China may be the United States’ largest trading partner, but Canada still has a bigger influence on U.S.
In fact, U.S. exporters continue to rely on Canada. Here are some figures to keep in mind:
- 20 per cent of U.S. exports go to Canada
- 15 per cent of U.S. exports go to Mexico
- 8 per cent of U.S. exports go to China
Despite this, Canada is often under looked in terms its impact on the U.S. economy. Case in point, on March 27, when Canada’s federal government announced its budget for 2017, it received virtually no media attention on any major news channel or website.
Given Canada’s huge influence on the U.S. economy, especially the industrial and heavy sectors, we analyzed the potential impact Canada’s 2017 budget may have on industrial and heavy equipment auctions, as well as the industrial sectors at large.
Understanding Canada’s economy
Canada’s trade strengths are primarily in industries that process raw materials and extract natural resources. These areas of strength include mineral products like natural gas and metals; agricultural and food products like wheat, meat, and oilseeds; and forest products like wood and paper. As well, Canada’s strength in the utilities sector comes from electricity exports.
Although Canada has strengths in the extraction and processing of natural resources, resource industries still depend on other sectors to bring their product to the global market. Until Canada diversifies its economy, for continued growth, Canada must remain globally competitive in the industries that are related to and support natural resource development.
Budget 2017 summary and impact
We analyzed Canada’s 2017 federal budget in terms of how it taxes businesses. We took this approach as taxes and tax-breaks have a huge impact on Canadian business operations.
Business Income Tax Measures
- General Corporate Tax Rate
Summary: Budget 2017 does not propose to change the general corporate income tax rate, which remains at 15% at the federal level for 2017.
- Small Business Tax Rate
Summary: Budget 2017 does not propose to change the small business tax rate applicable to the first $500,000 of qualifying active business income of Canadian-controlled private corporations from the current 10.5% at the federal level.
Impact: There isn’t anything new to help businesses and entrepreneurs. This isn’t shocking as Canada’s Finance Minister, Bill Morneau, told his G20 colleagues that “taxing the rich is good economics.” This is in stark contrast to President Donald Trump’s pledge to support a “massive” tax cut. Given this budget’s focus on lower and middle-class Canadians, U.S. manufacturers can expect that the ‘average’ Canadian family will have more disposable income, so exports will be in more demand. Heavy and industrial equipment buyers and sellers can expect a larger market for MRO and spare parts, as well as manufacturing and assembly equipment.
Clean Energy Generation Equipment: Geothermal Energy
Summary: The budget changes the deduction of expenses related to the acquisition and use of geothermal energy equipment.
Impact: Given the Carbon Taxes in British Columbia and Ontario, as a relatively clean energy source releasing a limited amount of greenhouse gases, developing geothermal energy resources would make more economic sense to businesses in those provinces. With that said, Canada has yet to develop a geothermal energy infrastructure. If Canadian businesses expand their geothermal energy use, heavy and industrial equipment buyers and sellers can expect an increased need for nearly all types of equipment, especially construction.
Canadian Exploration Expense: Oil and Gas Discovery Wells
Summary: The budget proposes to eliminate the tax treatment of successful oil and gas exploration drilling as part of its international commitments to phase out subsidies that “impede investment in clean energy sources, and undermine efforts to combat the threat of climate change.”
Impact: Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, said the changes will damage small companies that are trying to find new resources and erode Canadian oil and gas’s competitiveness. The need for oil and gas equipment will likely decrease.
Agri-food and food processing
Summary: In addition to the 2017 budget’s specific investments, it has undertaken other efforts to support Canada’s farmers and food processors. This include:
- Reviewing rail service across western Canada
• Ongoing efforts to expand market access for Canadian agri-food producers throughout Asia and the European Union
• Creating a $10.1 billion Trade and Transportation Corridors Initiative to help get agri-food products to market
• Eliminating tariffs that cover approximately $700 million in annual imports on a broad range of agri-food processing ingredients
• Investing $500 million to support the expansion of broadband networks in rural Canada and $2 billion to support rural infrastructure including roads and bridges
• Improving access to support for agri-food value-added processors through the new Strategic Innovation Fund
Impact: Given that Canada’s agri-food sector is one of its strongest industries; it makes sense for the Canadian government to invest as much as they did, both through taxes and infrastructure investments. Heavy and industrial equipment buyers and sellers can expect a continued demand for farming equipment and products.
Politics and industrial auctions
For more information on how politics are affecting the industrial sector and industrial and heavy equipment auctions, read our previous blogs: