A big boost from trade

I rarely comment on Canada's international trade performance here, because the numbers are so volatile. I once tried to explain to a colleague in London why the monthly trade balance was almost impossible to predict: "it's the difference between two large numbers". That explanation got the response it probably deserved, even though it's true.  All of that said, however, Canada's trade data for June, released by Statistics Canada this morning, are surely worthy of comment. 

Thanks to a record-breaking surge in exports, Canada's trade surplus for the month of June hit C$ 3.2 billion, the highest figure for any month since 2008.  This marks the fourth monthly surplus so far this year. The rebound in the US economy, as the COVID pandemic appeared to wane,  accounts for most of the improvement in Canada's trade. Energy exports rose 23 percent to their highest level in more than two years, led by crude oil shipments. There were also strong gains in exports of vehicles and parts and metals and non-metal minerals, reflecting the broad-based recovery in US economic activity.

One thing hasn't changed in all the years (indeed, decades) I have been following Canada's trade sector: dependence on the United States as an export market remains startlingly high. In June, shipments to the US accounted for just short of 75 percent of Canada's exports, a proportion that is almost unchanged from the 1970s. Canada continues to run deficits in its trade with countries other than the US; what is somewhat different about this year is that these deficits are being outweighed by surpluses with the US.   

Governments as far back as PM Justin's daddy, Pierre Trudeau, have regularly proposed plans to reduce the country's trade dependence on its southern neighbour, with no apparent impact whatsoever.  Most of the time it's not really a big issue, but in the near term it may start to present a problem. If the US sleepwalks into a severe fourth wave of COVID in the coming months, demand for Canada's exports is likely to take a hit. The Canadian dollar has been doing well in response to strength in oil and other commodity prices, but renewed weakening in the US economy could put the currency at risk.