Canada’s Trade Surplus in Jeopardy
Alex Carrick
In October 2007, Canada’s merchandise trade balance improved slightly to $39.8 billion (annualized) from $33.7 billion in September. The September figure was the lowest since the beginning of this cyclical recovery and expansion in early 2002. The surplus with the U.S. continued a pattern of decline in the latest month.
Canada’s trade balance is likely to continue being eroded through first-half 2008. The substantial increase in value of Canada’s dollar has raised the price of goods being sold for export to the U.S. At the same time, the U.S. economy has entered a period of slowdown, further reducing demand. In the meantime, import prices have dropped, not just from the United States, but from China as well.
Forestry and Auto Exports Down
The numbers in the accompanying table tell an interesting story about the nature of Canada’s trade in goods and commodities. On a year-over-year basis, January through October 2007 exports fell back for forestry (-12.1%) and automotive products (-4.0%), both due to weaker U.S. demand. However, exports of industrial goods and materials rose smartly (+14.4%). This category includes mining, where commodity prices have risen due to strong worldwide demand.
Canada’s Largest Trade Surplus is in Energy Products
Canada’s largest trade surplus by far is in energy products ($46.4 billion), at a level more than double the next-place category, forestry products ($22.1 billion). The greatest shortfall (-$17.3 billion) is in machinery and equipment. A rise in this figure (+6.3%) is not necessarily a bad thing, since it likely means the importation of more means to enhance productivity.
Finally, building product manufacturers hoping to sell to the U.S. are being hampered by the higher Canadian dollar, the collapse in the U.S. housing market and the slowdown in the U.S. economy.
