Canada's State of Trade: Trade and Investment Update 2012

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V. Key Developments in Canadian Merchandise Trade in 2011

The previous chapters have shown that Canada’s economy and trade continued on their recovery path in 2011. Strong domestic demand, solid financial and fiscal fundamentals and the relative recovery in Canadian terms of trade have sustained strong growth in imports. On the other hand, the pickup in global economic activity—in particular, improving news from the U.S. economy in the second half of the year—has fuelled global demand for Canadian exports, thus further stimulating the domestic economy. The resulting double-digit growth in trade solidified Canada’s continuing economic recovery from the global recession.

The present chapter takes a closer look at the developments in Canada’s merchandise trade over the course of 2011. The use of Customs¹ data on merchandise trade allows us to analyze trade statistics in greater detail than in previous chapters—by destination country, commodity and province of origin. These are different from the balance of payments (BOP) data used in the previous chapter.ⁱ

Total Canadian merchandise exports rose to $447.8 billion in 2011, while merchandise imports increased to $445.9 billion. Thus, after two years of deficits, Canada’s merchandise trade balance is back to positive. Exports increased to every partner in Canada’s top 20 export destinations. On the heels of a similar rise in 2010, this qualifies as a sustained recovery of Canadian merchandise exports after the major downturn of 2009. Nevertheless, exports to most of Canada’s OECD partners have not yet reached the pre-recessionary levels: notably to the United States, Japan, Germany, France and Italy. Meanwhile, imports of merchandise reached their highest level ever, driven mainly by increased purchases from the United States and China.

While the predominant portion of Canada’s trade is conducted with very few partners, it is the exports that are particularly concentrated. The top 10 export destinations accounted for 89.7 percent of total merchandise exports (same as in 2010), while the top 20 comprised 94.4 percent. On the import side, the top 10 suppliers accounted for 79.0 percent of total Canadian merchandise imports (down from 80.6 percent in 2010), while the top 20 combined for 87.0 percent. Most of the difference between export and import concentration is due to the United States, which received $109.2 billion more of Canada’s merchandise exports than it supplied in imports in 2011. Canada’s other significant merchandise trade surpluses are few: $8.5 billion with the United Kingdom, $2.6 billion with Hong Kong and $2.2 billion with the Netherlands. Conversely, Canada’s largest merchandise trade deficits are with China ($31.3 billion), Mexico ($19.1 billion), Germany ($8.8 billion) and Algeria ($5.2 billion).

There was little movement among the top 10 trading destinations for Canada. On the export side, the top five recipient countries remained the same. Germany dropped two ranks from sixth to eighth position as Korea and the Netherlands moved into the sixth and seventh positions, respectively. Brazil and Norway slipped out of the top 10 in 2011 after joining it in 2010, with France and Hong Kong replacing them in the ninth and tenth positions, respectively (see Figure 5-1). There was even more stability with regard to imports, with all of the top eight suppliers holding their positions. Algeria produced the only change, vaulting from 13th to 9th spot, pushing Italy and Taiwan down one rank each to the 10th and 11th positions, respectively (see Figure 5-2).

With regard to specific products influencing Canada’s trade performance in 2011, an increasingly large role was played by crude oil which generated the largest surplus (over $40 billion) and the largest overall change in trade balance last year (a gain of over $12 billion). The list of other significant trade surpluses is headed by passenger cars, but is otherwise all resources - petroleum gases, coal, gold, potash, aluminum, wheat and wood pulp. It is worth noting that the role of petroleum gases, paper and non-crude oil in Canada’s trade surplus fell dramatically since pre-recession times. These three commodities combined generated just over $17 billion in trade surplus compared to a combined trade surplus of nearly $46 billion in 2008. On the other hand, manufactured products—including trucks, automotive parts, computers, telecom equipment and medicaments—were responsible for most of the trade deficits. Trade surplus commodities generally improved the overall balance last year while trade deficit commodities worsened it, save for the already mentioned exception of petroleum gases and non-crude oil, and that of electric generating sets.

Price and volume changes were more complex than in 2010 when resource values were recovering strongly across the board. While wheat, gold, coal and canola prices increased significantly, prices for petroleum gases and wood products actually fell. The oil price picture was more nuanced. Noncrude oil prices increased uniformly, but the average price of Canada’s heavier crude oil exports priced at and below the WTI variety rates grew at only half the speed of Canada’s crude oil import prices, which were priced at the Brent variety rates (see box on the divergence between WTI and Brent in 2011). This limited Canada’s potential gains in the crude oil trade.

Traded volumes increased sizeably for potash, canola oil, nickel, and copper ores. Export volumes dropped for petroleum gases, but import volumes soared. Quantities of imported gold and silver also increased significantly. Crude oil exports gained in volume, while volumes of non-crude oil exports went down; the situation was reversed for import volumes.

