Softwood Lumber, Dairy, Airplanes: Can Canada’s Export Party Continue?

Can companies such as Canfor Corporation (TSX:CFP) continue to rise following high-profile trade spats between Canada and the U.S.?

| More on:
The Motley Fool

While interest rates remain at record lows, Canadian investors continue to mull the potential impacts of changes to currency exchange rates on specific Canadian industries.

Statistics Canada published a report last week highlighting the effects of the lower Canadian dollar on Canadian exports to the U.S. The report noted that the Canadian export surplus to the U.S. rose to $5 billion in April from $3.4 billion a month earlier; that’s indicative of improving conditions in auto manufacturing, natural gas, and softwood lumber which were spurred by a Canadian dollar, which crept lower.

Many analysts believe this data will simply provide more fuel for the fire that the Trump administration has ignited.

With President Trump currently on the warpath, seeking to reduce trade deficits with the country’s largest trading partners, Canadian businesses in key export-heavy industries remain on watch. Earlier this year, the Trump administration announced industry-wide countervailing duties on Canadian softwood lumber, following a dispute in which the U.S. accused Canada of unfairly subsidizing the base cost of its lumber, using crown land for logging purposes instead of a private-ownership system akin to the U.S. system. These duties have re-ignited discussions on the softwood lumber issue — an issue which dates back more than a decade, with each side accusing the other of manipulation of some sort.

What has been encouraging for softwood lumber producers north of the border has been the Canadian government’s response to the duties. Thus far, the Canadian government has taken quite a protectionist stance against any trade encumbrances put on Canadian industry by its U.S. customers. When the U.S. government announced countervailing duties on softwood lumber recently, the Canadian government responded with loan guarantees and financing for Canadian softwood lumber firms that may be adversely affected by such actions.

Shares in firms such as Canfor Corporation (TSX: CFP) have actually risen since the Trump administration announced countervailing duties on April 24 (shares closed at $18.18 on April 24 vs. a share price around $19 today), with markets largely ignoring the effects of such duties on this industry.

At the same time, shares of Saputo Inc. (TSX: SAP) have declined modestly after the Trump administration announced intentions to look into the Canadian supply-management system, and shares of Canadian plane maker Bombardier, Inc. (TSX: BBD.B) are relatively flat following a trade dispute with Boeing, in which Bombardier was accused of dumping planes to win orders and buy U.S. market share with subsidies from the Canadian federal and provincial governments.

Bottom line

Canada has traditionally been an export-first country; however, in recent decades it has switched to an American–European-style consumption model in which consumption (imports) drives a much larger percentage of the economy than production (exports). My take on the current situation is that while the duty structure of the export arrangements with the U.S. may change, not much will actually change with the current trade balance between these two nations. Canadian exporters will likely be forced to search for other primary export partners in a bid to diversify exports or risk seeing long-term profitability decline.

Stay Foolish, my friends.

Fool contributor Chris MacDonald has no position in any stocks mentioned.

More on Investing

man looks surprised at investment growth
Dividend Stocks

1 RRIF Withdrawal Could Shrink Your OAS More Than You Expect

A big RRIF withdrawal can trigger an OAS clawback, so building TFSA flexibility and dividend growth beforehand can help.

Read more »

a person watches stock market trades
Dividend Stocks

A High Yield Won’t Save You From a Dividend Cut: This 2.5% Payout Looks Safer

A huge dividend yield can be a trap if it’s high because the stock price is falling and a cut…

Read more »

top TSX stocks to buy
Investing

Missed a 10-Bagger? Here’s the Canadian Stock I’d Watch Before it Seems Obvious

Hammond Power Solutions is a boring-but-essential electrification play with surging sales and backlog, even though the stock is no longer…

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

$50,000 in a TFSA Could Pay You $227.16 a Month Without Selling a Share

A $50,000 TFSA can generate a +$200 monthly “paycheque” if you own a reliable monthly payer like CT REIT.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, September 3

Rising crude oil and metals prices could lift the TSX at the open today, while investors monitor U.S. economic data,…

Read more »

Illustration of data, cloud computing and microchips
Dividend Stocks

The Best Discounted TSX Stocks to Snap Up Now

These two discounted TSX stocks are trading well below their 52-week highs even as they continue to show encouraging business…

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

Don’t Fall for Telus’s Dividend: Buy This Monthly High-Yield ETF Instead

Telus (TSX:T) stock has a high yield, but a bad history of dividend cuts.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Down 24%: This Monthly Dividend Stock Is a Must-Buy

CAPREIT stock is down 24% over the last year, but its monthly distributions, resilient Canadian rental operations, and discounted valuation…

Read more »