Data Released September 2nd for July 2021: For the month of July 2021, Canada posted another trade surplus this time totalling $778 million. The surplus is again greater with the United States than with the rest of the world, but the US-only trade gap fell slightly this month from a record high of $7.9 billion in June to $6.7 billion in July.¹
In the details, the surplus included imports valued at $53.0 billion, up 4.2% from last month. Exports reached $53.7 billion, up only 0.6% from June. Forecasters expected a larger surplus of $1.7 billion, but tamped trade in lumber undermined growth in total exports. ¹
Notable in July was Canada’s new record for imports totalling $53.0 billion. Imports were up in 9 of 11 product sections. Driving this surge were increased imports in motor vehicles and consumer electronics. Import levels were undercut by a decrease (-15.8%) in pharmaceutical product trade, partly owing specifically to lower imports of “vaccines for human medicine other than for influenza.”¹
With import levels reaching record highs, logistics and manufacturing professionals are struggling nationwide to meet consumer demand.
“Our import customers continue to feel the crush ongoing in the logistics industry,” says William McKinnon, President at Canadian Alliance. “These importers are in a state of concern as they experience the supply chain becoming less fluid, more ‘broken’.”²
“Between restrictions on ship container capacity, rail capacity moving east, and the cost of ocean containers,” says McKinnon, “Importers are grappling with how costs will need to be passed on to the consumer.”²
Survey: Key Sectors in Imports and Exports
An increase in motor vehicles and parts imports (+21.1%) accounted for more than two-thirds of the total increase in July. More typically, the summer season sees lower output in these categories because of from summer holiday plant closures. As manufacturers struggle to keep up with demand in light of myriad logistical challenges and the ongoing semiconductor chip shortage, this trend was less pronounced. As a result, Statcan noted this remarkable increase in imports of passenger cars and light trucks (+28.0%), as well as of motor vehicle engines and motor vehicle parts (+19.3%) on a seasonally adjusted basis.¹
Higher imports of personal electronic devices, namely categories including cell phones (+10.9%) and laptops (+10.4%), drove the rest of the import surge.¹
In terms of exports, motor vehicles and parts posted the largest increase in July (4.6%). Exports of energy products increased 1.9% in July, with crude oil (+2.1%) and natural gas (+9.9%) leading the way largely due to higher prices.¹
However, Statcan notes that these and other increases in category export levels were almost entirely offset by a steep decline in exports of forestry products and building and packaging materials (-12.7%). The decrease in exports of lumber and other sawmill products (-23.6%) drove this decline. Despite months of rallying lumber prices and talk of lumber scarcity throughout North America, it was a decrease in demand which led to a fall in prices and these subsequent lower export levels.¹
Snap Election Shake Up
This month, Canadian Prime Minister Justin Trudeau called for a snap election.³ Will Trudeau’s actions have any impact on trade?
“The most important factor to consider is investor confidence,” says McKinnon. “In a fraught supply chain situation, any sign of political instability or jockeying can be a cause for concern. However, while I’m anticipating some action around investor confidence, I don’t think we’ll see any shocking developments as a result of the election.”²
“At this point, the Trudeau government has solidified a handful of trade agreements that have proven beneficial to Canada,” adds McKinnon. “Ultimately, what will continue to drive the success of any trade agreement is the availability of the goods and maintaining a competitive cost.”²
It’s in this arena where disputes like the USCMA’s reading of the auto trade agreement become important.⁴
“The global economy is bigger than Canada’s elections,” says McKinnon. “While it feels like our elections are big events, they are really just a drop in the global bucket.”²
The Long Game in National Manufacturing
As global supply chains remain marred by a variety of price and logistical issues, many manufacturers and politicians alike have floated the prospect of ramping up national manufacturing capabilities.
As consumers begin to feel the effects of pandemic-induced inflation over the next one to three years, these calls will likely only become stronger.
But how viable is a homegrown manufacturing industry?
“This concept may make sense to developing great national economies that are less dependent on trade,” says McKinnon, “but there are intractable costs and challenges associated with such a shift.”²
“Developing the infrastructure required to produce goods at scale is a massive project and I anticipate that the shift to national manufacturing would take at least a generation,” McKinnon adds.²
Ultimately, such a trajectory would come with incredible cost. “We’d be required to develop technologies that are not already owned,” McKinnon says. “This could bring significant cost increases to the consumer.”²
And then the challenge would remain: national manufacturing doesn’t mean ceasing global trade. As such, the success of such a mammoth project would still rely on Canada’s ability to offer competitive costs.
“In auto manufacturing, for example,” says McKinnon, “domestic manufacturing could be a very good thing; but it’s challenging to remain competitive with global costs. This is partly why we shifted to importing such goods in the first place.”²