The recovery of the automotive sector seems to have reached a plateau, with exports of passenger cars and motor vehicle parts experiencing only a modest increase. The situation was similar in the wood and wood pulp sector. These sectors may experience further export gains if the economic recovery in the United States continues to pick up steam next year.

Coal and potash exports nearly tripled in the last five years and became considerably more important in the overall picture; this is also true for Canada’s rapidly growing exports of canola seeds and oil. Conversely, paper and newsprint so far failed to recover to prerecession levels as the newspaper and advertising market continues to be depressed. On the import side, Canada significantly increased its reliance on imported non-crude oil (primarily from the United States) and telecom equipment (primarily from China), though these increases are primarily a matter of choice and not necessity.

Trade by Top Ten Partners

Merchandise Exports

After rebounding 11.0 percent in 2010, Canadian merchandise exports to the world continued to climb in 2011, posting a $48.5-billion increase (12.1 percent) to $447.8 billion. This indicates that Canada’s trade is on a consistent recovery path, in spite of continuing weakness in the U.S. economy. While total exports remain below their 2008 peak of $483.5 billion, that record incorporates some resource prices that, in retrospect, may be qualified as inflated. The global recovery from the latest recession is nowhere near complete, with Canada’s biggest trading partners in Europe, Japan and North America still experiencing severe challenges to their economies. Consequently, exports to the United States, Japan, Mexico, Germany, Belgium, France and Italy have yet to recover to their pre-recession levels. Continued and sustained recovery in these economies holds further promise for Canadian merchandise trade recovery. On the other hand, exports to the United Kingdom, China, South Korea, the Netherlands, Hong Kong and Brazil have surpassed their 2008 levels already.

Collectively, Canada’s top 10 export markets accounted for 89.7 percent of its merchandise exports in 2011, same as in 2010, but up from 89.1 percent in 2009. Moreover, the concentration of top 20 merchandise exports has grown from 93.3 percent in 2009 to 94.1 percent in 2010 and then to 94.4 percent in 2011. In 2010, Brazil and Norway were among the top 10 destinations for Canadian exports, with $2.6 billion and $2.5 billion in export values, respectively. This year, the expansion of exports to $2.8 billion to both destinations was not enough for them to maintain their ranks, which slipped to 11th and 12th, respectively, as France and Hong Kong entered the top 10 Canadian export destinations.

The United States was again the leading destination for Canadian merchandise exports, though it lost over 1 percent of its share, accounting for 73.7 percent of total exports in 2011. Although the recovery has been sluggish in the United States, exports still increased by $31 billion, or 10.4 percent. The economic picture south of the border has gradually improved since the debt ceiling crisis was resolved. The housing market has shown some signs of recovery, business investment has picked up and the employment picture has brightened. Nevertheless, the combination of high consumer debt, the fading of federal stimulus and the prospect of continued uncertainty in Europe may dampen the progress of U.S. economic recovery and may limit Canadian opportunities to expand exports to the United States.

The share of mineral fuels and oils in Canadian exports to the United States increased once again, to 31.6 percent, or $104.3 billion. The $16.6-billion increase in exports in this category was driven by the continued growth in oil prices, while export volumes were actually scaled back. This increase alone accounted for over half of the growth in Canada’s merchandise exports to the United States in 2011, and over a third of the growth in its global exports. Crude petroleum was responsible for all of the export growth. Natural gas exports fell slightly and were balanced by a slight growth in exports of light and heavy oil.

Automotive exports to the United States recovered to the pre-recession level, itself a four-year low due to the extended crisis in this sector. The $1.9-billion gain was mostly due to passenger vehicles ($1.2 billion), with other categories posting modest increases. Exports of precious metals and stones made another gain ($1.6 billion), led by silver, where exports were five times as great as their pre-recession levels. Significant export gains also occurred in canola oil (up $0.8 billion), potash (up $0.5 billion), uranium (which doubled to $0.8 billion) and nickel (which more than doubled to $1.3 billion).

The United Kingdom continued to hold second place in 2011, with exports growing 14.8 percent over 2010 (or $2.4 billion) to reach $18.8 billion. The British share of all Canadian exports also went up slightly (to 4.2 percent). The gains were narrowly concentrated in the precious metals and stones category (up $2.9 billion), nearly all of that increase coming from gold exports. Uranium exports increased sizeably (up $0.2 billion) while aircraft exports lost $1.0 billion out of $1.4 billion in 2010.

