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Economic

U.S. Foreign Trade Position is Worsening; Canada’s is Healing

Alex Carrick
U.S. Foreign Trade Position is Worsening; Canada’s is Healing

Record ‘Goods’ Trade Deficit & Deterioration in ‘Services’ Surplus

In discussions about gross domestic product (GDP), foreign trade receives the attention it deserves in Canada, but it’s undervalued in the U.S. The reason undoubtedly has to do with the shares of GDP contributed by exports in the two countries.

U.S. Foreign Trade Position is Worsening; Canada’s is Healing Text Graphic

In Canada, total exports as a share of GDP in 2019 (i.e., the last full year before the coronavirus lull) were 32%, or nearly one-third, with ‘goods’ at 26% and ‘services’ at 6%. In the U.S. in 2019, the export slice of GDP was considerably lower, 12%, with ‘goods’ at 8% and ‘services’ at 4%. But 12% of GDP is nothing to scoff at; it’s a formidable chunk, nonetheless.

Furthermore, one of America’s biggest problems at present concerns supply shortages which, in turn, are often tied to the logistical difficulties of moving cargo in and out of ports.

The U.S. has been running a foreign trade deficit for as far back as anyone can remember. Specifically, there’s been a deficit in ‘goods’ trade (a.k.a., the merchandise trade balance) that has been much larger than the surplus in ‘services’ trade.

The total or net deficit became extremely large in the several years preceding the 2008-09 recession, then it quietened down for about ten years. In 2021, however, it has roared back.

In two of the last three months, the total U.S. trade deficit has worsened to new all-time extremes. The shortfall in ‘goods’ trade has been exceeding -$1 trillion dollars. Nor is help coming from a ‘services’ surplus to the same degree as in the past. Sad to say, the ‘services’ surplus has been slipping.

Perhaps when people pick up the pace of their international travel post-pandemic, the ‘services’ balance will turn more positive once again. But this will depend on more tourism and business travelers wishing to visit America than a tendency in the opposite direction. In the ‘services’ trade statistics, the hotel stays of foreigners while sojourning in America are counted as exports; the accommodation expenditures of U.S. citizens while on a jaunt in Europe or elsewhere abroad are judged to be imports.

If the U.S. foreign trade balance continues to deteriorate, it will soon rise higher among agenda items demanding scrutiny. Under current circumstances, it will be hard to argue for the removal of tariff barriers. Nor should there be an expectation the U.S. dollar will easily maintain strength. A weaker currency implies upward pressure on interest rates.

Construction Opportunities from Foreign Trade Initiatives

For the construction industry, there are several intriguing and potentially encouraging aspects to the U.S. foreign trade picture. A move away from the offshoring of work, as one answer to the international breakdown in supply chains, will mean the building of more production capacity and more inventory storage room at home.

The global agreement, or at least one reached by 140 countries, to install a minimum corporate tax rate will dampen the incentive for major American companies to set up operations in other jurisdictions. The practice of shopping around among nations for tax bargains will be suppressed. Again, this will be a spur to domestic capital spending and expansion plans, with export markets factoring into sales targets.

Finally, there’s a huge opportunity for the construction of export-oriented energy-related facilities in petrochemicals, fertilizers, and LNG product due to the outsized discrepancy in the cost of natural gas in North America ($6 USD/mcf) compared with Europe ($30 USD/mcf) and many other parts of the world, notably China and Japan.

Graph 1: United States’ Foreign Trade: Goods and Services Balance − August 2021

In August 2021, the U.S. trade deficit increased (i.e., worsened) both month to month (+4.2%) and year over year (+14.9%).

The last data point is for August 2021.
Based on seasonally adjusted monthly figures, projected at an annual rate.

Data source: Bureau of Economic Analysis (BEA).
Chart: ConstructConnect.

Graph 2: Geographic Sources of U.S. Total Foreign Trade Deficit in Goods – August 2021

China used to account for as much as 1/2 of America's total foreign trade deficit in goods each month. Recently, its share has decreased significantly. In Jun '21, the figure fell below 30%. In the latest 2 months, though, it has risen again to 30.5% in Jul & 32.5% in Aug.

Data source: U.S. Census Bureau and Bureau of Economic Analysis (BEA).
Chart: ConstructConnect.

Table 1: 12 of the Top Suppliers of U.S. Oil Imports
Year to Date (YTD) August, 2021

Imports from Canada year to date have been +5.5%; imports from everywhere but Canada have been -4.7%.

* OPEC nations.

Data source: Bureau of Economic Analysis (BEA).
Chart: ConstructConnect.

Graph 3: Foreign Sources of U.S. Imported Oil
% of Total Barrels – Jan-Aug 2021

Jan-Aug 2021 vs Jan-Aug 2020 number of barrels from: Canada +5.5%; Mexico -10.8%; Saudi Arabia -50.1%;
Total imports = +1.3%.

* Asterisk indicates country among OPEC members. Ecuador left OPEC in January 2020.

Data source: Census Bureau & Bureau of Economic Analysis (BEA).
Chart: ConstructConnect.

Graph 4: Shares of U.S. Total Oil Imports (Barrels)
Sourced from Canada and Saudi Arabia

In the early years of this century, through 2005, Canada and Mexico accounted for about the same share of total U.S. oil imports, around 15% each. Since the mid-00s, though, Canada's proportion has surged ahead while Mexico's has slipped a little.

Data sources: Census Bureau, Bureau of Economic Analysis (BEA) & Energy Information Administration (EIA)
Chart: ConstructConnect.

Graph 4: Shares of U.S. Total Oil Imports (Barrels)
Sourced from Canada and Saudi Mexico

In the early years of this century, through 2005, Canada and Mexico accounted for about the same share of total U.S. oil imports, around 15% each. Since the mid-00s, though, Canada's proportion has surged ahead while Mexico's has slipped a little.

