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Canada / Analyst Insights
Top Canadian Export Industries to Benefit from USMCA Ratification

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by Olivia Ross, Industry Research Analyst
Jun 26 2019

This past May, the United States government reached a deal to lift steel and aluminum tariffs on Mexico and Canada, eliminating a huge hurdle to the ratification of the United States-Mexico-Canada Agreement (USMCA), the revised version of the North American Free Trade Agreement (NAFTA). The tariffs were first applied in March 2018 by the US government in an effort to boost its domestic steel industry and enact restrictive policies on Chinese steel. Mexico’s Senate approved the agreement June 19, making it the first country to ratify the USMCA.

If ratified, the USMCA would update labour and environmental standards, country-of-origin rules, intellectual property protections and digital trade provisions. Given the role international trade conditions play in influencing Canada's economic growth, the USMCA is expected to sustain the expansion of several high-exporting industries by preserving strong trade relations between Canada and its largest trading partners.

Over the five years to 2019, the Canadian Effective Exchange Rate (CEER) decreased an annualized 1.9%. A depreciation of the Canadian dollar typically catalyzes an increase in export activity and makes domestic goods more attractive in the international marketplace. According to the Economic Complexity Index (ECI), Canada exported $274.0 billion in goods to the United States in 2017, followed by China ($18.4 billion), Japan ($9.7 billion) and Mexico ($8.1 billion).

The following industries are anticipated to benefit from the highest Canadian trade surpluses in 2019, which represents a net inflow of domestic currency from foreign markets. Although the Canadian parliament will not readjourn until September, any upcoming policy changes pertaining to trade are likely to affect the following industries over the five years to 2024.

Oil Drilling & Gas Extraction

Although international trade in the Oil Drilling & Gas Extraction industry in Canada (IBISWorld report 21111CA) suffered from a global supply glut that caused significant price declines over the five years to 2019, the industry remains highly reliant on global markets and is anticipated to record a trade surplus of $66.1 billion in 2019. Canadian oil exports are destined primarily for the United States, which is forecast to receive 96.2% of total exports in 2018 (latest data available). Most US exports are destined for the country’s downstream refineries and, as a result, the industry’s trade relationship has been important over the past five years. While industry exports have fallen at an annualized rate of 4.9% over the five years to 2019 to total $88.5 billion, exports are still anticipated to account for 84.3% of total revenue in 2019, indicative of the industry’s reliance on stable export demand from the United States.

SUV & Light Truck Manufacturing

As a crucial component of the trilateral North American automotive sector, trade plays an integral role in the SUV & Light Truck Manufacturing industry in Canada (33611bCA). In 2019, exports are expected to account for 89.6% of industry revenue, up from 86.7% in 2014. Ultimately, Canadian production is primarily geared toward satisfying US demand, supplementing production south of the border for the larger US market. The United States regularly accounts for over 95.0% of total industry exports, and stable demand from the country is likely to contribute to the industry’s anticipated $8.2 billion trade surplus in 2019. The proposed USMCA contains four measures affecting automakers, including an exception for the Canadian and Mexican governments on potential future tariffs imposed by the United States on some motor vehicles and auto parts.

Aluminum Manufacturing 

The aluminum market is a highly globalized industry characterized by significant trade volume across national borders. Operators in the Aluminum Manufacturing industry in Canada (33131CA) are heavily dependent on exports to generate demand, with exported aluminum accounting for 74.6% of industry revenue in 2019. Favourable trade conditions stemming from NAFTA have historically benefited the industry, which is anticipated to record a $4.5 billion trade surplus in 2019. Demand for from US markets has continued to rise steadily over the past five years, leading many of these customers to source unwrought, or raw, aluminum from foreign suppliers. As a result, industry revenue has increased at an annualized rate of 5.7% to total $13.8 billion during the period, whereas exports have increased at an annualized rate of 7.0% to total $11.5 billion. Moving forward, the projected depreciation of the Canadian dollar, combined with favourable provisions in the USMCA and rising worldwide demand for aluminum, is anticipated to support export growth.



Edited by Stephanie Conte

Infographic Design by Rebecca Simon