China was third in the list of largest Canadian merchandise export destinations at $16.8 billion, raising its share to 3.8 percent of all exports. Growth was $3.6 billion, or 27.1 percent in 2011. China is now the top export destination for Canadian ores with a gain of $1.3 billion last year, split between iron ore (up $0.8 billion) and copper ore (up $0.4 billion). Canadian wood industry exports to China have continued to recover. Wood pulp remained the top export commodity, gaining $0.5 billion in value. The other significant gain of $0.6 billion occurred in wood exports. For the first time, significant gold exports to China ($150 million) were registered. Exports of aircraft and parts more than doubled, reaching $0.3 billion.

Japan ranked fourth in 2011 with $10.7 billion in merchandise exports, up $1.5 billion from 2010 (or 16.0 percent). Canola seeds and ores (mostly copper) contributed most of that increase ($0.4 billion each), and mineral fuels and oils were not far behind (up $0.3 billion). Japan is now Canada’s top importer of canola seeds. The 71-percent growth (up $249 million) in cereals exports was also notable.

Mexico was the fifth-ranked destination for Canadian merchandise exports, with $5.5 billion in 2011. Growth on the year was $0.5 billion, or 9.3 percent. For the second consecutive year, canola seeds exports grew significantly (by $183 million) and are now Canada’s top export commodity to Mexico. Exports of cereals expanded by $112 million while exports of cars, meat and electrical machinery lost $82 million, $58 million and $51 million in value, respectively. Some gains occurred in iron and steel, aluminum, aircraft, and mineral fuels and oil exports.

South Korea was sixth among top Canadian export destinations. Exports reached $5.1 billion in 2011, a 37.4-percent increase (or $1.4 billion) over the previous year. More than half of the increase was due to the growth in the exports of mineral fuels and oil (by $783 million, all in coal). Cereals and meat exports more than doubled, adding $261 million and $134 million, respectively, to the total. Aircraft exports jumped $149 million to $166 million, their highest level since 2006; ores exports grew by $60 million and wood products by $58 million. Machinery exports dropped by $129 million (nearly 50 percent), but are now more in line with historical performance; aluminum exports fell by $70 million and electrical machinery exports by $40 million.

The Netherlands improved its rank¬ing to seventh in 2011 among the top destinations for Canadian merchandise exports, passing Germany. Exports grew 46.9 percent ($1.5 billion) to reach $4.8 billion. Most of the increase was due to mineral fuels and oils, which rose by $0.9 billion (all due to noncrude oil and coal). Canola seeds did well, gaining $73 million in exports while canola oil exports gained $69 million. Metals and ores also expanded: exports of ores increased by $347 million (mostly iron ores), nickel exports rose by $65 million and aluminum by $56 million.

Germany was the slowest-growing of the top 10 destinations for Canadian merchandise exports, gaining only marginally in 2011 (0.5 percent), and as a result dropping two ranks to eighth place. While the volume of trade was valued at $4.0 billion, the increase in exports amounted to only $18 million. There were significant changes at the commodity level, however. Ores, one of Canada’s top export commodities to Germany, nearly halved, losing $406 million in value, with iron ores responsible for the decline. Aircraft exports compensated somewhat, growing by $215 million, and exports of precious stones and metals also went up (by $46 million). Canola oil exports increased by $45 million, while canola seeds exports went down $28 million. Meanwhile, machinery became the top export item to Germany, with a $15-million growth.

France returned to 9th position in 2011, posting an impressive $731-million export growth (31.1 percent) to reach $3.1 billion. The increase in exports was broad-based: aircraft and parts gained $244 million, mineral fuels and oil went up by $208 million, ores (predominantly iron ores) increased by $70 million, and machinery exports grew by $40 million. Canola oil and seeds also improved, together adding about $90 million to the export growth. Inorganic chemicals (predominantly uranium) nearly doubled, gaining $42 million.

Hong Kong broke into the top 10 by growing 57.8 percent, the highest growth rate among the top 10. That translated into a $1.1 billion-increase, to reach the value of $3.0 billion, just ahead of Brazil and Norway. The increase was mostly due to higher exports of precious metals and stones, which gained $854 million in value (all of which was gold). Aircraft exports gained $163 million and electric machinery grew by $46 million. Canola seed exports lost a third of their value (down $48 million), and meat exports decreased as well (by $25 million). A $49-million gain in ores (iron), which were not exported in the previous year, also helped fuel the rise in exports to Hong Kong.

Merchandise Imports

Strong domestic demand in Canada was attested to by the 10.5-percent growth in Canadian merchandise imports, a rate almost identical to that of the previous year. This gain of $42.2 billion brought imports in 2011 to the new record of $446.0 billion. Only $27.2 billion (64.5 percent) of that increase came from the top 10 sources, which collectively accounted for 79.0 percent of Canada’s imports. The composition of Canada’s top 10 merchandise sources was very stable, with only Algeria vaulting four places into ninth position. Taiwan slipped out of the top 10 despite gaining $1.0 billion in imports. Unlike with exports, not all of Canada’s top 10 sources recorded growth: imports from the United Kingdom and Japan lost 3.6 and 2.9 percent of value respectively.

