New Report Highlights Impact of Exchange Rates on Canada's Automotive Industry

  • April 4, 2017

New report highlights impact of currency exchange rates on Canada’s automotive industry

 A new study supports the view that exchange rates have a significant impact on the Canadian automotive industry. 

"Since some vehicle manufacturers and industry analysts in the United States think that currency manipulation is an unfair trade practice, a report that finds a correlation between lower currency values and growth in Canada’s automotive manufacturing industry may be of interest," said Ken Delaney, who supervised the report authored by Simon Burru, Jessica Ghansiam and Ceren Altincekic for the Automotive Policy Research Centre (APRC), whose researchers are affiliated with the University of Guelph, McMaster University, Queen’s University, the University of Toronto, and Syracuse University.

The full report, The Effects of Exchange Rate Fluctuations on Canada's Automotive Industry, is available here.

Previous research on depreciated exchange rates and positive economic growth has focused on developing countries. The APRC report demonstrates that a lower currency can stimulate growth even in an advanced manufacturing and resource-based economy, like Canada's, said Delaney,  Industry Liaison and Special Advisor at the APRC.

"U.S. President Donald Trump has spoken about currency manipulation when he criticized trade agreements, so while it was not our objective to determine if currencies can be manipulated to support domestic industries, people worried about currency manipulation may see this report as supporting their concerns," said Delaney.

The report investigated the correlation between Canada's automotive industry and fluctuations in the exchange rates of the Canadian dollar with the currencies of five key auto trading partners: the United States, Mexico, European Union, Japan and South Korea.

The study, which examined the period from 2000 to 2015, found a statistically significant correlation between Canada's total motor vehicle GDP (gross domestic product) and the exchange rates of the U.S., Japan, South Korea and Mexico.  

In the case of Japan, the U.S. and South Korea, a relatively weaker Canadian dollar had a positive impact on Canada's total automotive GDP growth. The exception was Mexico.

 "There is a statistically significant correlation between exchange rate fluctuations and growth in automotive GDP when comparing Canada to each of the U.S, Japan and Korea" said Delaney. "But, we did not get the same result when looking at Mexico. It could be that in the case of Mexico, other factors such as lower labour costs might be more significant than a relatively weak Canadian dollar."

Delaney said the report is designed as first step in developing a better understanding of the impact of exchange rate fluctuation on the industry.