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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »