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The Canadian manufacturing export industry has undergone big shifts over the past decade, according to a report recently released by Statistics Canada.
The report identifies three significant changes to the Canadian manufacturing export industry between 2002 and 2012:
- The proportion of exports going to countries other than the U.S. has increased.
- Canadian export product mix has become more balanced with transportation equipment no longer dominating exports to the same degree it had pre-2002.
- Domestic consumption of Canadian manufactured goods has increased, making Canada less reliant on exports overall.
Here’s a closer look at those trends, with all data presented based on the report.
Expanding Beyond the U.S.
The first trend the report identified is the diminishing importance of the U.S. as an importer of Canadian-manufactured goods.
From 2002 to 2012, exports of Canadian manufactured goods overall decreased more than 7 percent ($20.7 billion). This decline was led by the U.S., whose imports of products made in Canada fell by $44.8 billion over the same period. However, other countries registered a combined increase of $24.1 billion, offsetting the decline to the U.S.
The decline in exports from Canadian manufacturers to the U.S. largely occurred in 2008 and 2009, during the peak of the U.S. financial crisis and subsequent recession. As a result of this sudden drop-off from the U.S., Canadian manufacturers began diversifying their geographic reach, becoming less reliant on the U.S. for their exports, according to the report.
From 2009 to 2012, what the report refers to as “the recovery years,” U.S. imports from Canada increased 25.1 percent, but the U.S.'s relative share of Canada's exports only increased 0.6 percent. This is due to a relatively higher percentage of Canada's manufacturing exports going to other countries.
In 2002, 88 percent of Canadian exports went to the U.S. By 2012, that number had dropped to 78.2 percent.
One of the main reasons for the drop in the U.S.'s relative share of Canadian exports is China's rapid economic expansion over the past decade, the report said, and China is now the second largest importer of Canadian manufactured products, more than tripling its imports from Canada between 2002 and 2012.
This increase is largely driven by increased demand in the paper, wood and metal manufacturing industries. Food exports to China have also been a considerable factor in Canada's international export growth, increasing more than six-fold from 2002 to 2012.
The European Union has also been increasing its relative share of Canadian exports, importing nearly $5 billion more in Canadian manufactured goods in 2012 than it did in 2002, increasing its relative share of total exports from 4.5 percent to 6.5 percent. The United Kingdom is the biggest driver of this growth in the EU, responsible for more than one-quarter of all Canadian exports to the EU.
The report concludes: “This is not to say that Canadian manufacturers consider the American market less important, but that they developed new markets for their products during this period.”
The Canadian manufacturing export industry has also undergone a diversification of its export product mix.
Transportation equipment exports, Canada's long-time bread-and-butter export industry, decreased $26.1 billion between 2002 and 2012. While it is still Canada's largest export industry, its relative importance has diminished greatly over the past 10 years, according to the report.
Other Canadian manufacturing industries have experienced sizeable growth from 2002 to 2012, helping to offset some of the losses from the transportation equipment industry. Primary metals, for example, increased exports $9.5 billion between 2002 and 2012, moving it from the fourth to the second largest export industry in Canada. In relative terms, this industry increased from 6.7 percent of total Canadian manufacturing exports in 2002 to 10.7 percent in 2012.
Chemicals was another industry that increased significantly from 2002 to 2012, increasing exports by $8.8 billion, making it Canada's third largest manufacturing export. Petroleum and coal products saw the greatest dollar increase during this time, increasing $15 billion and becoming Canada's fourth largest manufacturing export.
It's interesting to note that all of these industries that experienced export growth between 2002 and 2012 also saw a decrease in the proportion of exports going to the U.S.; growth in these product categories was not due to U.S. consumption.
All this just goes to show the diversification of the Canadian manufacturing export industry over the past decade. While transportation equipment is still Canada's number one manufacturing export, it's relatively less important now than it was 10 years ago, comprising 27.1 percent of total manufacturing exports in 2012, as opposed to 34.1 percent in 2002. In 2002, excluding the transportation equipment industry, only one of the remaining 20 industries in Canada's manufacturing sector had a share of total manufacturing exports greater than 8 percent. By 2012, four industries exceeded this number.
Decreasing Reliance on Exports
The final section from the Statistics Canada report had to do with export intensity, or the ratio of exports from the manufacturing sector to manufacturers’ sales.
From 2002 to 2012, 14 of 21 industries saw their export intensity decline, meaning that a relatively higher percentage of their products were being sold domestically. Overall, Canada's export intensity decreased 6.5 percent during this period.
In 2002, the majority of manufacturers' sales were exports (export intensity greater than 50 percent), but by 2012 the majority of manufacturers' sales were to Canadian buyers (export intensity less than 50 percent).
Get the full report from Statistics Canada, with more detail on the above, here.