The foreign trade positions of the U.S. and Canada in June showed little change from their patterns earlier this year. The U.S. goods and services trade balance has managed to stick at around -$300 billion annualized for the past five months. The U.S. domestic recession has lowered imports. At the same time, the worldwide recession has lowered import prices, year over year, in key commodity areas such as oil. U.S. exports have been aided by a U.S. dollar that has moderated in international currency markets. The net effect has been a considerable improvement in the U.S. goods and services trade position versus fall 2005 to fall 2008, when it stood between -$700 billion and -$800 billion.

Insight into the U.S. Economy

Some major trends in the U.S. economy show up in country-by-country trade comparisons. The fact that the U.S. has not needed as much foreign oil to meet industrial and consumer demand has meant lower deficits, versus a year ago, with Canada and OPEC nations such as Saudi Arabia and Nigeria. In the latest month, there are indications that this may be about to change and that import oil dependency will become more of a problem again, in the months ahead. In other areas of trade, slightly less than half of the total U.S. trade deficit continues to be with China. This is up from 30% a year ago.

China’s Role among Nations

China is the leader among nations in pulling the world out of its current lethargy. However, the Chinese government is worried about having applied too much stimulus. As a consequence, it is reining in excess lending. This is complicating projections about the nature of the world turnaround. Much of the discussion will now centre on whether recovery is likely to be V-shaped (a solid and rapid recovery), U-shaped (only a gradual and slow pickup) or W-shaped (recovery, followed by another bout of weakness, as tax rebate cheques, incentive spending programs and infrastructure stimulus all expire). (story continued below)

Canada’s Trade Position

Canada’s merchandise trade balance (i.e., exports minus imports of goods) was basically zero in June, neither in surplus nor deficit. Canada usually runs a surplus of $50 billion annualized. The most recent pattern of small fluctuations around zero has been the norm for the last eight months. This change in pattern has coincided with the global recession.

For Canada, it is a matter of keeping an eye on key product groupings. The latest month-to-month changes will give an indication of whether or not certain important markets are coming back to life. Trade numbers are heavily influenced by commodity and currency values. An increase in a commodity’s price (usually set in U.S. dollars) should bring a higher current-dollar revenue return. Except that this can be offset by an increase in the value of the Canadian dollar versus the U.S. dollar, which has been happening of late.

Key Product Areas

In energy products, exports month to month advanced 14% in June, which is good news for Canadian producers. It is partly due to recent price advances for oil in world energy markets. Forestry product exports (-0.4%) remain depressed. This should begin to change as the U.S. housing market continues to strike a better demand/supply balance. Another important product area is autos. Exports remained weak in June while imports were flat. Strong auto imports can be a good sign, since they may consist largely of parts. Such parts are used in the final assembly of vehicles, which then get exported back to the U.S.

At the moment, trade in goods is a neutral influence with respect to Gross Domestic Product (GDP) in Canada. This is a whole lot better than being a draining influence. June and, therefore, second-quarter output or GDP numbers were just released by Statistics Canada. The 0.1% month-to-month gain in June was the first such increase since July 2008. The annualized quarter-to-quarter GDP change was -3.4%, which was less negative than the -6.1% showing in the first quarter. U.S. second-quarter GDP change was -1.0%.

Things are finally looking up, but patience will be required. As for the U, V or W debate, it will be hard to achieve a stunning GDP reversal while unemployment remains high and consumers struggle with reduced credit and debt control efforts. U looks like the best bet.

Canada’s Foreign Trade: The Merchandise Trade Balance

Based on seasonally adjusted monthly figures, projected at an annual rate.
Analysis of Canada's foreign trade position usually focuses on the Merchandise Trade Balance which is goods exports minus goods imports.

Data source: Statistics Canada / Chart: Reed Construction Data - CanaData.

Canada's Trade by Major Goods and Commodities - June 2009

		Latest Period				Year to Date
		May 09	Jun 09	%		Jan-Jun 08	Jan-Jun 09	%
		(Cdn $ billions)		Change		(Cdn $ billions)		Change
Agricultural and	Exports	3.241	3.264	0.7%		20.048	20.258	1.0%
Fishing Products	Imports	2.431	2.542	4.6%		13.532	15.085	11.5%
	Balance	0.810	0.722	-10.9%		6.516	5.173	-20.6%
Energy	Exports	5.628	6.414	14.0%		65.205	37.754	-42.1%
Products	Imports	2.354	2.701	14.7%		26.038	15.672	-39.8%
	Balance	3.274	3.713	13.4%		39.167	22.082	-43.6%
Forestry	Exports	1.573	1.567	-0.4%		12.692	10.054	-20.8%
Products	Imports	0.182	0.187	2.7%		1.440	1.215	-15.6%
	Balance	1.391	1.380	-0.8%		11.252	8.839	-21.4%
Industrial Goods*	Exports	5.935	6.297	6.1%		55.281	39.485	-28.6%
and Materials	Imports	6.014	5.754	-4.3%		44.261	38.061	-14.0%
	Balance	-0.079	0.543	N/A		11.020	1.424	-87.1%
Machinery and	Exports	6.699	6.423	-4.1%		44.709	42.994	-3.8%
Equipment	Imports	9.010	8.469	-6.0%		59.024	55.853	-5.4%
	Balance	-2.311	-2.046	-11.5%		-14.315	-12.859	-10.2%
Automotive	Exports	3.087	2.915	-5.6%		31.139	19.151	-38.5%
Products	Imports	3.894	3.899	0.1%		36.202	24.109	-33.4%
	Balance	-0.807	-0.984	21.9%		-5.063	-4.958	-2.1%

*Industrial goods include metals and minerals.
N/A or "not applicable" is when the signs don't match.

Data source: Statistics Canada (based on seasonally adjusted current dollar monthly figures).
Table: Reed Construction Data - CanaData.