Regular readers will probably be familiar with my contention that a weak exchange rate is no panacea for the Canadian economy. The manufacturing sector jobs that have been sacrificed to free trade and an oil-based economic strategy aren't coming back. Today's print edition of the Toronto Star leads with a lengthy story saying the same thing; for some odd reason it's not yet on the website*, so you're going to have to be satisfied with my unbiased comments.
Much of the story focuses on an Oakville, Ontario company, Promation, which makes robots used in auto assembly. The company's principal bemoans the fact that the weak Canadian dollar is not bringing the customers back:
"We've been replaced by the Koreans in the US and it's just so hard to get the business back......Nobody will come and talk to me because they are comfortable with the current supply chain".
That kind of buyer inertia is one issue, particularly affecting smaller companies like Promation. There's another issue for the big multinationals that still account for a lot of the manufacturing sector in Canada -- companies like GM, Ford or Toyota. These companies have very long planning horizons, and they hedge and balance their activities carefully. Once they've decided to move a particular production line out of Canada, they're not going to change their mind just because of a correction in the exchange rate. And of course, the parts manufacturers are virtually obliged to follow the assemblers because of today's emphasis on just-in-time supply chains.
The Star article quotes a number of business economists. One comments that it usually takes eighteen months or so for a devaluation to make a perceptible impact on trade patterns -- probably about right -- but warns that in this case it may be more than two years before the benefits are seen. There's no obvious evidence for this, and to be honest it just sounds like someone who doesn't really know why previous experience is not being repeated this time.
The money quote in the article, however, comes from our old friend Stephen Poloz, Governor of the Bank of Canada. It appears he said this back in December, and I'm sorry I didn't pick up on it at the time, as I think it offers definitive proof that Poloz is simply in over his head:
"We've lost share of the US market", he said. "It's not because we do a bad job, but simply because companies that were there before are no longer present, and the model doesn't know that."
Maybe it doesn't, Mr Governor. But I'm damned sure that you should.
* UPDATE, 18 August: The article has now, belatedly, appeared online, so you can see for yourself whether I was quoting it accurately.
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