Why the rebirth of manufacturing is bypassing Canada – by Barrie McKenna (Globe and Mail – October 7, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA — The footwear industry has always been hypersensitive to labour costs. In the hunt for savings, manufacturers are forever scouring the planet for the next best place to produce shoes and boots.

That’s why it’s notable that Merchant House International Ltd., which makes boots for Wal-Mart Stores Inc. and Sears Holdings Corp., announced last month that it will open its first U.S. plant in Tennessee early next year. Until now, the Hong Kong-based company has made its footwear exclusively at factories in China.

The so-called reshoring phenomenon is now spreading to industries that experts long ago gave up for dead in North America, including clothing, textiles and footwear.

But it isn’t just clothing and textiles. More than half of U.S. executives at manufacturers with sales of at least $1-billion (U.S.) say they are planning to repatriate some production to the United States from China, according to an August survey by Boston Consulting Group. Respondents cited factors such as proximity to customers, product quality and lower transportation costs, competitive wage rates and skilled labour.

So far, the manufacturing renaissance appears to be bypassing Canada. The spoils are going mainly to the United States.

The bottom line is that Canada is not a competitive place to make things at the moment. And the comparison to the U.S. doesn’t look good.

In a speech last week, Bank of Canada senior deputy governor Tiff Macklem lamented that Canada is losing competitiveness and, as a result, its share of global trade.

Most troubling, Canada is ceding ground to its main trading partner. Between 2000 and 2012, Canadian unit labour costs increased 75 per cent compared with the U.S. The main factor that’s sapping competitiveness is the rise in the value of the Canadian dollar, but Mr. Macklem also blamed weak productivity growth. And that lack of competitiveness is costing the country more than $70-billion (Canadian) a year in exports.

The country’s share of global trade has fallen to 2.5 per cent from 4.5 per cent in 2000. Canada’s share of the U.S. market, which buys more than 70 per cent of the country’s exports, has sunk to 15.4 per cent from 20 per cent since 2000.

The worry is that Canada may not have a solid manufacturing base left when – and if – the currency and other factors turn in Canada’s favour.

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