Trade Balance Update and Analysis August 4, 2022

“Manufacturers have to be very shrewd with their forward planning,” he continues. “The net effects of this are increased costs.”

Canada’s merchandise trade surplus rose from $4.8 billion to $5 billion in June according to numbers released by Statistics Canada¹ on August 4, 2022. Exports were up 2%, mostly on the strength of crude oil and gold exports. Imports rose 1.7%, mainly due to increasing imports of energy products.

Energy Exports Drive Gains

Canada exported $69.9 billion in merchandise in June, making it the sixth consecutive month of increased exports, the first such uninterrupted streak since 2013. Total exports rose 2%, while real volume exports were actually up 2.2%, indicating a decline in prices.

Energy exports increased by 3.2% to a total of $21 billion on the month as both volumes and prices increased. Other commodities saw export increases as well, including metal and non-metallic mineral products (+6.5%), and unwrought gold, silver, and platinum metals and their alloys (+29.2%). The latter category’s growth was largely owed to increased refined gold exports to the UK.

Exports of pharmaceutical products rose 34%, contributing to a 6.3% increase in the larger category of consumer goods.

Lower lumber prices helped contribute to a 6.6% decline in exports for the category of forestry products and building and packaging material.

Energy Imports Also Rise

Total imports rose 1.7% in June, to a total of $64.9 billion, the fifth consecutive month of import increases.

Just as Canada’s energy exports rose in June, so too did their energy imports, with a 32.5% increase in the import of refined petroleum products being the leading contributor. Overall energy imports were up 22.3%, with increases in both volume and prices contributing.

The import of transportation equipment and parts were up 39.7% in June. Aircraft imports were up $415 million, more than compensating for a $348 million dip in imports of that category in May. Imports of motor vehicles and parts, meanwhile, dipped 6.8%.

Trade Surplus with US Narrows

Exports to the US rose 1.2% in June while imports climbed 2.6%. As a result Canada’s trade surplus with its southern neighbor narrowed from $13.6 billion to $13.2 billion.

Exports to countries other than the US rose by 4.5% to a record level of $16.4 billion in June, with the increase being led by exports of coal, copper, and potash to China, and pharmaceutical products to Australia and the Netherlands.

Imports from countries other than the US rose by a more modest 0.2%. As a result, Canada’s trade deficit with countries other than the US shrunk from $8.8 billion to $8.2 billion.

Supply, Demand, and Speculative Inventory

Even as supply chain challenges persist, demand side fluctuations pose an additional threat to business as usual. Canadian Alliance President William McKinnon advises a cautious approach.

“Venders, manufacturers, and distributors are all building inventory on speculation,” reports McKinnon, who cites elevated prices and tight capacity on shipping lines as examples of current challenges.²

“Manufacturers have to be very shrewd with their forward planning,” he continues. “The net effects of this are increased costs.”

Inventory Strategies Vary by Sector

“We’re seeing inventory levels going up in the food industry,” says McKinnon, “while it seems to me the electronics supply chain is a little leaner and faster right now.” 

Canadian Alliance handles a significant volume of automotive inventory, particularly consumables. “More people are driving than they were a year ago,” says McKinnon. “As a consequence those products are moving out faster, but it doesn’t appear that there’s any difficulty in getting products. If anything their turn rates are up and their inventories are keeping pace with the higher turn.” 

Has Globalization Peaked? 

The combination of protectionist policies and global supply chain complications has led to much speculation about the future of globalism. McKinnon, for his part, has taken note of the trend, but has yet to concede globalization’s ultimate demise. 

“It’s a good question,” he says, pausing. “In the US, the current administration has continued with the high tariffs set by its predecessor. If we look at Asia and the US, the profile is changing. Whether that will hold in the long term remains to be seen. As inflation increases and prices go up I think consumers will pressure governments to help them get the cheapest prices possible, which could reopen the floodgates on globalization. I think the next two years will be really interesting.” 

Cited Sources 

1 Government of Canada, Statistics Canada. “Canadian International Merchandise Trade, June 2022.” The Daily – , August 4, 2022. https://www150.statcan.gc.ca/n1/daily-quotidien/220804/dq220804a-eng.htm.

2 Personal Communication with William McKinnon