For the first time since World War II, the United States accounted for less than half of Canada’s imports (49.5 percent), as the long-standing trend of import diversification continues to run its course. Actual imports rose by $17.5 billion to $220.9 billion (up 8.6 percent). The growth was broad-based, with the most sizeable increases in mineral fuels and oil ($4.3 billion or 34.2 percent), followed by more moderate growth in the top import categories: $2.4 billion for vehicles, with tractors and motor vehicles parts leading, and $2.3 billion for machinery (bulldozers, computers and pumps). These top three commodities collectively accounted for $9.0 billion in growth—over half of the total increase. Increased imports of plastics, up $663 million, precious stones and metals (mostly silver), up $652 million, and articles of iron and steel, up $643 million, were the next in importance. Smaller increases took place for raw iron and steel, precision instruments, pharmaceutical products, chemicals and rubber products. In relative terms, large import increases occurred in fertilizers (81.4 percent), coffee and tea (35.8 percent), beverages (34.7 percent) and railway stock (29.6 percent). On the negative side, imports of books and newspapers took a $180-million hit; exports of toys, games and sports equipment decreased $131 million and organic chemicals were down $105 million.

China ranked second among Canadian merchandise import sources with a solid lead over third-ranked Mexico, despite losing some market share (down from 11.0 to 10.8 percent). Total merchandise imports from China reached $48.2 billion in 2011, double their 2004 value. Growth was below overall import growth (8.1 percent, as compared to 10.4 percent) and amounted to $3.6 billion. Illustrating China’s movement up the value chain, nearly half of the import growth last year ($1.7 billion) was in the electrical machinery category (mostly mobile phones). Growth in machinery imports contributed another $701 million to the total, with laptops important drivers of that increase. Growth in imports of furniture, Canada’s third-largest import category, was stagnant (down $28 million or 1 percent) while imports of toys, games and sports equipment, fourth in the list, went down $331 million. Sizeable growth also took place in imports of articles of iron and steel ($335 million), apparel ($217 million), rubber ($181 million) and vehicles ($137 million). Conversely, imports of organic chemicals contracted by $109 million.

Mexico was ranked third in the top 10, with a stable 5.5-percent market share and total imports of $24.6 billion. Growth was 11.1 percent (up $2.5 billion) in 2011, slightly above overall import growth. Vehicles led the way with a $611-million gain, mineral fuels and oil imports grew by $475 million and electrical machinery gained $386 million, while mechanical machinery advanced by $257 million. Precious stones and metals gained $209 million, with gold and silver contributing almost equally.

Japan retained fourth spot in the list despite losing $391 million in imports, or 2.9 percent of its total. Imports from Japan contracted to $13.1 billion in 2011 as Japan’s weak economy and several natural disasters disrupted important supply chains. These events have translated into contractions of $694 million in vehicles imports and $161 million in electrical machinery imports. Partly mitigating these contractions was the strong growth of $340 million in mechanical machinery imports and a $59-million increase in aircraft imports.

Germany ranked fifth in the top 10 merchandise import sources, just behind Japan, with $12.8 billion in imports. Growth was strong in 2011: 13.3 percent, or $1.5 billion. A third of this ($488 million) came from mechanical machinery imports; another third was split between imports of vehicles, which grew by $276 million, precision instruments, which expanded by $116 million, and precious stones and metals (predominantly silver), which gained $111 million.

The United Kingdom ranked sixth but was the weakest-performing import source in the top 10 last year, with imports down 3.6 percent to $10.3 billion in value. This amounted to a decrease of $385 million. The overall decline can be attributed to the $779-million contraction in imports of mineral fuels and oil (with crude oil down and non-crude oil up), and contributed to by a $133-million decline in the imports of organic chemicals. This was partly offset by a broadbased but modest growth in other areas, chiefly in mechanical machinery imports ($130 million), vehicles ($69 million), precious stones and metals ($68 million), precision instruments ($54 million) and electrical machinery ($45 million).

Korea retained seventh place in Canada’s top 10 merchandise import sources contributing a total of $6.6 billion. Import value grew 7.4 percent in 2011, amounting to $458 million. Mechanical machinery contributed over two thirds of that increase, with laptops figuring prominently. Imports of precious stones and metals increased 20-fold, adding $161 million, most of which was silver. Imports of iron and steel products, iron and steel, and rubber also grew significantly. Overall growth was mitigated by a $99-million contraction in imports of electrical machinery (largely electronic integrated circuits and mobile phones) and a $44-million drop in imports of vehicles.

France, with $5.5 billion in imports, was in the eighth position. 2011 brought a modest growth of 2.1 percent in its imports value, which resulted in a $113 million increase. The overall growth, however, was the net result of significant upward and downward movements across a wide range of commodities. Increases in imports of mechanical machinery by $99 million, electrical machinery by $62 million, beverages by $58 million and mineral fuels and oil by $48 million, as well as a number of smaller commodity lines, were nearly offset by the $175-million drop in aircraft imports and the $144-million drop in pharmaceuticals.

Algeria, which ranked ninth, was a newest entry into the top 10, with imports into Canada valued at $5.5 billion. Imports grew by $1.9 billion in 2011, an impressive 53.3 percent, which was by far the largest gain among the top 10. Crude oil accounted for 99.9 percent of these imports.

Italy rounded out the top 10 in 2011 with $5.1 billion in total import value. Growth amounted to $441 million, or 9.5 percent. Half of that came from mechanical machinery and parts, while imports of pharmaceuticals, iron and steel, electrical machinery and beverages accounted for most of the remainder. Import growth was slowed down by an $88-million decrease in imports of mineral fuels and oil and a $36-million decline in aircraft imports.

Merchandise Trade by Top Drivers

Canada’s trade performance can be examined in greater detail using a commodity breakdown comprising over 1,200 items.² However, among these items, only a few account for a sufficient trade value to decisively influence Canada’s trade balance. Table 5-1 lists the top 20 drivers of Canada’s export and import performance in 2011 at the 4-digit HS level.

It is easier to understand the influence of Canada’s top trade drivers by first considering trade balances at the 2-digit HS level. In 2011, 35 chapter-level commodities posted positive trade balances while 63 commodities posted negative balances, almost double the number of commodities posting positive balances. Given that the overall trade balance is $1.9 billion, this means that, on average, commodities posting positive trade balances run higher individual surpluses than the individual deficits for the commodities with negative trade balances. This implies that the Canadian trade balance is mostly driven by several high-surplus items, which turn out to be mostly resources or resource-related commodities. The surplus generated in those areas covers the modest deficits in the rest of the traded items (except for machinery where deficits are large), which comprise mostly manufactured goods. Focusing on the 4-digit commodities simply magnifies this picture, while promoting a better understanding the nature of the traded commodities.

The 20 drivers listed in Table 5.1 together accounted for 44.4 percent of Canada’s exports and 27.9 percent of Canada’s imports in 2011. Since trade drivers typically include better export performers, their combined positive contribution to the merchandise trade balance this year amounted to $11.9 billion, nearly double the overall trade balance improvement. Of note is the fact that removing from consideration the top surplusdriving commodity, crude oil, nets out the trade balance impact of the remaining 19 items to zero. Twelve of the selected products impacted the trade balance positively for a combined total of $24.6 billion and the other eight influenced it negatively for a total of $12.7 billion. Growth in both exports and imports of these commodities was above average by virtue of the selection process.

For ease of interpretation, Table 5.1 divides these top drivers into two broad categories: twelve trade surplus commodities and eight trade deficit commodities. These are further subdivided into commodities where substantial trade flows in both directions and commodities where trade is essentially a oneway street.

Trade surplus commodities that exhibited substantial two-way flows are limited to three—crude oil, passenger cars, and noncrude oil. As oil is traded back and forth primarily due to geographical and transportation costs considerations, only in the case of passenger vehicles are the two-way flows specific to the production process and represent the best example of intra-industry trade in Canada driven by economies of scale and preferences for variety. The modest $1.1-billion gain in trade surplus generated in passenger vehicles was due to a slightly higher growth in exports than in imports; though export prices weakened, volumes expanded more to generate growth. Meanwhile, trade in crude oil engineered a seismic $12.1-billion shift in trade balance, single-handedly driving Canada’s merchandise trade back into surplus. This occurred because the price of crude oil continued to go up in 2011, and this price effect was magnified by the expanding quantities exported and shrinking quantities imported. While non-crude oil prices also rose, the quantity effect worked in the opposite way—exports contracted slightly and imports expanded by over one third, which reduced the trade balance by $4.0 billion. This negative effect muted the net effect of the big three surplus drivers; together, they combined for an increase of only $9.2 billion to the trade surplus over the previous year, while carrying a $57.5-billion surplus overall.

Export items for which imports flows are small are mainly composed of resources: coal, potash, nickel and canola oil are good examples. Most of the prices for these resources increased in 2011, helping to improve Canada’s trade balance. Demand conditions also improved somewhat as the global recovery continued. All nine of these commodities increased their trade surpluses, by a combined $10.8 billion to $37.6 billion overall. Coal and potash were particularly strong, with trade surpluses growing by $2.1 billion and $1.5 billion, respectively.

