This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Notes from Alex Carrick - Dec 14, 2011

Alex Carrick
Trade issues climb the agenda in both Canada and the U.S.

In October, Canada’s merchandise trade position swung from mild surplus ($12.3 billion annualized) to minor deficit ($10.6 billion), according to Statistics Canada. The cause was a month-to-month decline in exports (-3.0%) at the same time as imports increased (+1.9%).

Historically, when Canada’s economy has been experiencing good growth in tandem with a solidly performing U.S. economy, the merchandise trade surplus has ranged between $40 billion and $80 billion annualized (in current Canadian dollars) each and every month.

We’re a far cry from being back to that enviable position.

The U.S. goods and services trade deficit in the latest month also moved in the opposite direction to the norm. It eased slightly, from -$530 billion (in U.S. dollars) to -$522 billion. There was a month-to-month decline in imports that was greater than the decline in exports (-0.8%).

The better foreign trade position will help the Q4 gross domestic product (GDP) figure south of the border.

A number of key issues affecting the trade between both countries have recently been making the headlines.

1) One problem area for Canada has been increased reliance by the U.S. on its own sources of natural gas, as opposed to importing it from Alberta and other provinces. The pool of extractable gas in the U.S. has been greatly expanded thanks to new technology.

Hydraulic fracturing – the pumping of liquids laced with chemicals into shale rock deposits to create fissures and release the gas – has opened up vast new deposits that were previously inaccessible.

Despite some setbacks, this new segment of the natural gas market has largely been allowed to proceed without a lot of interference from pollution monitoring overseers. 

That may be about to change. The Environmental Protection Agency has just published a finding that hydraulic fractioning may have contaminated groundwater in Pavillion, Wyoming.

This is the first such ruling and may be used by environmentalists to delay or put a halt to drilling throughout the United States.

Quebec and New York are two jurisdictions that have already taken action to slow down “fracking” projects. Moratoriums have been imposed to allow time for more research about potential harmful effects.

If this becomes more commonplace, current depressed natural gas prices will receive a boost.

Drillers contend that many of the zones being tapped are situated well below aquifers and that there is essentially a firewall of bedrock preventing any leakage or spillover from taking place.

Nevertheless, the days of almost unrestricted development of new finds may be at or near an end.

2) The Republicans in the House of Representatives have just passed a bill that would extend the payroll tax cut in the United States, something both parties want, but it is conditional on the Obama administration announcing its decision on the Keystone XL pipeline within 60 days.

The Democrats are also in favor of the payroll tax cut, but the President says he will veto any legislation that makes its passage conditional on acceptance of another set of directives.

The GOP believes it has a winning issue with respect to the Keystone line in terms of its job-creating potential. Speaker of the House, John Boehner (a Republican from Ohio) has been appearing on the Sunday morning TV news shows touting Keystone not only for its employment prospects but also for the benefits it would bring in terms of reliability of oil supply. 

It appears TransCanada’s pipeline expansion may become part of the U.S. Presidential election campaign.

3) In Canada, the cocoon of doubt enmeshing Keystone’s future has heated up discussion about moving our oil to markets other than just the U.S. The Globe and Mail of December 13 included an intriguing article co-authored by Derek Burney and Eddie Goldenberg. Both men have worked in senior positions in Ottawa – the former as Chief of Staff to Brian Mulroney and the latter as Chief of Staff to Jean Chretien.

It’s their contention that the easiest way for Canada to supply valued new customers in Asia may be to first ship oil east rather than west. This would displace Middle Eastern oil coming into Quebec and Ontario, plus the excess could be sent by tankers through the Panama Canal.

The directional flow in several pipelines would need to be reversed. Such a course of action, employing infrastructure already in place, would circumvent the interminable delays a new pipeline would face when presented for review by environmentalists and native land claims groups.

Canada needs to line up foreign customers for our oil as quickly as possible before they sign contracts with other suppliers. New major oil “plays” in the Arctic and off the coasts of Brazil and West Africa have been discovered, often deep under seawater. The extreme cost of their development may require partnership agreements with willing cash-flush investors (e.g., China).   

4) Finally, Stephen Harper and Barack Obama have agreed on a border perimeter plan. This lays a framework according to which Canada and the United States will move towards integrating their security measures, both for the movement of cargo and the passage of travelers to and from the rest of the world. 

Short in practical applications so far, the chief longer-term benefit of this plan for business will be to dramatically cut down on border inspections for goods carried by reliable suppliers. The savings to enterprises will be in the billions of dollars.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.


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Read Other Recent Alex Carrick Posts

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04/18 - U.S. Inflation Low in March; Canada’s Central Bank Looking to Raise Rates
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04/03 - A Tale of Two Budgets
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