May 23, 2012

November 29, 2011

Both Canada and the U.S. had a better foreign trade month in September

Alex Carrick

Chief Economist, CanaData

Canada’s merchandise trade balance underwent a significant alteration in course in September, according to Statistics Canada. The figure because positive again for the first time since January.

Our net international sales performance is a very important monitor for the Canadian economy.

Historically, a strong positive trade balance has made an important contribution to the nation’s gross domestic product (GDP).

Such a “bonus” has been absent since the fall of 2008. With the onset of the most recent recession, the goods trade balance has fluctuated moderately up and down around zero.

The dollar value of exports in September rose 4.2% month to month while imports fell fractionally (-0.3%).

The dollar value of exports in the latest month rose to their highest level since October 2008.

One level down from total exports, energy product exports were strong in the latest period, +11.3% month over month. At an even more micro level, petroleum and coal product exports rose 36.4%. Several refineries re-opened after being shut for repairs and expansions.

The goods trade surplus with the world was +$15 billion annualized in September.

This was still quite low by historical standards. Prior to the beginning of the recession in the fall of 2008, a goods trade surplus of between $40 and $80 billion per year was common.

Canada has traditionally run a large trade surplus with the U.S., while registering a deficit with the rest of the world.

That’s what happened in September as well. The trade surplus with the U.S. was +$52 billion, whereas the shortfall with the rest of the world was -$37 billion.

From June through August, Canada’s trade deficit modestly decreased. Between August and September, there was a +$20.8 billion swing, from -$5.8 billion to +$15.0 billion.

Almost all of the improvement in trade between August and September was with the U.S. Canada’s position vis-a-vis its southern neighbor went from +$33.4 billion to +$52.3 billion, a swing of +$18.9 billion.

With the rest of the world, the deficit declined from -$39.2 billion to -$37.3 billion, a much more modest improvement of only +$1.9 billion.

The improvement in Canada’s trade position reflects a U.S. economy that is starting to make some economic headway. Employment in America, especially among highly-educated and computer-savvy young people, is picking up.

But the U.S. has been proving itself a somewhat unreliable trading partner of late.

For example, there are “Buy America” provisions in proposed infrastructure spending plans to revive U.S. employment.

U.S. West Coast ports have awakened to the fact British Columbia’s northern coastline is a couple of days closer to China by ship than they are. They now want a tariff on goods imported into the U.S. that are shipped inter-modally to eastern border crossings by rail.

Where Canadians was previously exempt, we will now be subject to the standard $5.00 per visit charge for travel into the U.S. This prompted one government official to ask, “Do they think they’re Disneyland?”

Most jaw-dropping has been the decision by the State Department that TransCanada Corp. must draw up another route for its Keystone XL oil pipeline through Nebraska on its way to Oklahoma and beyond.

The nominal reason is concern about damage to the Ogallala aquifer should there ever be an oil spill. An environmental review, however, has already given its stamp of approval to the project. The decision has more to do with politics than anything else.

There’s an aspect to the “green” question that rarely gets much play. What’s better for the environment? A new pipeline built with high-quality rust-resistant steel and laid according to the latest geological findings and structural standards? Or to continue to rely on aging pipelines that may or may not be deteriorating with the passage of time?

An examination of the some of the inter-country trade that Canada engages in yields some interesting results. The following is based on the year-to-date trade data through September.

Accounting for 74% of the total, the U.S. continues to be by far Canada’s largest export market. But a decade ago, the percentage was 84%. The United Kingdom is in second place at 4.3%.

China is in third position at 3.7%; Japan in fourth, at 2.5%; and South Korea, the Netherlands and Mexico are close to being tied for fifth at about 1.0% each.

When it comes to imports, China moves up a notch in the rankings. The U.S. dominates at 50%; China comes next at 10.5%; Mexico follows at 5.5%; then Japan, Germany and the U.K. provide slightly less than 3% each.

One major initiative of the Harper government – and already hinted at by the move to scrap the Canadian Wheat Board’s monopoly – will likely be reduction in supply management in the farming sector.

Canada’s reluctance in the past to do away with marketing boards has inhibited our ability to reach freer trade agreements with many developing nations.

Our participation in TPP (the Trans-Pacific Partnership) talks along with the U.S., China, South Korea, Vietnam, Chile and several other Pacific nations will depend on adopting a more flexible stand with regard to opening up our agricultural sector to international competition.

According to the U.S. Bureau of Economic Analysis, the U.S. foreign trade position , which is usually taken to include both goods and services, improved somewhat in September. The deficit declined from -$539 billion annualized to -$517 billion. Both figures are in U.S. dollars.

The success the U.S. is achieving in export sales of construction and agricultural machinery and equipment to emerging nations has helped sustain a relatively high level of activity in the manufacturing sector on the home front.

President Obama has recently inked free trade agreements with South Korea, Panama and Colombia. Those hold the promise of employment gains at a time when they are badly needed.

They’ve also whetted Mr. Obama’s appetite for a more broad-reaching free trade agreement with upwards of a dozen nations on the Pacific’s rim – the aforementioned TPP initiative.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com

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