The latest data on Canada's trade balance shows a significant drop in the export of automobiles and auto parts to the US.Imports increased 11% to 7.3 billion dollars, while exports fell 7.2 % to 6.3 billion dollars.
Under normal circumstances this would have turned our balance on merchandise trade negative. But the booming oil and gas sector bailed us out.
International oil prices are now trending downward so the value of our oil and gas exports will be dropping despite the continued high volume.In fact the prices are dropping fast enough for the oil cartel OPEC to begin discussions on restricting supplies so as to ensure that prices do not drop below $60 US a barrel which from a consumers' point of view would be most welcome.
If the trend in the decline in auto parts and auto exports continues and it might well because of the combined circumstance of the slowdown in the US and the high Canadian dollar worth almost 90 cents US, expect to see a decline in Canadian manufacturing employment in the coming months.
With the prospects of future imports of Asian automobiles perhaps from China this will be a major challenge to our auto manufacturing sector.
Incidentally the Chinese permit foreign firms to import auto parts for their factories in China without paying a 25 % tariff only in exchange for a guarantee that 40 % of their auto parts are sourced in Chinese production. This apparently violates the world organization rules but it sounds like a very good idea.
The US, the European Union and Canada are complaining about the Chinese import tariff to the WTO so it may not last.
AS I have been sayingfor some time these are hardly the circumstances in which the Bank of Canada should be raising interest rates. Expect no further rate increases for the near future and perhaps some cuts if the slowdown in manufacturing intensifies.
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