E Canadian Merchandise Trade Improved In October, Although Share Of U.S. Imports Nears All Time Low

Canada’s merchandise trade picture improved in October, suggesting that trade will be a positive contributor to economic growth in the fourth quarter.

The trade deficit declined sharply from $3.4 billion in September to $1.5 billion in October. Canadian exports rose 2.7% in October, with nearly every sector contributing to export growth, while imports declined by 8.1%. It should be noted that a strike at the CAMI plant in Ontario drove down the demand for auto part imports. Nonetheless, the total trade picture is still quite worrying, in that the trade balance in non-energy products is still quite weak.

In terms of the actual impact on fourth quarter Canadian GDP, it is the volume figures which reveal the likely direction. The volume of Canadian exports rose 1.1% in October, while imports plunged 3.2%. Nonetheless, on a year to date basis, export volumes were up only 0.7% while imports rose 0.9%.

Foreign trade issues are very much at the forefront of the Canadian public at this time, particularly because of the possibility that the NAFTA agreement may collapse. On this subject, it is interesting to note that in October Canada recorded a merchandise trade surplus with the U.S. of $3.5 billion and a trade deficit with Mexico of $790 million. In the same month, Canada’s trade deficit with China was $1.4 billion.

Finally, from a somewhat different perspective, Canada’s share of U.S. Imports has fallen to near an all time low. The share of U.S. imports that come from Canada peaked in the mid- to late 1990s at around 19%, and that share has been declining ever since.

The slippage continued on after 2008, though the average decline in oil prices also contributed to the more recent slippage. As well, American imports of crude oil from Canada have levelled of since 2015, no doubt reflecting the higher domestic production levels.