Canadian and U.S. Trade

August 12, 2009

A sharp drop of the Canadian trade deficit from C$ 1.105 billion in May to C$ 0.055 billion in June is not really an encouraging development, since it reflects higher energy export prices and weak imports.  While total exports grew 2.3%, non-energy Canadian exports slipped 0.5% and were 23.9% below their June 2008 level.  Imports fell 1.3%, led by drops of 6.0% in machinery and equipment, 4.3% in industrial goods and materials, and 1.6% in non-auto consumer goods.  Imports dropped 23.0% between June 2008 and June 2009.  Canada’s current account deficit last quarter will approach C$ 11.5 billion and exceed 3.0% of GDP compared to a surplus equal to 1.7% of GDP in the second quarter of 2008.

The census-basis U.S. merchandise trade deficit was $189 billion smaller in the first half of 2009 than in 1H08.  That’s a drop of 46.6%.   Whereas the bilateral deficit with other economies in the Western Hemisphere accounted for about an eighth of the 1H09 deficit, commerce in the region was responsible for a third of the total U.S. deficit’s decline.  Likewise, the U.S. deficit with OPEC was 10% of the 1H09 total shortfall but responsible for another 39% of the on-year decrease.  Trade with China, in contrast, produced 47.5% of the 1H09 U.S. deficit but only 8.2% of its decline from 1H08.  Europe accounted for 12.8% of the deficit and a similar 13.6% of its on-year reduction. So long as China dominates the deficits of the United States and other regions, significant unfinished business will remain in the adjustment process that underlay the global recession.  That will not prevent a recovery, but it will be less stable than one would like.  The propensity toward financial market upheavals will continue.  Like earthquakes, such have unfortunately evolved toward increasingly severe disruptions, and it’s possible that the “big one” still lies ahead.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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