Canadian dollar: Devaluation = Increase in exports?
Many exporters are asking: “Why – in spite of our dollar trending so much lower from the days of parity – have we not seen a significant increase in Canadian exports?”
There is a widely held perception that a weaker Canadian dollar should make the country’s exports cheaper to foreign buyers, leading to greater demand for our products, increased domestic production, and improved economic growth. However, despite a devalued Canadian dollar of late, neither growth in exports nor overall economic performance has increased significantly.
Often, when the value of the Canadian dollar falls relative to that of the U.S. dollar, Canadian companies will focus their efforts on the U.S. market, expecting an upsurge in U.S. interest in Canadian exports. However, this isn’t typically the case. Currently, a relatively flat U.S. economy has led to an overall decline in U.S. consumer demand, significantly impacting the willingness of U.S. importers to buy foreign products – Canadian or otherwise.
While the U.S. remains Canada’s largest trading partner, its overall share of Canada’s exports has been declining for several years. A Reuters analysis of historical economic trends and polling data indicates that U.S. demand for Canadian products is not as sensitive to the relative value of our currencies as one might think. The analysis concluded that export-led Canadian economic growth is likely affected more by U.S. consumer demand than the strength of the Canadian dollar.
Besides, Canada’s economy is tied to more than our U.S. exports: the price of oil – a major Canadian export – has also fallen sharply in the past year and a half, affecting overall economic performance, too.
Looking ahead, globalization may present Canadian companies with the most promising opportunity to improve performance through development of stronger relationships with new and existing foreign markets.
In light of these facts, our messaging for Canadian exporters is…
- Keep a realistic outlook with respect to the potential for growth of U.S. markets.
- In the face of declining industry-specific exports, diversification can be an effective strategy to offset underwhelming economic performance.
- Globalization and an increasing number of trade agreements can make the pursuit of new export markets attractive.
- To maximize market opportunities, exporters are advised to develop strong relationships with professionals, including aligning with a customs broker and/or trade agreement specialist to facilitate access to foreign markets and optimize the benefits of free trade agreements.
For advice on diversification, market conditions, free trade agreements and other tools to enhance your export business...
Information provided by: Supply Chain Consultant - Cole International
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