U.S. and Canadian Trade

May 12, 2009

The U.S. trade deficit in the first quarter was 49.6% smaller than a year earlier on the broad measure that includes services as well as merchandise.  Commerce with the Pacific Rim, which accounts for 61% of the remaining U.S. deficit, was responsible for only 17% of the improvement in trade between 1Q08 and 1Q09.  The bilateral deficit with China accounted for 47.8% of the U.S. goods deficit in 1Q09 but just 5.5% of its shrinkage from 1Q08.  On the other hand, commerce with other markets in the Western Hemisphere accounted for 34.9% of the incremental on-year decline of the deficit, far more than that region’s 12.9% share of the total first-quarter U.S. deficit.  Likewise, the deficit with OPEC plunged 80.2% from $42.9 billion in 1Q08 to $8.5 billion in 1Q09.  That shift accounted for 43% of the improvement in U.S. trade and left the deficit with OPEC at just 8% of the total U.S. trade gap last quarter.  Only Europe produced a shift in the U.S. deficit (11.0% of the total change) that was roughly proportional to Europe’s 11.9% share of the deficit.

The C$ 1.1 billion Canadian trade surplus in March was more than twice as wide as forecast and over four times greater than February’s upwardly revised surplus.  Nevertheless, the data suggest that Canada will post a first-quarter current account deficit of about C$ 11 billion.  The current account previously had deteriorated from a surplus of C$ 8.5 billion in the second quarter of 2008 to a deficit of C$ 7.5 billion by 4Q08.  Canadian exports are still shrinking, posting declines in March from February of 1.8% overall, 1.4% in energy and 1.9% for all other products.  However, imports are now imploding even faster than exports, with drops in March of 4.4% overall, 18.4% for energy and 3.1% for all other goods.  After several years of negative contributions to Canadian GDP growth, including minus 1.8 percentage points (ppts) in 2008, Bank of Canada officials project that net foreign demand will enhance the GDP growth rate by 0.9 ppts this year.  Because of plunging final domestic demand and a projected 1.5-ppt drag from inventories, the lift from net exports actually only mitigates the drop in real GDP, which monetary officials project at minus 3.0%.  In 2010 when officials look for GDP to expand 2.5%, the forecast sees net exports reverting to a negative growth factor amounting to -0.4 ppts, and such remains negative in 2011 as well at minus 0.6 percentage points.

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

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