U.S. Trade Gap Widened in June

U.S. Trade Gap Widened in June

U.S. Trade Gap Widened in June

The data underscored the importance to Canada of the United States, which took 73.0 percent of all Canadian goods exports in June.

On a volume basis, exports were up 2.1 per cent while imports were down 1.2 per cent.

National Bank of Canada economist Kyle Dahms suggested that US tariff threats may be temporarily fuelling USA demand for some Canadian goods.

Shortly before the numbers were released, Beijing warned it was ready to impose new tariffs on $60 billion in American products, responding to Trump's plans to jack up the punitive duties on the next $200 billion in Chinese goods to be targeted.

Canada's merchandise trade deficit with the rest of the world shrank dramatically in June to $626 million, the smallest in 17 months.

The improving trade balance more than offset declines in exports to the USA of steel and aluminum, which fell 37 per cent and 7 per cent after President Donald Trump's tariffs took effect.

Exports to countries other than the United States increased 8.7 per cent in June to a record $13.6 billion.

"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.

The favourable economic outlook and rising interest rates in the US have sent the USA dollar index up 6.7 per cent since March 26, further dampening the global competitiveness of American goods.

In the first half of the year, the United States has registered a trade deficit in goods and services of $291.2 billion, up 7.2 per cent from January-June 2017. Exports of passenger cars and light trucks were up 5 per cent in the month. "Tense trade relations may have caused American importers to stock up as evidenced by the Canadian trade surplus with the US jumping to the highest since April past year".

Trade actions could also limit GDP growth in the quarters ahead alongside this tax cut boost. The rise was mainly due to higher exports of energy products and aircraft.

"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.

The unexpected export performance has heightened expectations that the Bank of Canada will raise its interest rates next month. But most still think the central bank will wait until October, to give itself more time to gauge the impact of trade uncertainty, and will hold rates steady in its next rate announcement in early September. In addition, the dollar continues to strengthen.

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