RSSCanadian and U.S. Foreign Trade Reports Throw Curve Balls
Canada’s merchandise trade surplus increased in February 2008 (to nearly $60 billion CDN), while the balance of trade in goods and services in the U.S. deteriorated (to nearly -$750 billion US). Canada’s trade surplus is the highest it has been in almost a year, dating back to March 2007. Over that intervening time period, the Canadian dollar has appreciated by about 15% versus the U.S. dollar. Also, U.S. business conditions have weakened of late, whereas many of Canada’s leading indicators continue to roll on down the economic highway at just about the speed limit.
The respective trade positions of the two countries are not supposed to be behaving the way they are. (Given the relative movement in their currencies, both the Canadian surplus and the U.S. deficit should be declining.) A big part of the explanation lies in energy demand. The price of energy has gone up over the past year and the volume of trade has proven inelastic. Therefore, Canada reaps a higher dollar return for its energy exports and the U.S. must pay a higher dollar premium for its energy imports. But this is not the whole story.
Canada’s trade figures are broken down into six major industrial aggregates – agricultural and fishing products; energy products; forestry products; industrial goods; machinery and equipment; and automotive products. In all six categories, the dollar volume of exports rose between January 2008 and February 2008. Furthermore, the month-to-month change in imports was either less than the growth in exports or was negative.
While the media is focused on the U.S. trade deficit with China, what is often overlooked is that Canada remains the United States’ largest trading partner. Canada is first among all foreign nations as a supplier of goods to the U.S. economy, although China is not that far behind. As for U.S. exports, Canada is by far the largest foreign market, with Mexico running a distant second, at only a little more than half of what is shipped north of the border. (See related Market Insights story.)
As for U.S. trade problems, they can be summarized as follows. The U.S. has a high reliance on imported energy and there is no short-term way around this. Furthermore, the economic slowdown in the U.S., combined with the subprime mortgage catastrophe, has exposed another structural problem. U.S. purchases of low-cost foreign consumer goods − mainly from China, by way of Wal-Mart and its competitors − are no longer discretionary. With low-income families (and many middle-income families as well) struggling to keep their heads above water, such purchases have become an essential means to acquire the necessities of life.
