The United States is in the best position of the three NAFTA nations to weather the challenges posed by lower cost overseas producers, according to a report from Scotia Economics.

        The transformation of Asia - China in particular - into an industrial powerhouse is having a profound impact on the global economic landscape. The region, home to 60 percent of the world’s population and almost 40 percent of global GDP, is the world’s most dynamic exporter, with its productive capacity being fueled by massive foreign direct investment and infrastructure spending.

        “These competitive pressures are expected to accelerate as Asian exports move up the value-added ladder, from mainly labor-intensive manufactured goods to more sophisticated products and services,” says Adrienne Warren, senior economist, Scotiabank. “A country’s ability to raise its competitive position is crucial to holding or gaining market share in this rapidly changing environment.”

        The report looks at seven broad competitiveness measures that are likely to influence business location decision making - labor productivity, labor costs, non-labor business costs, human capital, innovation, technology intensity of exports and demographics. Overall, the United States emerges as a clear leader both within NAFTA as well as against a broad OECD average, especially in the areas of productivity and innovation. The over-15 percent depreciation in the trade-weighted U.S. dollar over the past two years has further strengthened its competitive position, at least vis-à-vis the major industrialized nations.

        Canada and Mexico are close competitors, with Canada ahead in productivity and human capital but Mexico having an obvious labor cost advantage and more favorable demographic trends. Currency shifts recently have tilted the balance in Mexico’s favor, at least for the time being. Both nations, however, will be challenged to improve their overall competitiveness ranking, which appears to lie somewhere in the middle of the pack globally.

            “Canada offers a fairly competitive business cost structure and a highly educated workforce,” says Warren. “At the same time, it lags in productivity growth and innovation efforts - two areas critical to long-term competitiveness. The low level of business-funded R&D, for one, suggests the need for greater cooperation between...

...Continued in the pages of Twin Plant News, Subscribe Today!