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International merchandise trade

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The rise of the loonie has made Canada’s exports relatively more expensive and imports relatively cheaper.

In 2007, exporters and importers in all sectors of Canada’s international merchandise trade felt the effect of the loonie’s climb.

The Canadian dollar reached parity with the U.S. dollar in 2007 for the first time in more than a generation. The dollar appreciated 17% during the year, as measured by the Bank of Canada’s monthly noon spot rate.

The dollar also appreciated against three other currencies important to international traders: the pound, the euro and the yen.

Other factors had an impact on merchandise trade, such as rising commodity and energy prices and the housing slowdown in the United States.

Trade surplus lowest in eight years

Canada’s annual merchandise trade surplus with the world shrank to $48.1 billion in 2007, its lowest value since 1999. The trade surplus has been in decline for three years since reaching $65.8 billion in 2004. Exports rose 2.1% to $463.1 billion, but imports grew more, 2.7% to $415.0 billion, leading to the decline in the surplus.

Without the energy sector in 2007, Canada would have had a trade deficit with the world.

The trade surplus in industrial goods and materials, as well as in agricultural and fishing products, grew in 2007, but the trade surplus in forestry contracted. Trade in automotive products slipped into deficit for the first time since 1987.

The United States remains Canada’s key trading partner, accounting for 77% of exports and 65% of imports. With the rising loonie, Canada’s merchandise trade surplus with the United States continued to shrink in 2007, reaching $86.3 billion, the lowest it has been since 1999.

In 2007, Canada’s trade gap with other countries narrowed to a deficit of $35.5 billion. This was the smallest trade deficit with countries other than the United States since 2004: in 2007, Canadian exports to non-U.S. countries advanced 16.0%; imports rose 4.2%.

High commodity prices

Sharply higher commodity prices since 2002 have helped to lift the loonie: its rise has, in turn, helped to lower prices of imported goods. A slowing American economy in 2007 was largely confined to housing, autos and the financial sector.

Export earnings from forestry fell 13%, and auto products, 6%. Thanks largely to earnings from resources—exports of oil, natural gas, metal ores, metal alloys, and potash, for instance—Canada’s economy has maintained steady growth. Energy is the biggest contributor to Canada’s trade surplus today. Energy prices and trade volumes have grown, while the influence of other sectors like forestry and autos has declined.

Industrial goods led exports

Merchandise exports rose 2% to a record $463.1 billion in 2007. Export volumes increased 1%; prices rose 1%. Industrial goods and materials led the way for a second year in a row, climbing 11% to $104.5 billion.

Automotive and forestry products were the exceptions, as the depressed U.S. housing market cut both sectors’ exports. Forestry was also challenged by the mountain pine beetle, the strong loonie, labour disputes, and adjusting to the new softwood lumber agreement. Automotive exports have been declining since 2005.

The export value of metal ores and alloys has been rising annually since 2004, largely due to higher prices. In 2007, industrial demand from Asia propelled prices for a wide range of primary metals to record levels. Demand from China for potash-based fertilizers rose; global potash supplies dwindled and Saskatchewan mines resumed production.

Energy exports rose 6% in 2007 to $91.6 billion. Largely, this reflected strong crude oil exports, which climbed 7% to $41.2 billion. The price of crude rose 6% while export volume increased 1%, as the oil sands industry continued to boom.

Exports of agricultural and fishing products grew 10% to $34.5 billion in 2007. Exports of barley, used as animal feed, jumped 87%. Wheat exports remained strong, rising 27%, based in part on higher prices, lower world supplies, and robust demand from India and China. Canola exports climbed 29% on upward price pressures.

Imports advanced in all sectors

Canada’s imports rose 3% in 2007 to a record $415.1 billion: all sectors posted growth. The prices of imports fell, but record volumes pushed up the value of imports.

Leading import growth in terms of value were ‘other consumer goods,’ particularly imported pharmaceutical products, toys, clothing and house furnishings. The value of these imports has advanced 18% during the last four years, but their volume is up 45%.

Imports of agricultural and fishing products hit a record high in 2007. Corn imports grew by 70% as the biofuels industry continued to expand in Canada. Energy imports were up for a fifth straight year. Machinery and equipment imports were strong, as industrial and agricultural machinery continued to pour into the robust economy of Western Canada to support mining, exploration and farming activities.

Aircraft, engines and parts imports rose as airlines and the military built up fleets and switched to more fuel-efficient planes. Imports of cars and trucks have risen in recent years, but the same cannot be said for vehicle parts. After exceeding $45 billion in 1999, vehicle parts imports have been falling, to $36.2 billion in 2007.

Diversifying the trade portfolio

The trading patterns of Canadian companies have recently shifted. Exports to non-U.S. countries have greatly expanded, up 16% in 2007 alone. These countries now comprise one-fifth of Canada’s export market.

Canada’s trade is expanding with Europe—particularly the United Kingdom, Norway and the Netherlands—and with China, India and Mexico. Uranium exports to Europe nearly tripled in 2007. Exports of oil drilling platforms increased to the United Kingdom. Imports of pharmaceutical products from Europe have doubled in the last five years.