Manufacturing in Canada Fading Much Faster Than In U.S. Since NAFTA

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As Donald Trump campaigned this fall against free trade deals like NAFTA, Canada’s government celebrated the signing of a new trade deal with the EU.

It’s a reflection, in part, of how negative attitudes in the U.S. have become about foreign trade, and a reflection of Canadians’ more positive assessment of globalization.

But a new report suggests that, at least when it comes to manufacturing, Canada has fared worse than the U.S. since NAFTA.

destruction of capital stock us canada
Chart: National Bank Financial

According to an analysis from National Bank Financial (NBF), the “capital stock” of Canadian manufacturing — meaning the value of all the equipment, buildings, infrastructure and intellectual property in the industry — is almost 10 per cent lower today than it was when NAFTA came into force in 1994.

Meanwhile, the U.S.’s capital stock has grown more than 45 per cent in the same amount of time.

factory padlock
Canada's manufacturing "capital stock" has shrunk since NAFTA, reducing the country's ability to manufacture. (Photo: Ed Simpson via Getty Images)

“While factory capacity is still being added in the U.S., the same cannot be said on this side of the border,” NBF chief economist Stefane Marion wrote in a client note.

“The situation is particularly troubling in central Canada, where Ontario is but a shadow of its former self.”

The problem is jobs

So why is the American attitude towards free trade so much worse than the Canadian one? It may have to do not with the success (or lack thereof) of factories, but with how many jobs they’re creating.

Both the U.S. and Canada have lost factory jobs since NAFTA came into force, but the problem was worse in the U.S. earlier on. U.S. factory jobs were stable, if not impressive, through the 1990s, and began falling rapidly around 2000/2001. But Canadian factory jobs grew through the 1990s, reaching an all-time peak in 2000. (U.S. factory jobs peaked in 1980.)

"Ontario is but a shadow of its former self.”
— Stefane Marion, National Bank Financial

But since 2000, both countries have been shedding factory jobs rapidly. Canada lost more than 23 per cent of all its factory jobs in that time, with employment falling to 1.7 million from 2.2 million.

The U.S. lost 28 per cent of its factory jobs in that time, falling to 12.2 million jobs from 17.1 million.

Is it really NAFTA’s fault?

The fact that the U.S. has grown its manufacturing base while shedding jobs suggests that this may not simply be a case of Mexico taking U.S. and Canadian jobs.

In fact, this suggests that automation is at least as responsible for job losses as offshoring.

And that could mean Donald Trump’s promise to bring those offshored jobs back will prove futile.

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