Data sources: Census Bureau, Bureau of Economic Analysis (BEA) & Energy Information Administration (EIA)
Chart: ConstructConnect.

Pick-up in Commodity Prices a Boon to Canada

Canada’s foreign trade is taking a turn for the better. In six of the eight months of 2021, Canada’s ‘goods’ trade balance has been positive. It’s been the nation’s best performance on the trade front since 2008. It should be added, however, that the positive numbers this year are still well below what was realized in most months prior to 2008-2009’s Great Recession.

The pick-up in commodity prices has been a boon for Canadian export sales. West Texas Intermediate (WTI) oil is above $80 USD per barrel, helping to lift the price of Western Canadian Select (WCS) oil to $67 USD per barrel.

There have been demand and price increases for a host of other commodities that Canada supplies to the world. Approximately 60% of Canada’s total export sales derive in primary or secondary form from resources.

At the end of this article is a string of graphs showing the big trade advantages Canada enjoys, exports minus imports, in a dozen markets centered on raw materials.

For Canada, a feature of the foreign trade-construction connection over the past decade (and opposite to the full-steam ahead approach in the period of the 00s) has been an absence of mega projects in the resource sector. After a long hiatus, there are prospects of a turnaround, dependent on regulatory approvals of course.  

Graph 6: Canada’s Foreign Trade: The Merchandise Trade Balance − August 2021

Traditionally, Cdn exports going to the U.S. have been 3/4 of total; with imports from the U.S. at 2/3 of total. In Aug 2021, exports followed their usual pattern, at 74.9%. Imports, however, were under their norm, at 61.2%. Purchases from China were 8.9% of total Cdn imports.

The last data point is for August 2021.
Based on seasonally adjusted monthly figures, projected at an annual rate.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 7: Provincial Export Sales, Jan-Aug, 2021
Ranked by $ Volume (Also Showing YTD% Changes – i.e., vs Jan-Aug, 2020)

Canada's total goods exports in Jan-Aug 2021 were +22.5% vs Jan-Aug 2020.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 8: Canada’s Key Export Product Sales by Province

Energy product exports from Saskatchewan (+60.6% ytd) & Alberta (+52.6%) and forestry product exports from B.C. (+67.6%) have been doing exceptionally well.

Data source: Statistics Canada Table 12-10-0119-01.
Chart: ConstructConnect.

Graph 9: Canada’s Foreign Trade in Crude Oil and Bitumen

For more than a decade, Canada has managed a strong surplus in the trade of crude oil. The dollar volume of Canadian oil exports is many times (i.e., currently 8x) the value of natural gas exports.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 10: Canada’s Foreign Trade in Natural Gas

Canada's earlier big advantage in the trade of natural gas with the U.S. has largely dissipated due to the emergence of large hydraulic fracturing capacity south of the border. Moving forward, Canada's best prospects for gas exports probably lie in LNG projects on both coasts.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 11: Canada’s Foreign Trade in Refined Petroleum Product

MMost of Canada's refined petroleum exports are shipped out of Irving's Saint John, N.B., refinery.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 12: Canada’s Foreign Trade in Electricity

Canada has almost entirely shifted to no carbon or low carbon emitting sources of electric power generation. Many U.S. states are still heavily into thermal coal. New reversible transmission lines are being built north-south from Manitoba, Ontario & Quebec, so the opportunities for net export gains are clear.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 13: Canada’s Foreign Trade in Coal

Thermal coal-fired electricity in Canada is being eliminated. But Canada is still an important exporter of the metallurgical coal used in steelmaking, with mines in the provinces of B.C. and Alberta being the major sources and Teck Resources being one of the largest international suppliers.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 14: Canada’s Foreign Trade in Iron Ore

Most of the iron ore in Canada is mined along the Quebec-Labrador border. Nunavut also accounts for some production. (Rio Tinto is the major shareholder of Iron Ore Company of Canada.)

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 15: Canada’s Foreign Trade in Copper

The two major copper producing provinces are British Columbia and Ontario. Further back in terms of output are Manitoba, Quebec and Nfld/Labrador.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 16: Canada’s Foreign Trade in Nickel

Ontario is number one for nickel production, but the names of the grand old giants in the industry, Inco and Falconbridge, have given way to Vale and Xstrata/Glencore. Quebec & Nfld/Labrador (Voisey's Bay) are other nickel producing provinces. Manitoba is far back in fourth spot.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 17: Canada’s Foreign Trade in Gold, Silver & Platinum

Ontario is number one for gold production in Canada, with Quebec not far behince. British Columbia ia a distant third. The nation's major players are Newmont (acquired Goldcorp) and Barrick.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 18: Canada’s Foreign Trade in Potash

Nutrien, formed through the merger of Potash Corp of Saskatchewan and Agrium, is Canada's largest producer. All output comes from Saskatchewan; mining in New Brunswick has been terminated.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 19: Canada’s Foreign Trade in Aluminum

Aluminum production in Canada is concentrated in Quebec (Sept-Iles region) and British Columbia (Kitimat). The biggest companies in the field are Rio Tinto Alcan & Alcoa Corporation.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

Graph 20: Canada’s Foreign Trade in Lumber & Other Sawmill Products

Among provinces, B.C. is Canada's large forestry product exporter. Quebec and Ontario are also major producers. Proportionally, the forestry sector is especially important to the economy of New Brunswick. The two major Canadian woodlot companies are West Fraser Timber & Canfor.

Latest data points are for August 2021.

Data source: Statistics Canada.
Chart: ConstructConnect.

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