Canada maintains trade surplus

Canada’s trade surplus narrowed in June to $136 million, as both exports and imports dropped, largely due to trade decreases in crude oil, aircraft and other transportation equipment and parts, Statistics Canada said Friday.

June’s surplus narrowed from a revised $556 million in May, but was much higher than the $300 million trade deficit analysts had expected, according to financial services firm Refinitiv.

The positive trade balance for Canada, combined with a “sturdy” gross domestic product report of 0.2 per cent for May, suggests more upside for the Canadian economy, noted Robert Kavcic, senior economist at BMO. He projects secondquarter economic growth of three per cent.

“There’s no debate that Canadian real GDP roared back in Q2... with trade carrying softer performances for consumer spending, residential construction and business investment,” he said.

The federal agency’s international merchandise trade report said exports fell 5.1 per cent to $50.3 billion, offsetting a strong gain in May amid a 3.6 per cent drop in export prices.

Exports of crude oil dropped 8.6 per cent, the first monthly decrease this year, as crude oil export prices fell 13.5 per cent even as volumes rose 5.6 per cent. However, the data collection agency noted that crude export levels are still much higher than the lows reported in December 2018, largely due to higher prices.

Aircraft exports, meanwhile, were down 40.8 per cent, mainly on lower shipments of commercial aircraft to the United States. Exports of boats and other transportation fell by more than half in June, largely due to a decline in exports to Saudi Arabia.

Imports were down 4.3 per cent to $50.2 billion, the lowest level since November 2018, with declines also focused in the aircraft and energy sectors.

June marked the first full month following the end of U.S. tariffs on steel and aluminum that had been in place since mid-2018. Exports of steel products to the U.S. that had been subject to the tariffs increased 15.8 per cent in June, while exports of aluminum products that were previously tariffed rose 47.2 per cent, Statistics Canada said.

Statistics Canada noted that Canada’s trade surplus narrowed slightly to $5.7 billion from $5.9 billion in May, which was the highest level since 2008, as the loonie gained strength compared to the month before. A strong loonie makes Canadian goods more expensive for foreign buyers.

US trade deficit falls

The U.S. trade deficit shrunk slightly in June, as did the politically sensitive trade deficit with China, the principal target of President Donald Trump’s tariffs.

The gap between the goods and services the U.S. buys and what it sells abroad fell 0.3 per cent to $55.2 billion in June from May, the Commerce Department said Friday. Exports declined 2.1 per cent to $206.3 billion on declines in shipments of autos, computers, crude oil and consumer products. Imports also fell, 1.7 per cent to $261.5 billion, on declines in crude oil and petroleum products.

On Thursday, Trump escalated trade hostilities again, announcing the U.S. will apply a new tariff of 10 per cent on about $300 billion worth of products from China beginning Sept. 1. China on Friday threatened retaliation if those tariffs are enacted.

The deficit in the trade of goods with China fell 0.8 per cent to $30 billion.

The U.S. has already applied tariffs of 25 per cent on $250 billion worth of goods from China. China retaliated with tariffs on $110 billion in American goods, including agricultural products, in a direct shot at Trump supporters in the U.S. farm belt.

Trump has sought to reduce America’s persistent trade imbalance, which he sees as a sign of economic weakness and the result of bad trade agreements crafted by previous U.S. negotiators. He has slapped tariffs on foreign steel, aluminum, dishwashers, solar panels and on thousands of Chinese goods.

He also has renegotiated a trade pact with Canada and Mexico that awaits approval by Congress. The June trade deficit with Mexico was $9.9 billion, the highest on record.

Earlier this week, Trump’s trade negotiators completed a 12th round of talks with China aimed at pressuring Beijing to curb its aggressive push to challenge American technological dominance. That includes curtailing cyber theft and forcing foreign companies to hand over proprietary tech information. More talks are planned in September.

Economists say the trade gap is the product of economic factors that don’t respond much to changes in trade policy: Americans buy more than they produce, and imports fill the gap.

A strong U.S. dollar has also put American exporters at a price disadvantage overseas.

On Wednesday, the Federal Reserve cut its key interest rate for the first time in a decade, partly to counter the impact of Trump’s trade wars.