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The U.S. and Canada are Sauntering down Opposite Foreign Trade Paths

0 1976 Market Intelligence

If there’s any doubt about the enormous potential for the U.S. recovery and expansion, it should be dispelled by the latest foreign trade data.

If there’s any doubt about the enormous potential for the U.S. recovery and expansion, it should be dispelled by the latest foreign trade data.  

The annualized goods and services trade deficit in November fell 26% versus October to its lowest level (-$411 billion in U.S. dollars) since October 2009 (-$394 billion).

Each monthly lessening of the trade deficit makes a further positive contribution to gross domestic product (GDP).  

The low trade deficit in 2009 was normal for its time. It occurred in the heart of the most serious recession/depression in nearly a century when all economic activity – including world trade – slowed to a crawl.  

For the U.S. trade deficit to be just as low now, when the economy is back on a solid footing, demonstrates that something quite significant is underway.

When the U.S. economy was expanding rapidly before the 2008-2009 recession, the trade deficit was consistently in excess of $600 billion. Sometimes, it reached as much as -$800 billion.

At that time, there was a greater reliance on foreign sources of energy.

Lately, thanks to “fracking” and horizontal drilling, increases in U.S. domestic oil production have lowered reliance on imports from nearly two-thirds to only half.

Industry analysts are expecting the U.S. to overtake Saudi Arabia and Russia as the world’s largest oil producer within the next couple of years.

In November, the U.S. crossed over into a surplus in its trade with Nigeria, traditionally a top-five supplier of oil to America.

A similar situation prevails in natural gas markets, where the U.S. is approaching self-reliance. 

Furthermore, low-cost natural gas in the U.S. is permitting a repatriation of jobs and output in several large-scale industries, including petrochemicals.

Another factor helping the U.S. trade picture hasn’t received as much attention – the remarkable performance in services trade (e.g., engineering consultancy, tourism, etc.).

While the U.S. deficit in goods exports has eased considerably, a growing surplus in services trade is further helping to improve the overall trade balance.

In the latest month, a $53.9 billion goods trade deficit (not annualized) was alleviated by a $19.7 billion services trade surplus, the highest on record going back to the turn of the millennium.

Let’s move on to Canada’s foreign trade position. A different picture emerges. In the latest month, goods exports stayed flat while good imports rose 0.1%.

The nation’s trade balance – which before the recession was always impressively upbeat, between +$40 billion Canadian and +$80 billion – stayed below zero for the 20th month in a row.

The U.S. accounts for three-quarters of Canada’s exports and two-thirds of its imports.

Canada is still running a surplus in its trade with the U.S., but that excess is being eroded. This November, it was +$33.0 billion versus +$46.0 billion last November.

Canada’s balance with the rest of the world in November was -$44.3 billion.

From the oil sector through automobiles, there is every indication the U.S. cannot be counted on to deliver as strong a trade surplus to Canada as in the past. (2013’s January-to-November trade deficit with America in motor vehicles and parts was 17% higher than in 2012’s same period.)

Canada’s trading horizon must be expanded to include more interaction with Europe, Latin America and, most crucially, Asia.

The recent signing of the Comprehensive Economic and Trade Agreement (CETA) with the European Union is a bold and self-confident step in the right direction.

But there is a single most critical economic issue facing our politicians at this time ‒ finding acceptable means to overcome the obstacles standing in the way of building pipelines to supply oil and liquefied natural gas (LNG) to potential clients on the other side of the Pacific Ocean.

