Canadian Manufacturing Competitiveness and a Trump Presidency Mike

Canadian Manufacturing Competitiveness and a Trump Presidency Mike Holden Chief Economist, Canadian Manufacturers & Exporters February 9, 2017

About CME • Canada’s leading business network and advocacy organization • Directly represents more than 2, 500 leading companies nationwide. More than 85 per cent of CME’s members • Through its various initiatives, CME touches more than 100, 000 companies across Canada. • CME’s membership network accounts for an estimated 82 per cent of total manufacturing production and 90 per cent of Canada’s exports.

Presentation Overview 1. Challenges in Canadian Manufacturing 2. CME’s Industrie 2030 Initiative 3. Impact of a Trump Presidency

Canada’s position is slipping • Canada’s manufacturing challenges pre-date Trump’s arrival • Canada is losing ground to its foreign competitors • Not simply a case of production moving to lowcost jurisdictions. Canada’s Ranking in Global Manufacturing Output: 1984: 1994: 2004: 2014: 8 th 9 th 10 th 14 th

Productivity growth lags. . . • Productive jurisdictions are competitive and attract investment. • Since 2002, productivity growth has been half the US rate.

. . . as does investment. • M&E investment closely tied to productivity growth. • Canada has one of the worst records in the OECD. • US manufacturers dramatically outinvest Canadian businesses.

Industrie 2030 Strategic Plan • A strategy to double manufacturing output and value-added exports by 2030 • Leverage the opportunities of the Fourth Industrial Revolution • Consultation with more than 1250 industry leaders in person and on-line across the country • Action Plan for Growth – Manufacturing Growth, Innovation and Prosperity for Canada

Industrie 2030: Five Issues Individual strategies and recommendations developed in each of five key areas: • Labour and skills shortages • Adoption of advanced manufacturing technologies • Innovation and new product commercialization • Domestic and foreign market access • Competitive business climate

Impact of Trump Presidency Labour and Skills • Opportunity to attract people to Canada • There is an upper limit on absorption • Federal policy needs to focus more on economic migrants

Impact of Trump Presidency Business Climate • Major risk to Canada’s investment competitiveness • Tax and regulatory burden moving in opposite directions • Government policy must support new investments and tech adoption

Impact of Trump Presidency Market Access • Access to US market likely to deteriorate • Softwood, wine, supply management, procurement all at risk • NAFTA: renegotiation? Or reversion to Canada-US FTA? US trade deficit by country (in $US billions) 365, 7 China EU 153, 3 Japan 68, 6 Mexico 58, 4 Canada 15, 2 0 200 400

BC Perspective • BC exporters are outperforming the Canadian average. • Record year for BC exporters in 2016. • Exports to the US up 11. 6%, compared to 1. 8% for Canada. BC outperforming the rest of Canada 10 8 (ytd export growth, in %) 8, 3 8, 0 BC 6 4 2 Canada 2, 2 -1, 5 0 -2 Manufactured goods Total exports

BC Perspective • Post SLA: Wood products manufacturing up 10. 9% in 2016. • Wood products exports up 20% in 2016 and account for about 56% of BC’s export gains. • Lower growth expected in 2017 Softwood lumber driving BC’s gains in 2016 (growth, in %) 25 20, 0 20 15 10 5 0 -5 Exports 10, 9 Mfg output 2, 6 -0, 3 Dec 2014 - Oct 2015 2016 ytd

Strategy for the Trump Era Domestic Approach • Issues unchanged, but urgency on improving manufacturing competitiveness is magnified • Tax and regulatory burden needs to be lowered • Significant new incentives needed to promote innovation and investment in M&E

Strategy for the Trump Era Foreign Approach • Canada’s views do not matter. Must emphasize integration of Can/US economies • Canada is the top export destination for 35 US States • Must work with US associations and corporations – especially those operating in both countries

Mike Holden Chief Economist Canadian Manufacturers & Exporters Mike. holden@cme-mec. ca (403) 620 -5479 www. industrie 2030. ca www. cme-mec. ca www. manufacturingourfuture. ca