Will Canada's manufacturing sector make a comeback?
By Peter Diekmeyer • Bankrate.com

To long-time watchers of the Canadian economy, General Motors' recent announcement that it would shutter its Oshawa truck plant by late 2009 came as no real surprise. Slumping demand south of the border, stemming from rising fuel prices and a slowing economy, have put pressure on all North American automotive manufacturers.

The automotive industry isn't alone. Many experts have long taken for granted that globalization has pushed the manufacturing sectors of Canada and other western countries into relative long-term decline. As a result, with the exception of those involved, news that North America's largest automaker is sending another 2,600 of its employees to the unemployment lines was greeted as "business as usual."

But are North American manufacturers really at the end of their ropes? Two noted economists say no. In a recent report sent to CIBC World Markets' key clients, two of its top economists, Jeff Rubin and Benjamin Tal, even question whether many of the key benefits of globalization may one day be reversed.

"In tariff equivalent terms, the explosion in global transport costs, not the cost of tariffs, has effectively offset all of the trade liberalization efforts of the last three decades," they say in the report. "Not only does this suggest a major slowdown in the growth of world trade, but a fundamental realignment in trade patterns."

Manufacturing: performing better than many realize
At first glance, Canada's manufacturing sector looks lukewarm at best. According to data complied by BMO Capital Markets, between 2001 and 2007, real production in the sector increased at a puny average rate of just 0.7 percent. During the same period, average domestic demand in Canada grew by 3.8 percent.

Much of the sluggish growth in manufacturing stemmed from major restructuring that the sector was forced to undergo due to the spike of the Canadian dollar that brought it from US$0.63 just five years ago to near parity today.

That said, according to one expert, even after all the tough times they have been through, Canada's manufacturers are doing surprisingly well.

"The sector is vast and strong," says André Jacques, a specialist with Statistics Canada. "For example, following the implementation of the NAFTA free trade agreement, which provided Canadian companies with greater access to the US market, the sector grew rapidly, particularly between 1993 and 2000, both in real terms and as a percentage of the total economy."