Canadian and U.S. Trade Trends

February 10, 2010

All nations, including Canada and the United States, experienced a sharp reduction of two-way commerce during the Great Recession, which is now reversing.  U.S. trade faired better than Canadian trade during the economic downturn, as exemplified by 2009 versus 2008 comparisons of exports and imports.  In Canada’s case, exports (off 24.6%) plunged more sharply than imports (down 15.6%), whereas U.S. exports, which fell 15.0%, were hit less sharply than imports, which tumbled 23.3%.  The U.S. goods and services trade deficit shrunk 45.3% to $380.7 billion last year, while Canada’s merchandise trade position swung from a surplus of CAD 46.9 billion in 2008 to a deficit of CAD 4.8 billion in 2009.

These shifts are reversing now that both North American economies are in recovery.  Canada posted a somewhat bigger-than-anticipated trade gap in December but a surplus of CAD 114 million in the fourth quarter after deficits of CAD 4.1 billion in 3Q, CAD 1.7 billion in 2Q and CAD 0.9 billion in 1Q09.  Exports were 5.9% greater in the fourth quarter than the third quarter, while imports only rose by 1.1% last quarter.  The U.S. goods and services trade deficit, in contrast, widened much more than anticipated to $40.1 billion in December from $36.4 billion in November, $33.1 billion in October and $27.1 billion per month in the second quarter of 2009.  38% of the shrinkage in the U.S. deficit between the second quarter of 2008 and the second quarter of 2009 has been reversed, and the pace of deterioration has picked up.  Between November and December, merchandise exports shot up 4.9% but still failed to keep up with a 5.6% increase in imports.

Even catastrophic economic shocks are meant to serve a useful purpose, usually the release of seismic pressure from some structural economic imbalance.  The Great Recession struck at a time of unsustainable global imbalances, and these did in fact lessen substantially during the global downturn.  But China did not let its currency appreciate, and the chronic nature of the U.S. trade deficit is reasserting itself rather quickly.  One unexpected development of 2010, a rise of the U.S. monthly trade deficit past $50 billion and maybe even back to $60 billion, is looking increasingly plausible, assuming the U.S. domestic demand doesn’t relapse into recession.  China accounted for 45.3% of the U.S. census-basis trade deficit in 2009, up from 32.8% of the 2008 deficit.  These trends point to intensifying Sino-U.S. trade disputes in 2010 whether or not a gradual yuan appreciation is resumed.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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