Canada slashes trade deficit in June

Canada slashes trade deficit in June

Canada slashes trade deficit in June

Overall exports rose to $50.7 billion in June, the first time they have surpassed the $50-billion mark, as the value of exported energy products jumped 7.1 per cent to $9.9 billion, the highest since October 2014.

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

The June deficit of C$626 million ($482 million) - the lowest since the C$485 shortfall recorded in January 2017 - was far smaller than the C$2.30 billion predicted by analysts in a Reuters poll.

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In May, a rush by Chinese importers to beat Beijing's looming counter-tariffs led to a surge in United States exports of crude oil and soybeans, temporarily driving down the deficit and boosting GDP growth in the April-June period.

"We thought steel and aluminum tariffs would be the story of this morning's trade report, but strong export growth in most other sectors swamped the impact of those new duties", said Josh Nye, senior economist at RBC Economics Research. A big boost came from net exports, which contributed 1.06 percentage points to growth, the most since 2013.

In June, total exports rose 4.1 percent to Can$50.7 billion, said Statistics Canada. The return of several Canadian refineries to production after shutdowns also played a role in the 0.2 per cent decline in imports as demand for foreign gasoline tumbled. "As a result, trade is likely to subtract from GDP growth in the coming quarters, reversing the significant positive contribution recorded in Q2". President Donald Trump's administration imposed tariffs of 25 per cent on steel and 10 per cent on aluminum in June, predicated on national security considerations; Prime Minister Justin Trudeau's government retaliated dollar-for-dollar on July 1. Aircraft exports alone were up 44.5 per cent to $984 million.

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Total exports rose 9.2 per cent in June compared to the same month past year. The report raised expectations for a Bank of Canada rate increase in September to 39 per cent, from 32 per cent yesterday and 12 per cent a fortnight ago. Exports of aluminum subject to the tariffs fell 7 per cent, after jumping 29 per cent in the prior three months.

Canada imported products worth $51.3 billion in June, despite increases in seven of 11 product sections.

And so as Yahoo Finance has written before, tax cuts could end up working against Trump's efforts to bring down the US trade deficit, which in 2017 totaled $570 billion.

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"Much of the rise in exports was driven by Chinese imports of soybeans, which we believe reflects a reaction to potential imposition of tariffs", Barclays said last week in response to the GDP number.

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