Canada’s merchandise trade balance slipped back into a deficit of $137 billion in December from a $2.5 billion surplus in November. Merchandise exports were down 0.9% (month/month), while imports rose 3.7%.
Imports rose in 8 of 11 industries, led by electronic and electrical equipment and parts, which rose 16.2%, mainly due to imports of smartphones, slowed by supply chain disruptions earlier in the year. It was a similar story for imports of motor vehicles and parts, which rose 5.1% on a seasonally-adjusted basis.
On the export side, 8 of 11 categories saw increases, but this was offset by a large decrease in exports of energy products (-5.9%) due to a decline in prices (energy export volumes were up in the month). The decline in energy exports was partially offset by a 4.3% increase in consumer goods, mainly reflecting exports of pharmaceutical products packaged and labelled in Canada.
Key Implications
International trade has been increasingly volatile in recent months due to the combination of supply constraints and still-buoyant demand for goods. December’s return to trade deficit came as some of the constraints on imports lifted (smart phones and auto parts) at the same time that energy prices pulled back.
Overall in 2021, Canada benefited from greater price gains on the items it exports than what it imports. A positive terms of trade shock implies real gains in the purchasing power of Canadian businesses, households and governments. This was enough to push the Canadian merchandise trade balance into positive territory on an annual basis in 2021.
