Canada’s trade deficit shrinks in July

Canada’s merchandise trade deficit with the world shrank in July, and the country’s trade surplus with the U.S. grew to its largest since 2008.

Canada’s trade deficit was $114 million in July, down from $743 million the previous month, reports StatsCan. The July deficit is the smallest since the most recent surplus in December 2016.

Total exports rose 0.8% for the month, mainly on higher crude oil prices, while total imports declined 0.4% due to fewer aircraft imports.

Export prices, which rose 1.6%, were behind the export gain in nominal terms. The price increase was largely attributable to higher energy prices, the StatsCan report says.

“All of the strength in exports came from higher prices, particularly energy prices, leaving real exports down on the month,” noted CIBC director and senior economist Royce Mendes in emailed commentary to clients. Real exports (in volume terms) declined 0.8%.

Mendes further noted that the decline in import volumes, due to a drop in aircraft imports, is a “volatile” category.

Total import volumes fell 1.1% in July, and prices were up 0.7%.

Trade surplus with the U.S. grows

Canada’s trade surplus with the United States widened to $5.3 billion in July from $4.1 billion in June.

Exports to the U.S. rose 3.3% to $38.4 billion in July and increased 15.8% year over year. Imports from the U.S. declined by 0.1% to $33.1 billion for the month.

The trade surplus with the U.S. represents “the largest trade surplus observed since October 2008,” says the StatsCan report.

Year to date through July, Canada’s merchandise trade surplus with the U.S. was $24.2 billion, compared to $25.6 billion for the same period in 2017.

Effects of tariffs

July marked the second month of tariffs on exports of steel and aluminum products to the U.S., and the first month in which tariffs were imposed on imports of steel, aluminum and other miscellaneous products from south of the border.

Exports of steel products to the U.S. that were subject to a 25% tariff rose 16.4% in July on a customs seasonally adjusted basis, following a 36.3% decline in June.

Compared with July 2017, steel exports were up 3.2%.

Aluminum exports subject to the 10% tariff fell 2.0% in July after a 4.7% decline in June. Aluminum exports were up 8.1% year over year.

Canadian imports of U.S. steel and aluminum products decreased, the agency reported.

On a customs seasonally adjusted basis, imports of steel products from the U.S. subject to a 25% tariff fell 39.6% in July, says StatsCan. Aluminum product imports subject to a 10% tariff fell 5.2% in July.

Canada’s retaliatory tariffs on U.S. imports were only a part of the reason imports declined in July, says CIBC’s Mendes, adding that seven of 11 product categories decreased.

Overall, he says the positive headline reading for the trade balance “masks what is actually looking like a slow start to the quarter for trade.”

Read the full StatsCan report.