On the other side of the balance sheet, the products in which strong two-way trade contributed to significant deficit shifts last year were telephone equipment and parts, various industrial machinery, motor vehicle parts and petroleum gases. The results for petroleum gases, traditionally a strong contributor to Canada’s trade surplus, were atypical in 2011 because exports dropped over 10 percent while imports went up by 15 percent. Consequently, while the $11.5-billion surplus generated by petroleum gases was still large, it was $2.5 billion less than the previous year’s. Imports of telephone equipment continued to grow strongly (over 20 percent) while exports contracted; this led to a widening of the deficit in this category by $1.9 billion. Imports of various industrial machinery soared 71.8 percent, opening up a sizeable trade deficit for this item. Motor vehicle parts were the biggest deficit item of all, but modest growth in imports caused that deficit to expand only slightly, by $647 million. The combined effect of the large twoway traded products was to add an extra $5.8 billion to the deficit side of the balance sheet.

Table for Figure 5-3:
Canada’s Top 10 Export Commodities

Description		2011 Share of Total Exports, %
Mineral Fuel, Oil Etc.; Bitumin Subst; Mineral Wax	MFO	25.64
Vehicles, Except Railway Or Tramway, And Parts Etc	VEH	11.69
Nuclear Reactors, Boilers, Machinery Etc.; Parts	MME	6.95
Nat Etc Pearls, Prec Etc Stones, Pr Met Etc; Coin	PSM	5.89
Electric Machinery Etc; Sound Equip; Tv Equip; Pts	EMQ	3.4
Plastics And Articles Thereof	PLA	2.71
Aluminum And Articles Thereof	ALU	2.19
Paper & Paperboard & Articles (Inc Papr Pulp Artl)	PAP	2.18
Aircraft, Spacecraft, And Parts Thereof	ASC	2.17
Wood And Articles Of Wood; Wood Charcoal	WAW	2.03
All Other Commodities	BAL	32.68

Products where Canada records large imports but small exports exerted little impact last year. Imports of bulldozers and tractors expanded considerably, although tractor exports also grew, and increased imports of computers added another $1 billion on the deficit side. However, a sharp decrease in imports of electric generating sets shaved the deficit on this item by $612 million. Together, these four items widened the deficit by an extra $2.2 billion to $15.1 billion.

Merchandise Trade by Major Product Groups

This section discusses Canada’s 2011 trade performance by commodity groupings that are an aggregated version of the 2-digit level HS chapters. These major groups, 12 in all, are defined as follows: energy; vehicles and parts; mechanical machinery and appliances; electrical and electronic machinery; technical and scientific equipment; agricultural and agri-food products; metals and minerals; chemicals, plastics and rubber products; wood, pulp and paper; textiles, clothing and leather; consumer goods and miscellaneous manufactured products; and other transportation equipment. The first five of these groups are single 2-digit HS chapters, while each of the remaining seven combine several chapters. Together, they encompass all of Canada’s merchandise trade by the 99 HS chapters.

Energy Products³

Canadian exports of energy products increased 21.2 percent, adding $20.1 billion to the final tally of $114.9 billion in 2011. For the second time (the first was in 2008), exports of energy products accounted for over a quarter of all Canadian merchandise exports. Increased volumes and prices of crude oil exports contributed equally to the increase. Imports of energy products expanded even faster, by 29.4 percent ($12.0 billion) to $52.7 billion. However, the smaller volume of imports meant that the trade surplus in energy products expanded again this year, by $8.1 billion, to reach $62.2 billion overall. In practice, energy exports surplus covers Canada’s deficit in many other import categories; for example, they roughly balance the combined deficit in both mechanical and electrical machinery groups.

The United States remains the principal destination for Canada’s energy exports, accounting for 90.8 percent in 2011 with the value of $104.4 billion. Growth was 19.0 percent last year. Roughly two thirds of energy exports to the United States are crude oil and the remainder is split evenly between non-crude oil and petroleum gases (largely natural gas). Imports of energy products from the United States grew much faster last year (34.2 percent) but were much smaller overall ($16.7 billion), thus netting out a trade surplus of $87.7 billion, up $12.4 billion over the previous year.

