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Workers oversee the Honda CRV production line at the Honda manufacturing plant in Alliston, Ont., on Apr. 5, 2023.
Cole Burston/The Canadian Press The new year kicked off with what looked like good news for Canada’s beleaguered manufacturing sector. The problem is, looks can be deceiving, and the prospect of U.S.
tariffs on imports from Canada appears to be juicing growth. Canada’s manufacturing activity expanded in December at the fastest pace in nearly two years, according to the latest reading from the S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI), which climbed to 52.2 that month.
A number above 50 represents growth from the previous month. Canada stood out in a world of manufacturing gloom. At both the global and U.
S. levels, manufacturing activity contracted last month, according to S&P. But a big driver of Canada’s robust factory activity likely comes from U.
S. customers hoping to stockpile inventories before the incoming Trump administration can potentially slap a 25-per-cent tariff on all imports from Canada. “Panellists are forecasting a near-term boost to sales ahead of these possible tariff changes, which helped bolster production expectations,” said Paul Smith, economics director at S&P Global Market Intelligence, in a statement.
“However the shape and extent of these tariffs remain unknown and led to considerable uncertainty.” The question of whether this is a sustainable recovery or a temporary blip driven by trade uncertainty is critical for a sector of the economy that has languished due to underinvestment and poor productivity. Canada now has the “unfortunate distinction” of having the smallest manufacturing sector (as a share of the economy) among the Group of Seven countries, according to a recent report by National Bank of Canada economists Stéfane Marion and Ethan Currie.
“Without decisive action, Canada risks becoming irrelevant in the North American and global manufacturing supply chains, along with its ability to drive innovation and sustained economic growth,” they wrote. Decoder is a weekly feature that unpacks an important economic chart..
