Canada – Resource Boom or Manufacturing Boom? Why Not Both!

by John Brian Shannon

I’m a big fan of Saskatchewan Premier Brad Wall. You can’t argue with success and the province has excelled with Brad Wall as premier. Well done on all counts, Premier Wall.

NDP leader Thomas Mulcair has a point, however. By devaluing the dollar, a huge part of Canada’s economy (almost 50%) could ALSO start to perform at a high level instead of continuing to sputter along at half-speed.

Not just the resource-based provinces romping along as they have been doing — but manufacturing provinces could return to full performance.

For manufacturing, a lower dollar will drive the demand of exports higher, Canadian production will ramp up, employment will increase. And we all know where – Ontario which is Canada’s largest ‘value added‘ economic zone.

Some people use the term manufacturing, but I call it what it really is, value-added. We take our provincially-owned raw resources and add value to those resources by manufacturing something from them or processing them, instead of merely selling our finite resources out of the country and getting nothing more from them.

Manufacturing has stalled in Canada, due in part to Canada’s strong dollar – our exports have become uncompetitive over the years as the dollar has risen. A direct correlation exists between those two stats.

If you want the biggest economic engine in Canada to suddenly begin to receive larger volumes of orders from other countries including the U.S. our biggest trading partner, causing those goods to become cheaper is the way to go.

Devaluing the Canadian dollar has NO EFFECT on Canadian consumers at all, unless you are purchasing goods and services from outside Canada. And if you are buying goods from other countries – shame on you – buy Canadian!

If devaluation inconveniences you because you purchase goods from other nations, a booming economy (Cdn resources PLUS Cdn manufacturing) firing on all cylinders should more than make up for it!

Some may wonder about losing our strong resource sector exports, which are already performing very well due to high demand for them in the rest of the world.

The price of raw resources will not drop when demand is so high.

It’s only different in the case of Canadian coal exporters who are facing dropping demand, which equals lower prices ($192.86 in July 2008, now at $99.75 in May 2012) devaluation could help, however, as a lower price will increase demand.

Those coal quotes are the 60 month (thermal coal) contract price from indexmundi.com — but are representative of world thermal coal price trends: http://www.indexmundi.com/commodities/?commodity=coal-australian&months=60

It is better to sell lots of coal at $85.00 per metric tonne, than hardly any at all at $100.00 per metric tonne.

Tourism to Canada would also receive a major boost as our prices would become more affordable due to devaluation of our dollar.

So, what’s the downside of getting Canada’s manufacturing sector and related (which together represent up to 50% of Canada’s economy) again firing on all cylinders — by devaluing the dollar by up to 20%?

As long as demand remains high for gas and oil there should be little downside for Canada’s resource-based provincial economies, as that high demand dictates prices will stay the same, or continue to increase.

I can understand Premier Wall’s concerns for Saskatchewan’s resource and agriculture based economy – but at this point in time, world demand remains high for all resources – and for coal too – but only at the right price.

Follow John Brian Shannon on Twitter: https://twitter.com/#!/JBSCanada

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