Canada's trade gap narrows to 17-month low despite protectionist risks

06 August, 2018, 00:21 | Author: Brooke Harris
  • Dofasco

But the month saw growing trade diversification away from the United States as trade tensions worsened and the two neighbors slapped tit-for-tat tariffs on metals and other goods.

"We thought steel and aluminum tariffs would be the story of this morning's trade report, but strong export growth in most other sectors swamped the impact of those new duties", said Josh Nye, senior economist at RBC Economics Research.

Analysts had expected a trade deficit of $2.3 billion, according to a poll by Thomson Reuters Eikon.

"Exports are key to the Bank of Canada's forecast for sustained GDP growth over the coming year, so June's data will certainly please them". China has said it will retaliate if U.S. President Donald Trump follows through on a threat to increase tariffs to 25 percent from 10 percent on $200 billion in Chinese imports. Exports rose sharply in prior months as the potential impacts from tariffs imposed by the Trump administration were front-run.

Exports of transportation equipment and parts were up 18.9 per cent to a record $2.5 billion, with exports of business jets accounting for much of the increase.

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The trade deficit in goods and services increased 7.3% from a month earlier to a seasonally adjusted $46.35 billion in June, the Commerce Department said Friday.

Meanwhile, imports from the United States were up 0.3 per cent to $32.9 billion, resulting in Canada's trade merchandise trade surplus with the USA rising to $4.1 billion. Higher shipments of soybeans helped bring the trade deficit in May to its lowest monthly level since late 2016 and, due to seasonal adjustments, provided an outsize boost to second-quarter gross domestic product. Canada's non-U.S. trade deficit shrank to $4.7-billion from $6.1-billion. Last month, the Trump administration began following through with a March threat of tariffs on tens of billions of dollars of imported Chinese goods, prompting China to respond with retaliatory levies on high-value US exports such as soybeans. Exports of passenger cars and light trucks were up 5 per cent in the month.

And so as Yahoo Finance has written before, tax cuts could end up working against Trump's efforts to bring down the US trade deficit, which in 2017 totaled $570 billion. Net foreign trade added 1.1 percentage point to GDP growth in the April to June period, Pantheon Macroeconomics estimates. This number got a positive boost from trade, with the surge in exports during the quarter adding 1% to growth.

As the Federal Reserve gradually tightens interest rates, the U.S. dollar also has risen steadily since April, making American exports more expensive to foreign buyers.

The unexpected export performance has heightened expectations that the Bank of Canada will raise its interest rates next month.

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