Canada’s merchandise trade surplus declined in the latest month, April 2008, to $61.3 billion, on an annualized basis, according to the latest report from Statistics Canada. This figure, while down from March’s level of $68.3 billion, still compares favorably with the long-term average ($60.0 billion since 2001) and is way up from the low point over the past seven years of only $26.0 billion. That moment of weakness came in the final month of last year, three months after the Canadian dollar climbed to parity with the U.S. dollar.
The importance of Canada’s merchandise trade balance is that a healthy surplus has traditionally made a significant contribution to Canada’s Gross Domestic Product (GDP). There are also some other implications that can be drawn from the goods trade figures with respect to the overall economy. First, exports and imports give an indication of how much impact currency change is having on international sales. Second, there are the implications for domestic jobs in export-dependent or import-competing industries.
Things to Watch for in the Trade Numbers
The table which accompanies this story helps to identify several major trade trends. It is also a useful launching pad for a discussion about key developments to watch for.
There has been extensive media coverage of the high demand for agricultural products around the world. The first set of numbers in the table helps to verify Canada’s role in supplying agricultural products to other countries. Exports are ahead +11.0% on a year-to-date basis, while imports are +3.7%. The net affect has been to see the surplus in agricultural and fishing products leap upward by +30.4%. Of course, the Prairies are the main beneficiaries of the increased international demand, with exports of wheat (+70.1% year to date), barley (+202.7%) and rapeseed (+58.2%) especially riding high.
The increase in the international price of oil has caused the dollar value of energy exports to move ahead +32.2% versus last year, while imports are also up significantly in value, at +41.9%. However, since energy exports vastly exceed energy imports, the balance has also increased by an impressive +26.7%. The major oil-exporting provinces in the country are Alberta, followed by Saskatchewan and Newfoundland & Labrador.
Forestry product exports continue to be quite depressed on a year-to-date basis, versus the same period last year, due to problems in the U.S. homebuilding sector. This situation will turn around as U.S. house building starts to recover in the fall. It is interesting to note that the latest month-to-month forestry product exports were on the rise (+5.4%). It is also worth noting that British Columbia, due to its large forestry operations, is likely to be first among the provinces to benefit from any recovery in U.S. housing starts.
Within industrial goods and materials, total year-to-date exports may be down slightly (-1.1%), but some front-line performers have been iron ores (+21.0%, thanks to demand from Chinese steelmakers), fertilizers (+35.1%, on account of aggressive cultivation in other countries) and precious metals (+50.5%, with gold as a hedge against uncertainty in stock markets). While machinery and equipment exports (-8.2%) are not stellar, the important sub-category “aircraft, engines and parts” (-0.2%) is holding its own. This is significant for Québec’s aerospace industry, which is among the largest in the world.
The final main category is motor vehicles and parts. Exports (-25.1%) are down by one-quarter because demand from the U.S. has driven into the ditch. Truck exports (-55.9% year to date) are disappearing into a sink hole. This is the reason for at least one high-profile plant closing, by General Motors in Oshawa.
Auto sales within Canada have actually remained fairly healthy, thanks to ongoing strength in jobs creation. But overall auto assembly is about half dependent on demand from south of the border. In turn, auto assembly requires the importation of many parts. Therefore, the reduced level of auto sector imports (-14.5%) at this time is mainly the fallout from a decline in demand for parts. Ontario is the province most affected by changes in auto trade.
Foreign Trade in Goods is being Undermined by Foreign Trade in Services
Finally, foreign trade in goods has traditionally been the major concern on the trade front. Foreign trade in services accounts for smaller dollar totals and, historically, has not been particularly variable. That is to say, foreign visits by Canadians have about balanced out with visits to Canada by foreigners. Unfortunately, this has changed of late.
The rapid appreciation in the value of the Canadian dollar between 2003 and 2007 has had quite an effect on travel, which is captured in the services trade account. Spending by Canadians when they are traveling outside the country is considered to be importing. Spending by foreigners when they are visiting in Canada is considered to be exporting.
Over the last year, Canadians have been traveling abroad (particularly to the U.S.) with gleeful abandon. On the other hand, the influx of Americans into Canada has dried up. High gasoline prices, the increase in value of the Canadian dollar and border crossing delays are three reasons.
There is a fourth reason, however, which may be most detrimental. Due to fears about terrorist incursions, U.S. citizens are now required to have a passport or other official document (obtained with some effort and at some cost) to re-enter the United States once having left. Now that this program has been instituted, and given the state of world geopolitics, it is not easy to imagine this structure being dismantled any time soon. Canadians are going to have to get used to seeing less of their American cousins.
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