January 23, 2013
November’s foreign trade acted as a drag in both Canada and the U.S.
In November, Canada’s merchandise exports fell 0.9% month-to-month while imports climbed 2.7%, according to Statistics Canada. As a result, the nation’s trade deficit with the world worsened to -$23.5 billion (Canadian dollars) from -$6.6 billion the month before.
November was the eighth month in a row that Canada’s merchandise trade balance was in deficit. Prior to the recession, the country was able to count on a merchandise trade surplus of $40 billion to $80 billion per month annualized.
Since late 2008, Canada’s trade balance has fluctuated up and down around zero, with more months in the loss column than on the plus side of the ledger. That’s quite a comedown, and it’s holding back overall gross domestic product (GDP) growth.
Canada is still running a substantial trade surplus with the U.S. In November, the excess in our exports to the U.S. versus our imports from that nation was $40.1 billion. (There was a negative side to that success, however. Canada recorded a record-high trade deficit with the rest of the world in November.)
Our trade surplus with the U.S. should continue to improve in the months ahead, as a stronger housing market south of the border seeks out more of our lumber. Just keep in mind that the softwood lumber agreement, with its strict quota provisions, will limit potential sales.
Construction projects should also contribute to stronger export sales into the American market. TransCanada is completing the southern portion of its XL oil pipeline to the Gulf Coast.
Plus there is the strong possibility the company will receive a go-ahead to proceed with its more northerly portion of the XL line. A revised route to skirt an ecologically sensitive aquifer in Nebraska is close to receiving a formal approval from legislators in that state.
Nevertheless, the weakness in Canada’s trade picture is worrying. Canada needs to line up more foreign customers and that probably means in Asia. This is fine in theory, but there are complications.
The headlines every day set out stories that will have an impact on our foreign trade. For example, we know that to reach clients across the Pacific, resource projects and their transportation networks will need environmental approvals and the willing acceptance of native groups.
Aboriginal communities take their stewardship of the land very seriously. The “Idle No More” movement, while encompassing a variety of issues — not just the environment — suggests an increasing willingness by some leaders among our original peoples to engage in confrontation with public officials.
Also, companies from emerging nations are seeking to line up long-term raw material supplies by taking equity stakes in our resource companies. Ottawa is grappling with how to ensure such actions will provide a net benefit to Canada. We want the investment and the jobs. But many of the new buyers are state owned. There must be provisions to ensure they conform to the industrialized world’s standards of corporate transparency and workplace safety.
Canada’s weak trade picture seems to be having little effect in one important area, the value of our currency. The “loonie” is still moving in tandem with commodity prices, particularly oil.
Meanwhile, south of the border, the U.S. goods and services trade deficit in November increased to nearly $600 billion (in U.S. dollars) from $505 billion the month before, according to the Census Bureau.
In the past, a worsening trade deficit accompanied stronger U.S. growth. That was due to the nation’s dependence on foreign energy. But that’s less of a factor now. A boom in shale rock fossil fuel extraction has greatly increased U.S. reserves of oil and gas. The proportion of the U.S. trade deficit with OPEC nations has dropped from 14.4% in November 2011 to 10.3% in November 2012.
Among its major trading partners, only two regions are now accounting for significantly more of the U.S. total trade deficit. The Euro zone has shifted up from 12.8% to 16.6%.
But it’s China that’s providing the most dramatic numbers. That nation’s share of the U.S. total foreign trade deficit in November 2011 was 41.6%. In the latest data set, the figure has risen to 45.2%. In other words, nearly half of the substantial U.S. total trade deficit is with China.
Based on seasonally adjusted monthly figures, projected at an annual rate.
Data source: Statistics Canada /
Chart: Reed Construction Data - CanaData.