U.S. foreign trade: goods and services balance
U.S. foreign trade: goods and services balance
Based on seasonally adjusted monthly figures, projected at an annual rate.
Analysis of the U.S. foreign trade position usually focuses on goods and services exports minus goods and services imports.
Data source: U.S. Bureau of the Census/Chart: Reed Construction Data - CanaData.
U.S. goods trade deficit with major countries and areas – November 2013
    Annualized Per cent
of Total
      Annualized Per cent
of Total
    Figure U.S. Goods       Figure U.S. Goods
    (U.S. $ billions) Trade Deficit       (U.S. $ billions) Trade Deficit
Canada 1 year ago -36.6 4.8%   Euro Area 1 year ago -126.8 16.5%
  3 months ago -29.2 4.0%     3 months ago -97.7 13.3%
  Latest month  -17.7 2.9%     Latest month  -99.3 16.1%
Mexico 1 year ago -59.4 7.7%   Indonesia* 1 year ago -10.5 1.4%
  3 months ago -58.2 7.9%     3 months ago -10.3 1.4%
  Latest month  -49.5 8.0%     Latest month  -9.2 1.5%
Germany 1 year ago -74.3 9.6%   OPEC 1 year ago -79.4 10.3%
  3 months ago -64.3 8.8%   Nations 3 months ago -87.4 11.9%
  Latest month  -71.0 11.5%     Latest month  -57.5 9.3%
China 1 year ago -347.4 45.1%   Nigeria 1 year ago -12.3 1.6%
  3 months ago -358.7 48.9%   (OPEC 3 months ago 0.0 0.0%
  Latest month  -323.2 52.5%   member) Latest month  1.8 -0.3%
Japan 1 year ago -73.3 9.5%   Saudi Arabia 1 year ago -31.4 4.1%
  3 months ago -76.7 10.5%   (OPEC 3 months ago -42.8 5.8%
  Latest month  -70.1 11.4%   member) Latest month  -34.2 5.6%
India 1 year ago -17.5 2.3%   Venezuela 1 year ago -24.3 3.2%
  3 months ago -18.7 2.6%   (OPEC 3 months ago -17.6 2.4%
  Latest month  -12.2 2.0%   member) Latest month  -18.2 3.0%
*Indonesia has a large trade surplus with the U.S. but it is mainly in products other than oil. In fact, the country has become a net importer of oil.
The five major suppliers of crude oil to the United States are Canada, Saudi Arabia, Mexico, Venezuela and Nigeria.
Data source: U.S. Census Bureau (Department of Commerce) (based on not seasonally adjusted current dollar monthly figures).
Table: Reed Construction Data - CanaData.
Canada’s foreign trade: the merchandise trade balance
Canada’s foreign trade: the merchandise trade balance
Based on seasonally adjusted monthly figures, projected at an annual rate.
Analysis of Canada/'s foreign trade position usually focuses on the Merchandise Trade Balance which is goods exports minus goods imports.
Data source: Statistics Canada / Chart: Reed Construction Data - CanaData.
Canada/'s trade by major goods and commodities - November 2013
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Latest Period   Year to Date
OCT 13 NOV 13     Jan-NOV 12 Jan-NOV 13  
(Cdn $ billions) % Change   (Cdn $ billions) % Change
Farm, fishing &  Exports 2.453 2.429 -1.0%   24.754 25.563 3.3%
intermediate food Imports 1.079 1.101 2.0%   11.265 12.088 7.3%
Balance 1.374 1.328 -3.3%   13.489 13.475 -0.1%
Energy products Exports 9.427 9.274 -1.6%   96.497 101.093 4.8%
  Imports 3.433 2.875 -16.3%   41.947 39.634 -5.5%
Balance 5.994 6.399 6.8%   54.550 61.459 12.7%
Metal ores & non- Exports 1.509 1.432 -5.1%   16.810 16.344 -2.8%
metallic minerals Imports 0.826 0.901 9.1%   9.197 10.470 13.8%
Balance 0.683 0.531 -22.3%   7.613 5.874 -22.8%
Intermediate metal Exports 4.236 4.223 -0.3%   49.625 49.627 0.0%
products Imports 3.123 3.280 5.0%   39.973 36.622 -8.4%
Balance 1.113 0.943 -15.3%   9.652 13.005 34.7%
Chemical, plastic Exports 2.970 2.763 -7.0%   30.161 31.943 5.9%
& rubber products Imports 3.871 3.245 -16.2%   35.141 37.239 6.0%
Balance -0.901 -0.482 -46.5%   -4.980 -5.296 6.3%
Forestry products Exports 2.866 2.929 2.2%   28.025 30.846 10.1%
  Imports 1.771 1.806 2.0%   18.833 19.248 2.2%
Balance 1.095 1.123 2.6%   9.192 11.598 26.2%
Industrial machinery Exports 2.351 2.239 -4.8%   24.655 24.572 -0.3%
& equipment Imports 3.629 3.937 8.5%   41.740 41.460 -0.7%
Balance -1.278 -1.698 32.9%   -17.085 -16.888 -1.2%
Electronic &  Exports 1.818 1.830 0.7%   21.142 20.664 -2.3%
electrical equip. Imports 4.755 4.804 1.0%   50.941 51.910 1.9%
Balance -2.937 -2.974 1.3%   -29.799 -31.246 4.9%
Motor vehicles  Exports 5.496 6.023 9.6%   62.933 62.285 -1.0%
& parts Imports 7.116 7.359 3.4%   76.120 77.755 2.1%
Balance -1.620 -1.336 -17.5%   -13.187 -15.470 17.3%
Aircraft & other Exports 1.302 1.375 5.6%   15.934 15.714 -1.4%
transport equip. Imports 1.264 1.482 17.2%   11.483 13.462 17.2%
Balance 0.038 -0.107 n/a   4.451 2.252 -49.4%
Consumer goods Exports 4.461 4.364 -2.2%   44.547 47.683 7.0%
  Imports 8.401 8.277 -1.5%   85.371 89.540 4.9%
Balance -3.940 -3.913 -0.7%   -40.824 -41.857 2.5%
*Industrial goods include metals and minerals.
N/A or "not applicable" is when the signs don/'t match or the per cent is too high.
Data source: Statistics Canada (based on seasonally adjusted current dollar monthly figures).
Table: Reed Construction Data - CanaData.

by Alex Carrick

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