Canada's trade gap narrows to 17-month low despite protectionist risks

US trade deficit expands in June amid growing tensions

Exports rose 4.1 per cent to a record $50.7 billion, with energy shipments rising 7.1 per cent to their highest since 2014 and aircraft sales jumping by nearly 45 per cent.

Even after the USA imposed tariffs on steel and aluminum, Canada's trade gap narrowed to $626 million in June, down from $2.7 billion a month earlier, Statistics Canada said Friday in Ottawa.

The June deficit of C$626 million ($482 million) - the lowest since the C$485 shortfall recorded in January 2017 - was far smaller than the C$2.30 billion predicted by analysts in a Reuters poll. "We expect the trade deficit to continue to widen, as a fiscal stimulus-led boost to demand leads to higher imports".

Trump has said trade wars are "easy to win" and made the soaring US-China goods deficit a principal issue in his nationalist economic agenda.

The country saw a 4.1 percent increase in exports compared with May, reaching 50.7 billion Canadian dollars (roughly 39 billion US dollars), due to spiked exports of energy products and aircraft. Last month, the Trump administration began following through with a March threat of tariffs on tens of billions of dollars of imported Chinese goods, prompting China to respond with retaliatory levies on high-value USA exports such as soybeans. The Bank of Canada is counting on trade and investment to contribute more to an economic expansion as it raises interest rates, while saying protectionism remains the biggest risk.

The report also said the value of imports climbed by 0.6 percent to $260.2 billion in July after rising by 0.5 percent to $258.5 billion in June. "As a result, trade is likely to subtract from GDP growth in the coming quarters, reversing the significant positive contribution recorded in Q2".

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Crude oil exports were mainly responsible for the gain, up 6.6 per cent to $7.2 billion on the strength of prices, but refined petroleum products also rose, by 19.2 per cent, on sales of heavy fuel oils and diesel fuel. "In real terms, exports rose 2.2% while imports fell 1.2% in June".

Exports to the United States were up 2.5 per cent month over month, lifting Canada's merchandise trade surplus with its neighbour to $4.1-billion from $3.3 billion.

But exports to non-U.S. markets fared even better, surging 8.7 per cent in the month.

"Today's report is the latest in a string of upside surprises that include May's GDP data and June inflation numbers", RBC senior economist Josh Nye wrote in a note to clients.

Canada imported products worth $51.3 billion in June, despite increases in seven of 11 product sections.

Imports of energy products decreased 15.1 per cent to $2.9 billion in June compared with May, as Canadian refineries came back on stream following spring maintenance shutdowns.

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