Canada's Manufacturing Malaise: A Comment

Abstract

In Canada, and indeed throughout the industrialized world, manufacturing is under pressure from a number of major supply side shocks, including technological change and the integration of labor-abundant emerging markets into the global division of labor. In Canada, these impacts have been intensified by several other developments; including the effects of high commodity prices, the global weakening in the U.S. dollar, the erosion of Canada’s preferential access to the U.S. market as the United States widened its net of free trade agreements, and in recent years, Canada’s trade orientation towards slower-growing economies. This paper documents the decline in Canada’s manufacturing sector, particularly in the past half-decade; and considers the linkages of this to the simultaneous deterioration in innovation, productivity, and trade performance. It makes a prima facie case that manufacturing in Canada is experiencing a condition of malaise and, moreover, that this malaise is the linchpin that connects the various problems. If this diagnosis is confirmed, Canada must address its manufacturing sector issues in order to improve its innovation, productivity, and trade performance.