Canada – Merchandise Trade

If Canada’s GDP is to grow in the third quarter of this year, it will have to do so without the help of a merchandise trade surplus in its first month, July. The goods trade deficit with the world on an annualized basis in July was -$17.1 billion (CDN). There was still a trade surplus with the United States of $23.3 billion. The problem is that Canada usually runs a large surplus in energy. From January to July of this year, that surplus has dropped by nearly half (-45.8%) versus the same time frame last year. It is not just a matter of reduced demand from a U.S. economy that is weak but reviving. There is also the problem that world oil prices are still well below year-ago July levels and the value of the Canadian dollar has been climbing versus the greenback over the last several months.

This is impeding the recovery process in Canada’s West. An interesting feature of the latest trade numbers is that Ontario and Québec have come back into the picture. Some of the largest month-to-month increases in both imports and exports were recorded in machinery and equipment and automotive products. The former includes aircraft and is therefore of most interest to Québec. The latter is almost all Ontario-based, whether it relates to assembly or parts operations. Canada’s negative trade balance on its own is not good for national output. But the increase in trade generally is a positive sign that bilateral and multilateral exchanges are on the rise, a plus for growth around the world. (story continued below)

United States – Goods and Services Trade Balance

Meanwhile, the U.S. trade deficit in goods and services is starting to creep back up again. In the latest month (July), it was nearly -$400 billion (USD). During the time when recession held its firmest grip earlier this year, it had dropped to -$300 billion. The deeper deficit now is a first step on a path to more normal times for the U.S. economy. This is to say that it should not be expected that the U.S. foreign trade deficit is going to disappear any time soon. The nation is too dependent on foreign oil and Chinese goods.

It is with sources of foreign oil that the U.S. trade deficit has fallen the most – Canada, Saudi Arabia and Venezuela. This has been brought on by the recession and is likely to be only a temporary phenomenon. The trade deficit with China is not really that much lower than it was a year ago. An increase in the U.S. goods and services trade deficit may well signal a return to better overall economic activity levels domestically. U.S. exports in the latest month were +2.2% versus June while imports were +4.7%. It is encouraging news that some firms and individuals have the wherewithal to buy abroad again.