Canada's merchandise trade deficit shrinks

Could the Trade War Backfire

Canada overcomes Trump’s tariffs with record exports

Surging exports led by higher-priced energy products allowed Canada to shrug off new US steel and aluminum tariffs in June to post the lowest monthly merchandise trade deficit with the world in 17 months.

Canada's economy showed some surprising resilience in the face of newly minted USA tariffs on Canadian steel and aluminum industries with strong export growth in most other sectors softening the blow of those new duties. Compared with the same time past year total exports rose 9.2 per cent.

Data released today showed that the goods trade deficit narrowed in June in Canada.

Canada's largest trading partner, the United States, was the destination for a record $37.1 billion of exports, up 2.5 per cent - mainly because of passenger cars and light trucks. A weaker Canadian dollar in the month was a contributing factor.

Canada's dollar strengthened 0.3 per cent to $1.2987 per US dollar at 8:52 a.m. Toronto time.

The trade deficit with Mexico widened to $6.7 billion and the gap with European Union countries grew to $12.8 billion.

Statscan said that exports increased in eight of 11 industry sectors.

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"Canadian trade was a large and pleasant surprise in June, and a surge in exports for the month capped a solid quarter", Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote in a research note.

In a flurry of activity this year, he has slapped taxes on imported steel and aluminum and on $34 billion in Chinese products. Exports of aluminum subject to the tariffs fell 7 per cent, after jumping 29 per cent in the prior three months.

On Friday, Trump's chief economic advisor Larry Kudlow told Bloomberg TV that the administration will keep pressing China for trade reform after China on Friday announced a list of $60 billion in US goods that will be impacted by a new tariff.

"But the first indications for the month suggest that there could be some growth left to come in the second quarter, upgrading the odds of a likely Bank of Canada rate hike in the coming months".

After posting a record high in May, imports of aircraft and other transportation equipment and parts fell 17.1 per cent to $2 billion, returning to April levels, Statistics Canada said. This number got a positive boost from trade, with the surge in exports during the quarter adding 1% to growth.

As the Federal Reserve gradually tightens interest rates, the USA dollar also has risen steadily since April, making American exports more expensive to foreign buyers.

"After acting as a drag on the economy for the preceding three quarters, external trade appears to have provided a decent boost to GDP growth in the second quarter", said Stephen Brown, senior Canada economist for Capital Economics.

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