Table for Figure 5-4:
Evolution of Canadian merchandise exports by sector, 2001-2011

	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
Agri-food	100	99.25	94.22	101.02	98.46	103.13	114.44	138.76	126.35	127.60	143.68
Chemicals, Plastics and Rubber	100	103.68	102.39	116.56	128.20	132.75	143.01	151.05	121.86	130.19	146.93
Consumer and Misc Mfg Products	100	103.15	88.32	87.33	85.61	80.98	76.30	73.57	60.01	53.65	55.93
Electric Machinery	100	86.51	77.35	85.30	92.92	95.14	92.41	86.66	73.21	68.21	68.98
Energy products	100	86.57	106.43	118.90	152.40	152.04	161.86	230.69	141.93	164.10	198.85
Mechanical Machinery	100	96.52	88.43	94.40	97.24	97.83	103.17	104.68	86.07	82.89	89.69
Minerals and Metals	100	106.56	102.54	123.42	135.28	165.26	186.45	198.91	137.13	179.27	212.81
Other Transportation Equipment	100	87.01	82.76	72.37	72.81	75.83	81.48	76.33	78.75	70.20	68.45
Technical and Scient equipment	100	89.54	86.59	96.09	104.61	112.20	110.22	121.18	111.30	110.66	119.82
Textiles, Clothing and Leather	100	102.50	93.67	92.28	86.58	81.23	72.80	63.78	54.60	59.30	62.75
Vehicles and parts	100	104.35	94.33	97.72	95.39	89.50	83.46	65.57	46.71	61.12	63.72
Wood, Pulp, Paper	100	97.01	89.28	99.67	94.03	85.64	75.49	67.54	52.59	57.63	58.43

In 2011, significant growth in energy exports occurred to several destinations. Exports to South Korea grew 69.3 percent to $1.9 billion; energy exports to the Netherlands grew 157.9 percent to reach $1.5 billion. For the first time, significant energy exports went to Argentina ($240 million compared to $32 million in 2010) and India ($75 million compared to $2 million in 2010). France also resumed its energy purchases from Canada on a larger scale ($238 million compared to $30 million in 2010). Of note is the fact that Canada exports crude oil to only two destinations: the United States and China, and petroleum gases are only exported to the United States; thus exports to all other countries in this category represent items other than crude oil and gases. For example, all of the exports to South Korea and India were coal; all of the exports to Argentina were non-crude oil; and the exports to France and the Netherlands were split between coal and non-crude oil.

Canada’s sources of imported energy products were more distributed geographically than its export destinations. Just over a third came from the United States, and the next ten source countries each contributed over $1 billion in energy exports to Canada. Algeria was second only to the United States as a source of Canadian energy imports in 2011 with imports valued at $5.5 billion (crude oil); imports from Norway were $3.7 billion and imports from the United Kingdom were $2.8 billion, mostly crude oil. Other major suppliers included Saudi Arabia, Kazakhstan, Iraq, Angola, Nigeria and Mexico. Russia and Venezuela were in the top 20, but energy imports from these countries contracted last year to less than $700 million each. Double-digit import growth was the case for all other suppliers with the exception of the United Kingdom, which supplied 21.7 percent less energy products. The energy trade deficit with all of the above-mentioned energy suppliers offset about a quarter of the energy surplus with the United States.

Compositionally, Canadian energy exports are dominated by crude oil⁴ (59.9 percent share of energy exports), followed by non-crude oil at 15.3 percent and petroleum gases at 14.3 percent, with coal as the only other significant export product at 7.0 percent of the total. On the import side, crude oil accounted for 54.1 percent of the total, non-crude for 31.2 percent and petroleum gases for 9.4 percent. As noted above, in 2011 Canada exported its crude oil only to the United States ($68.4 billion, or 99.4 percent of the total) and China ($407 million),⁵ but its import suppliers were considerably more varied: all of the energy product sources mentioned above mostly supplied crude oil. In addition, Equatorial Guinea, Brazil, Côte d’Ivoire and Azerbaijan were prominent in the top 20 crude suppliers, with imports from Côte d’Ivoire almost doubling. One the other hand, crude oil imports from Syria and Congo did not recur in 2011. Overall exports of crude oil grew 32.5 percent to $68.8 billion, imports expanded 20.1 percent to $28.5 billion, yielding a crude oil trade balance of $40.3 billion, up 42.9 percent from 2010. Notably, the rising prices of crude oil in 2011 affected Canadian exports and imports unequally. The heavier oil Canada exported appreciated less in price than the crude Canada imported, leading to an unfavourable shift for Canada’s terms of trade for crude oil.

