Canadian firms look toward Asia Pacific amid NAFTA strife
While U.S. remains prime export market, companies seeking growth farther afield
TORONTO Canadian companies have seen increased orders from U.S. customers in the past six months and are generally more optimistic about future sales in new markets, but remain concerned about the future of the North American Free Trade Agreement, according to a new survey by Export Development Canada.
Stalled NAFTA negotiations has caused “investment hesitation” among some Canadian exporters, but they are adjusting to the uncertain trade environment, suggests EDC’s bi-annual Trade Confidence Index that surveyed 1,000 companies.
“Canadian exporters are more positive about the near-term outlook,” the report said. “At the same time, however, ongoing NAFTA talks appear to be taking a toll,” according to the EDC, which noted that 28 per cent of Canadian exporters surveyed said NAFTA talks have had a negative impact on their Canadian operations, compared to 23 per cent at the end of 2017.
The survey was conducted during April and May, just as the threat of U.S. tariffs on Canadian steel (25 per cent) and aluminum (10 per cent) loomed over the horizon. U.S. President Donald Trump slapped the steel and aluminum tariffs on Canada on May 31, which were swiftly followed by retaliatory tariffs from Ottawa.
While the U.S. remains their prime export market, Canadian companies are also looking farther afield for growth.
“After a recently signed trade deal (CPTPP), Canadian exporters are paying more attention to the Asia Pacific,” the report said, referring to The Comprehensive and Progressive Agreement for Trans-Pacific Partnership signed by 11 countries on the Pacific Rim in March.
Seventeen per cent of companies surveyed had investments outside of Canada near the mid-point of 2018, compared to just 11 per cent at the end of 2017. A similar trend is playing out in planned investments outside of Canada, which stood at 22 per cent at mid-year, versus only 12 per cent near the end of 2017. Canadian exporters are also eyeing the U.K., Germany and Japan, and have increased investment plans in Mexico, India and the U.K.
China stands out as the country where Canadian exporters plan to make the most significant investment increases going forward. Nine per cent of companies surveyed reported already investing in China, and that figure jumps to 17 per cent for planned investments.
“Yes, the U.S. far surpasses China in terms of its share of Canadian exports, but the Chinese market has accounted for a growing share of Canadian goods,” said Benjamin Tal and Katherine Judge, economists at CIBC World Markets in a note to clients.
EDC’s overall Trade Confidence Index increased to 76.5 points from 73.5, and is now above its historical average, due largely to higher expected domestic and export sales.
Confidence rose broadly for all firm sizes, particularly small ones, while transportation, light manufacturing, and information and communication technology saw the biggest gain in optimism on a sector basis. Meanwhile, Atlantic Canada and Quebec saw the biggest improvements in sentiment regionally.