• The July trade deficit unexpectedly shrank to $0.1 billion from $0.7 billion in June. The July shortfall was the smallest since a small surplus was posted in December 2016. Markets expected a $1 billion deficit in July.
  • Exports rose 0.8% in nominal terms but fell 0.8% in volume terms. Import volumes declined 1.6% in volume terms but despite an increase in equipment imports that is a good sign for Q3 Canadian business investment spending.
  • Non-energy export volumes inched lower on a month-over-month basis in July but were still up 4% from a year ago.

Our Take:

A 0.8% rise in July exports was entirely explained by a big rise in energy prices but the 0.8% decline in export volumes still retraced less than half of a big jump in June. Statistics Canada reported that exports to the U.S. of steel products targeted by new 25% U.S. import tariffs beginning in June bounced back 16% in July after falling 36% the earlier month. New retaliatory Canadian import tariffs starting in July also seem to have had a significant impact on trade in targeted products. Canadian imports from the U.S. of steel products targeted fell 40% after jumping 33% in June. Looking through the volatility, the Canada-U.S. trade balance in products directly targeted in the most recent trade spat appears to be little changed in July from May (before U.S. tariffs were first implemented in June.)

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On balance, the Canadian trade data has looked somewhat better in recent months. Non-energy export volumes slipped lower in July but were up 4% from a year ago. The monthly data is volatile, so a few months of encouraging data doesn’t yet make a trend — and risks around Canada’s trade relationship with the U.S. remain. It could also be, though, that Canadian exports are finally starting to get at least a modest lift from stronger global trade flows and an improved U.S. industrial sector.



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