Let’s Import our Way to Manufacturing Recovery.

Today Stephen Harper announced that the Conservatives will support the hard hit manufacturing sector  by “abolishing tariffs on a wide range of imported machinery and equipment.”

There’s no question that higher rates of real investment in new plant and equipment are essential to a manufacturing recovery.  That’s why manufacturing unions,  the CLC and all parties on the Industry Commitee  of the House of Commons supported the two year fast write off for new investment in machinery and equipment introduced in the 2007 Conservative Budget.

Curiously, the Conservatives decided to phase out  the two year write off in the 2008  Budget, starting in 2010.  Jayson Myers, President of the industry group, Canadian Manufacturers and Exporters, responded as follows:

“Disadvantage Canada, that’s what this budget represents for Canada’s manufacturing and exporting sectors …”We were very specific in what the nation’s most innovative industry needed and we received recycled ideas and pocket change at a critical time when we needed tangible solutions. It’s disappointing.”

The new Conservative policy of tariff reduction is vague and fairly trivial. We already have zero tariffs with the US, the source of most of our M and E imports.

What is somewhat strange is that tariff reduction will surely undermine the competitive position of some Canadian M and E producers in the Canadian market, the opposite of a needed Made in Canada approach to recovery.

In 2007, Canada ran a large deficit of about $60 Billion in trade of machinery and equipment – with exports of $106.8 Billion and imports of $166.6 Billion. Do we want to increase this gap? Or should we be thinking about how to stimulate our few areas of stength in this area, such as manufacturing of equipment used in  our resource industries.

For my money, the better policy would have been to stick with a targeted incentive to machinery and equipment investment, and retain the small edge which Canadian equipment manufacturers retain from current tariffs.

5 comments

  • From January through July 2008, Canada ran a $5.1-billion trade deficit in machinery and equipment with the European Union. On October 17, Canada will begin trade negotiations with the European Union. By announcing the unilateral elimination of (some) Canadian tariffs on machinery and equipment, Harper is throwing away bargaining chips on the eve of negotiations.

  • We run a deficit in bananas, too. Why does it matter if we run a deficit in M&E?

  • Tomorrow’s release of the Labour Force Survey should be another high point in the election.

    Who wants to lay down some cash on a bet that the LFS tomorrow will be quite mute on anything, i.e. displaying not much of a change in either direction.

    The truth is out there, will we see it finally? Don;t bank on it. But bank on this, next quarter we will see a big catch up in job loss. And I do not see how this is cheer leading a recession that the right winger’s make it out to be. We just want the real facts to be reported in the correct time frame and have policy maker’s react accordingly.

    This we have not seen from our statistical agency over the past few months. The numbers have been wrapped up in a political shroud of elections and denial.

    We need to have a public review of statistical methods and collection versus political interference. We need reassurance after this period of highly suspect statistical releases on GDP and LFS numbers. How can we ensure non-interference.

    We take the government’s word for it? Just like the tainted meat, water quality, and many other cases.

    I think it is review time for Statistics Canada. How are the numbers measured, what kinds of transparency assurances do we have, is there some form of oversight structure we can put in place to ensure accuracy of reporting. I hate to say this but with the experiences that have been circulating I am highly suspect of the reporting process and I know for a fact that many economists should be as well.

    The numbers you pin your policy on, are not what you think.

    By the wayt- A deficit in M&E means you are relying on tech from elsewhere for your productivity, therefore you would be hard pressed to have a competitive advantage in good part of your nations production processes and value adding.

    It also means a lot of the high paying design jobs are located elsewhere which again is not good sign for one’s country.

    Having a surplus in M&E is a focal point for any developed nation and should be a policy focus of our government.

    Home grown industrial m&e is an important contributor to ones economy.

    Bananas, I guess in theory could be grown in Canada, but I am not sure how they would taste.

    pyt

  • Stephen Gordon you demonstrate a fundamental misunderstanding of national trade, bananas do not grow in Canada as we do not posses adequate growing conditions. But manufacturing has long been a cornerstone in North American economies, Canada being no exception. The exodus of high paying jobs, mounting deficits and widening trade deficits only exhaust the Canadian economy and its workforce.

  • ‘Widening trade deficits’? Where? Canada has had a trade surplus for more than 10 years.

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