Canada suffers mass lay-offs in factory exodus

PUBLISHED : Saturday, 25 February, 2006, 12:00am
UPDATED : Saturday, 25 February, 2006, 12:00am

Canada's economy shed a record 42,000 factory jobs last month, the biggest drop in manufacturing employment since the harrowing recession of the early 1990s.

The country's industrial heartland, Ontario, has lost 61,000 factory jobs in three years and much of that occurred last year alone.

Gross domestic product is estimated to have expanded by 3 per cent last year - faster than in most of the Group of Seven industrialised economies. But growth has mainly come from the red-hot oil and commodities sector, while manufacturing is losing more and more of its competitive edge.

Analysts and bankers in Toronto quickly attributed the decline to the high-flying loonie, the nickname for Canada's currency.

Since 2002, the rise in the currency has raised the cost of doing business in Canada for US multinationals by 34 per cent. Its meteoric rise has had devastating effects, as Canada sells 85 per cent of all its exports to the United States.

Douglas Porter, deputy chief economist at BMO Nesbitt Burns, describes the rising challenge as nothing less than a 'deepening trauma' and ponders whether it is appropriate for the Bank of Canada to go on raising rates.

Manufacturers are asking a very different question: How long can they defend themselves against the rising tide of dirt-cheap imports, mainly from China, that are killing Canadian jobs?

One entrepreneur whose company drowned in the huge wave of Chinese imports is Joe Falcone, co-owner of T&J Furniture, a maker of beds, tables and cupboards in Mississauga, Ontario. T&J saw the last piece rolling off its factory floor three weeks ago.

'To prevent closing, we tried to do different things, but still we are not competitive with the Chinese,' said Mr Falcone, as he sat on one of the few remaining beds in his deserted showroom.

Mr Falcone's plant, which once served a 600-strong customer list including Sears, Bloomingdale's and Macy's, has just been sold.

Unrelenting import pressure and the strong currency that deflates import prices further have driven the cost of furniture and appliances in Canada to their lowest level in 20 years, while the overall consumer price index nearly doubled over these two decades, according to Statistics Canada.

China's presence in the Canadian market for residential furniture exploded from only 4.5 per cent in 1993 to 36 per cent two years ago. The market share of imported textiles rose from 35 per cent in the early 1980s to more than 60 per cent last year, with China making the biggest gains.

Last year, at almost C$30 billion ($201.77 billion) in total, Canada's imports from China were four times bigger than what it sold to the Asian juggernaut. Last month, its imports from China rose 22.4 per cent year on year, four times as fast as its overall imports.

'Chinese competition has exerted incredible downward pressures on pricing and on profit,' said Jayson Myers, chief economist at Canadian Manufacturers and Exporters, the country's largest industry association.

Mr Myers said Chinese imports since 1997 had helped drive down the average price of a DVD player in North America more than 70 per cent, fax machines 60 per cent, and telephones 40 per cent.

'North American manufacturers are experiencing rapid erosion of their domestic markets due to low-cost competition from China.'

Chinese exporters are not only grabbing market shares in Canada, they are also making massive inroads in the country's biggest export market, the US.

China had already displaced Mexico as the second-largest supplier to the US market, said Mr Myers. In July last year, the Chinese overtook Canada briefly as the leading supplier of goods to the US.

The consequence: as many US firms are also struggling to compete globally against China and keep their operating costs down, they are increasingly shifting Canadian production to bigger plants in the US that can pick up the slack.

General Motors will eliminate 2,500 jobs in its Ontario factories by 2008.

BFGoodrich tyres announced on February 2 it was shutting a 1,100-staff factory in Ontario and moving production to the US. A day earlier, Japanese-owned Bridgestone Firestone said it was closing two Canadian distribution centres.

A week before, John Deere said it was closing a factory in Woodstock, Ontario, that makes tree-cutting equipment. The 325 jobs from this plant are also moved to the US.

Canada's manufacturers have no choice but to slash their costs further, experts say. 'They will have to take advantage of the outsourcing opportunities that China offers as well as those offered by exporting to or producing in the Chinese market,' Mr Myers said.

It seems Canadian businesses have started to wake up to this harsh reality. Last year, 83 new Canadian ventures started businesses in China and Hong Kong - 12 times as many as in Japan, the Asia-Pacific Foundation of Canada reported.

Two-thirds of Canadian firms expect to increase their investment in Asia over the next 12 months, with 35 per cent of all the planned investment destined for Greater China, the foundation said.

It said the emergence of China had a 'substantial' impact on the planning or activities of 37 per cent of the firms polled. Canada would lose another 50,000 to 80,000 factory jobs this year, Mr Myers said.