British Columbian manufacturers are in a better position to benefit from the sagging loonie than operations in other provinces.
“[B.C.] has a better chance of benefiting from a lower dollar because so much of our manufacturing is resource based,” said Andrew Wynn-Williams, the B.C.-based divisional vice-president for Canadian Manufacturers and Exporters. “But by the same token, we don’t think relying on a low Canadian dollar is a good strategy for economic growth.”
The Canadian dollar’s drop against the U.S. greenback, the currency of Canada’s largest trading partner, is unsurprisingly a double-edged sword. Canadian products have become comparatively cheaper south of the border; driving increased demand for Canadian exports. However, this may not be enough to help businesses that have struggled through rising interest rates, inflation, a global shipping crisis and pandemic restrictions.
“It will help, but at the margins more than anything else,” said Nicolas Schmitt, economics professor at Simon Fraser University. “I don’t think it is significant enough on the export side to be the saviour. For some firms yes, but not for the overall economy.”
Increased demand for Canadian goods is largely limited to the U.S., as the currencies of many other Canadian trade partners – in Asia and Europe – have also weakened against the dollar.
A strong U.S. dollar isn’t necessarily all good news for Canadian businesses, either.
Wynn-Williams says that any benefit from a lower dollar is offset by a company’s inability to buy expensive equipment in the longer term.
“You can’t rely on [a low Canadian dollar], you need better productivity for economic growth; not taking advantage of a temporary windfall,” said Wynn-Williams.
The stronger greenback also means that American goods have become more expensive. While Canada regularly carries a trade surplus with the U.S. by exporting more than it imports, the country still imports over $200 billion worth of goods, all of which will become comparatively more expensive.
This could raise the price of goods domestically, according to Schmitt. The longer the loonie remains weak against the U.S. dollar, the greater the chance that an increase in input costs ripples through the rest of the economy, he said.
“If it is just a matter of three months and the [Canadian] dollar is coming back up, the effect on prices will not be that significant,” said Schmitt. “But if it lasts six months plus, of course it will have an effect on domestic prices because they will have to pass on those costs to their customers locally.”
So how will companies respond? If they have an international customer base, Schmitt says they have a relief valve, as businesses with established export markets can focus on expanding. Companies in this position have a competitive advantage, and could keep domestic prices low while bolstering revenue through exports.
However, companies that have been more focused on domestic customers won’t be able to respond to this opportunity as fast as others.
Schmitt said that it is a difficult and time-consuming task to find international buyers and establish an international market. Companies that have not already done so will have a tough time adjusting quickly enough to capitalize on a weak Canadian dollar.
Businesses that rely heavily on the domestic market and with little or no export sales will have few options other than to try to find domestic suppliers or raise their prices.
Wynn-Williams says that members at the Canadian Manufacturing and Exporters industry group are more concerned with rising costs, labour shortages and the possibility of a looming recession than a low Canadian dollar. In fact, no members have raised it with him as a concern.
