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

Target. Stand out from the crowd
Investing

2 Canadian Stocks I’m Buying Lots of This Year

I’m looking to snatch up exciting Canadian stocks like VieMed Healthcare Inc. (TSX:VMD) throughout 2023.

Read more »

grow money, wealth build
Dividend Stocks

Got $3,000? 3 TSX Growth Stocks to Buy in January 2023

Top TSX growth stocks that look appealing for 2023.

Read more »

woman data analyze
Dividend Stocks

Need Passive Income? Turn $15,000 Into $851 Annually

This passive-income stock is already climbing higher, up 16% in the last three months! Yet it's still valuable, so you…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: 3 Reliable Canadian Dividend Stocks to Buy Now for Passive Income

Top TSX dividend stocks now appear oversold.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Investing

2 TSX Stocks Safer for Investing in a Recession

These consumer companies will likely beat the broader market averages amid a recession. These stocks offer stability, income, and consistent…

Read more »

Dividend Stocks

For $100 in Passive Income Each Month, Buy 1,500 Shares of This REIT

REITs such as Northwest Healthcare can enable investors create a passive-income stream as well as benefit from capital gains.

Read more »

A colourful firework display
Dividend Stocks

2 Canadian Growth Stocks (With Dividends) to Start 2023 With a Bang

Here are two of the best dividend-paying Canadian growth stocks you can invest in at the start of 2023 and…

Read more »

sale discount best price
Dividend Stocks

4 Insanely Cheap Canadian Stocks to Buy for Passive Income

The recent bear market has created some incredible bargains, especially for those looking for passive income. Here are four cheap…

Read more »