The trade balance is tightening


Canada’s merchandise exports fell 2.8% (mom) in July, while imports fell 1.8%. As a result, Canada’s merchandise trade surplus with the world narrowed from $4.9 billion in June to $4.1 billion in July.

Total exports fell (-2.8%) for the first month after six straight months of steady increases to $68.3 billion in July. Exports of energy products fell 4.2% in July, the first monthly decline of the year. However, in volume terms, crude oil exports increased for a second consecutive month in July.

Total imports fell 1.8% to $64.2 billion. Imports of energy products fell 10.2% following a price spike in June. While imports of consumer goods fell 4.2%, a third consecutive monthly decline. Nevertheless, the increase in imports of motor vehicle parts (+8.4%) partially offset the decline in total imports.

Exports to the United States fell for the first time in seven months. Exports to the United States fell 2.2% in July. At the same time, imports from the United States increased by 0.7%. As a result, Canada’s trade surplus with the United States narrowed from $13.3 billion in June to $11.8 billion in July.

key ideas

The slight drop in the trade balance should not cause any jitters. The reduction in the trade balance this month is largely due to lower oil prices. The decline in oil prices over the past two months is due to a few factors. First, the global macroeconomic malaise. There are fears of a recession, which is slowing growth globally. Second, there is a slowdown in economic activity due to rising interest rates. Third, slower factory activity in China due to COVID-19 related measures has lowered global oil demand. While the duration of these lockdowns is unknown, the zero tolerance policy should keep pressure on oil prices low for the foreseeable future.

More than 70 cities in China have been placed under full or partial Covid lockdowns. Due to the Chinese government’s zero COVID stance and China’s relatively low vaccination rate among the elderly, widespread mobility restrictions could continue to occur in major cities, weighing on household consumption and could further disrupt chains. short-term supply. With China’s unrivaled position in global trade and as a key manufacturing hub, we are likely to experience downstream effects on supply chains in the months ahead. This will, however, reduce the pressure on freight and help to deal with the backlog of goods awaiting transport and freight costs in the months to come.

The Canada-US softwood lumber dispute has become one of the longest-lasting trade disputes between the two nations. On August 4, the US Department of Commerce announced that it would reduce tariffs on most Canadian softwood lumber imports from 17.91% to 8.59%. This rate came into effect at the end of last month (August). It is a step in a protracted dispute dating back to the 1800s, with the latest dispute brought in 2017 under the Trump administration. Lower lumber tariffs are expected to increase demand for Canadian lumber in the coming months.


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