Statistics Canada
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Market Research Handbook

2008

63-224-X


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Section 7: International trade

Canada’s international trade surplus with the rest of the world shrunk to about $36 billion dollars in 2006, from about $51 billion recorded in 2005 (table 7.2). This drop was due to a more pronounced increase in the value of imports and a rather sluggish growth in export receipts. The value of the importation of goods and services rose from about $467 billion to about $487 billion (+4.1%) in 2006 while exports increased from $ 519 billion to $523 billion (+0.8%) (table 7.2). Exports of goods and services to the US, Canada’s largest trading partner, dropped by about $7.3 billion, due to lower demand for natural gas, autos and lumber in the US. However, payments for the importation of US goods and services increased by about $5 billion, depressing Canada’s trade surplus with the US by about $12.7 billion (table 7.2).

International trade in goods

The combination of strong demand and rising prices for Canada's natural resources products, specifically metals, crude petroleum and grains, pushed the nation's total merchandise exports to a record high of $455.7 billion in 2006, up +0.9% over 2005 (table 7.1-1). Buoyed by lower prices, due to the favourable exchange rate of the Canadian dollar to major international currencies, import values also reached record levels in 2006. Canadians imported merchandise to the tune of $404.4 billion, up +4.1% from the previous year (table 7.1-3). Consequently, the goods surplus (the difference between value of imports of goods and the value of exports of goods) dropped by $12.2 billion to $51.3 billion (table 7.1-2).

Demand for all sorts of industrial raw materials, especially energy and metals, by newly industrialized countries such as China has pushed up world prices. As a major raw materials producer, Canadian companies benefited from these higher prices for their products. Consequently, the exports of industrial goods and materials made the largest contribution to the gain in exports in 2006, as the export value of industrial goods and materials surged to reach a new record of $94.0 billion in 2006 on the strength of metal ores and alloys (table 7.1-1). Although both exports and imports of industrial goods advanced in 2006, exports (+11.5%) outpaced imports, which rose +6.9% to $84.0 billion (table 7.1-3). Industrial goods and materials, which posted a sectoral trade deficit in 2001, was the only sector to register a rising trade surplus in 2006, hitting a record-high of about $10 billion (table 7.1-2).

However, exports of natural gas, autos and lumber all reported lower export values for the year as US demand for these products declined. For example, receipts from automotive products (automobiles, trucks and parts) dropped by $5.5 billion, while those from forestry products fell by $3.1 billion (table 7.1-1). As a result of the drop in these exports, the value of exports to the United States fell for the first time in three years (table 7.2).

Last year's record-high imports were pushed up by strong imports of machinery, electronics, cars and trucks, home furnishings (table 7.1-3). Construction in the oil sands in Alberta expanded and increased demand for industrial goods. The oil boom also acted as a pull factor in encouraging people to move in droves to the province to capitalize on higher wages created by a tight labour market. The rise in household incomes in Alberta in turn contributed to additional consumer spending in 2006, driving auto sales up to their highest level ever. The increase in sales was concentrated in Japanese and German models manufactured outside of North America. There were also increased imports of high definition televisions and other personal electronics equipment, such as cellular phones and DVDs.

While the United States was still by far Canada's largest trading partner in 2006, there is a growing propensity among Canadian companies to do business with countries other than the United States. The United States’ share of both exports and imports declined mainly due to rising exports of metals, aircraft, wheat and canola to the rest of the world, combined with lower exports of autos, forestry products and natural gas to the United States (tables 7.1-1, 7.1-3).

For a more in depth information on imports and exports of goods, please consult our free publication “International Merchandise Trade Annual Review." 1 

International Trade in services

Powered by higher transportation fares and more robust expenditure by Canadians travelling abroad, the deficit on services increased by +$3.0 billion to about $15.2 billion in 2006 (table 7.11). This was the highest ever deficit on services recorded and this outcome also pushed both the travel and transportation deficits for the year to their highest level ever recorded.

Canadians continue to spend more money travelling abroad than foreigners spend in Canada. In 2006, travel payments increased to about $23.3 billion (+5.7%), while revenues from travellers to Canada was slightly down to about $16.6 billion (-0.5%) from 2005 figures. This pushed up the travel deficit by $1.3 billion to another record level, $6.7 billion, more than quadruple its level in 2002. Much of the increase in the travel deficit between 2005 and 2006 stems from higher spending by Canadians in the United States, as Canadians took about 16 million overnight trips to the US (+7.6%) more than the previous year and the highest level since 1993. This situation combined with the lowest number of Americans making overnight trips to Canada since 1997 (13.8 million) and lower spending by the Americans all pushed the travel deficit to record heights. 2  Increases in fuel prices, coupled with the high exchange rate of the Canadian dollar to the US dollar and other major international currencies are other related factors contributing to the deficit in travel services and transportation.

Balance of International payment, Investment Income

Investment income is divided into three categories, direct investment, portfolio investment and other investment. Direct investment covers interest income earned by direct investors (Canadian and foreign) on loans to their direct investment enterprises together with their profits on direct investment. Portfolio investment includes interest earned by portfolio investors (Canadian and foreign) on their holdings of bonds and money market instruments, as well as dividends received on stockholdings (Canadian and foreign). Other investment income consists of income earned on non-bank deposits, international reserve assets, government loans and other claims.

In 2006, there was a +27.8% increase in receipts of investment income in Canada (from $48.2 billion to $61.6 billion). Canadian liabilities to the rest of the world went up, primarily due to acquisitions of Canadian companies by foreign direct investors, thus investment income payments by Canadians increased from $70.7 billion to $73.4 billion (+3.8%). Consequently, the balance on total investment income (difference between total investment income received in Canada and total investments income paid by Canadians abroad) was about $11.8 billion in deficit (table 7.13). The increasing profits from investments abroad by Canadian companies, along with more interest earned from Maple bonds, contributed to a reduction of Canada’s deficit in investment income to cut by almost two-thirds (about 59%) of what it was 10 years earlier (chart 7.1). This is the result of the growth in Canada's international assets, which came from portfolio, direct and other investments, outpacing increases in Canadian international liabilities.

In 2006, as Canadian investments abroad became more profitable, the balance on total direct investment income (the difference between total direct investment income receipts and total direct investment income payments) reached $1.5 billion in surplus. This was precipitated by a +25.3% increase in direct investment income received by Canada, while there was a 9.1% decline in the amount of direct investments income payments Canadians made abroad.

With the US being Canada’s largest trading partner, it was no surprise that the US was responsible for the largest share of investment income (36.3%) received in Canada in 2006. The Americans were also the recipients of 60.6% of all Canadian foreign investment income in that same year (table 7.14).

Chart 7.1 Total investment deficit, Canada, 1997 to 2006
Source(s):  Statistics Canada, Canada's Balance of International Payments, Catalogue no 67-001-X and CANSIM table 376-0012.