Canada manufacturing booms in June, but analysts warn on US auto tariffs

04 July 2018 17:53 Source:ICIS News

TORONTO (ICIS)--Canadian manufacturing activity hit a high in June, but analysts on Wednesday warned about recession risks if the US should impose stiff tariffs autos and parts from Canada.

The country’s Supply Chain Management Association (SCMA) said that June’s purchasing managers’ index survey showed accelerated improvement in overall manufacturing business conditions.

In fact, the PMI rose by 0.9 points from May to a record high of 57.1 in June, marking its highest reading since October 2010 when the survey began. PMI readings of above 50.0 indicate growth in manufacturing.

In the June survey, manufacturers reported the fastest rise in production levels for five months while new work expanded at the strongest pace since November 2013.

Survey respondents commented on greater demand from both domestic and export markets.

Meanwhile, robust demand for raw materials in June contributed to the strongest rate of input cost inflation since April 2011, with survey respondents commenting on higher prices for steel and aluminium, in particular.

“June data signalled impressive growth momentum across the manufacturing sector, with business conditions improving at the fastest pace since the survey began in 2010,” said SCMA’s CEO, Christian Buhagiar.

“Strong improvements in new order books in recent months continued to place pressure on production capacity, which led to rising backlogs and greater staff recruitment in June,” he said.

SCMA conducts the monthly PMI survey in cooperation with research firm IHS Markit.

In the medium term, however, Canada risks plunging into a recession by 2020 if US President Donald Trump should go through with his threats of imposing stiff tariffs on autos, light vehicles and auto parts imported from Canada, economists at Toronto-based Scotiabank warned in a report.

As Canada’s second-largest export sector after energy products, the auto sector depends heavily on tariff preferences under the North American Free Trade Agreement (NAFTA).

As such, auto tariffs would hit the economy of Canada’s largest province, Ontario, particularly hard, the bank said.

“Canada’s trade skirmish with the US is set to escalate in ways that could quickly turn it into a full-on trade war that could tip both countries into recession”, it added.

Canada began imposing from 1 July retaliatory tariffs on US steel and aluminum products, as well as a range of US consumer goods.

However, there were hardly any counter-tariffs on imported chemical products, industry officials have told ICIS.

Pictured: Aerial view of Fort McMurray and the Athabasca River, in Canada's Alberta province
Source: Design Pics Inc/REX/Shutterstock 

By Stefan Baumgarten