expected to continue to grow faster than the global average. A more diversified export base is undoubtedly preferable for Canadian manufacturers in the longer run.

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