Canadian exports of non-crude oil⁶ were up $2.7 billion in 2011, or 18.4 percent, to $17.6 billion. About one half of the gains were accounted for by increased exports to the United States, which grew 9.7 percent ($1.3 billion) to $15.2 billion and an additional one quarter of the gains by increased exports to the Netherlands, which gained 163.9 percent ($685 million) to reach $1.1 billion. Following these two major export destinations, exports to Argentina and France jumped from their low 2010 levels to $239 million and $189 million, respectively. Netherlands Antilless rounded out the top five, receiving $106 million in Canadian noncrude exports. Meanwhile, Canada’s noncrude imports expanded tremendously (up 68.4 percent, or $6.7 billion) to reach $16.4 billion. Although the price effect contributed, most of the increase was due to the larger quantities imported. The United States was the top import source (52.0 percent of the total), with imports growing by $3.8 billion, but imports from the Netherlands (up $765 million), Finland (up $475 million), Mexico (up $428 million), the United Kingdom (up $395 million), Singapore (up $266 million), Norway (up $291 million) and Venezuela (up $286 million) also contributed significantly. With the exception of the United States and the United Kingdom, imports from each of the above non-crude oil suppliers to Canada more than doubled in value. This represents a significant diversification in sources of noncrude oil imports. The net effect of non-crude oil on the trade balance was still positive at $1.2 billion, but significantly lower (by $3.9 billion) than its $5.1 billion contribution to the energy trade balance in 2010. This represented the largest negative change in trade balance among the 4-digit commodities.

Exports of petroleum gases⁷, destined exclusively for the United States, decreased both in price and in volume to end 10.3 percent lower in value at $16.5 billion. Imports were subject to a price decrease as well, but a large expansion in import volumes propelled their value up 15.2 percent to $5.0 billion. Of these imports, 90 percent came from the United States, with Qatar the other important supplier at 7.3 percent, or $362 million. The resulting negative effect on the trade balance was $2.5 billion, second in magnitude only to the effect of non-crude oil.

Exports of coal⁸ expanded 33.8 percent to $8.0 billion in 2011 and were destined predominantly to Japan, South Korea, China and Brazil. Coal exports to the Netherlands, Taiwan and the United Kingdom more than doubled last year, while India imported a significant amount of Canadian coal ($73 million) for the first time. Imports of coal were small ($962 million) and came mostly from the United States. The net result was a trade balance of $7.0 billion, up $2.1 billion last year, the second-biggest positive shift after crude oil.

Vehicles and Parts⁹

After a strong recovery in 2010, growth in exports of vehicles and parts moderated in 2011 to 4.3 percent, or $2.1 billion. Total exports were $52.3 billion, while total imports reached $63.6 billion after increasing 5.3 percent ($3.2 billion). This moderate growth in imports and exports reflected, on one hand, the success of the restructuring in the North American automotive sector, and on the other hand, the uncertain state of the recovery in the United States, the main customer for Canada’s automotive products. The trade deficit in vehicles and parts increased by a further $1.1 billion to $11.2 billion, reversing the modest improvement in the trade balance from the previous year.

The bulk (96.0 percent) of Canada’s exports in this sector went to the United States, while nearly two thirds of Canada’s imports came from that country. Mexico, Japan, Germany, South Korea and China were the other suppliers of vehicles and parts to Canada, with imports above $1 billion each. These imports were predominantly passenger vehicles, although in the case of Mexico these were split almost evenly with trucks, and in the case of China imports consisted mostly of motor vehicle parts. Imports from Japan lost 12.1 percent in value last year and Japan’s market share fell from 9.5 percent to 7.9 percent, while imports from China expanded 12.6 percent to reach $1.2 billion. Imports from South Africa, at $263 million, exceeded $100 million for the first time.¹⁰

Historically, Canadian trade in vehicles and parts consisted of three large product categories: passenger cars, transportation vehicles (i.e. trucks) and motor vehicle parts. With the automotive sector restructuring in North America over the past few years, Canadian truck exports have faded from prominence (just $960 million in 2011). That left exports of passenger cars and parts accounting for over 90 percent of the automotive sector exports. Passenger car exports reached $39.4 billion last year (75 percent of automotive exports), up $1.4 billion or 3.7 percent. The United States accounted for most of that increase, but car exports to China also jumped (from $13.0 million to $60.2 million). Exports of parts and accessories grew 2.4 percent last year, gaining $0.2 billion to end at $9.3 billion for the year (18 percent of automotive exports). Exports to Mexico in this category fell by one quarter, losing $97 million in value, but this was offset by the $283-million increase in exports to the United States.

On the imports side, the share of the three main categories was distributed more evenly. Passenger cars accounted for 37 percent, parts and accessories for 30 percent and trucks for 19 percent of all imports. Passenger car imports grew only 1.3 percent, or $297 million, to reach $23.3 billion. An 18.0-percent fall in imports from Japan mitigated growth in the imports from the United States, Germany, Mexico and South Korea. Imports from Belgium (down 14.6 percent) and especially Sweden (down 34.9 percent) also contracted severely. Imports of parts and accessories increased by 4.7 percent (a $0.9-billion gain) to $19.2 billion. The increase was due to greater imports from the United States (up $0.6 billion), Mexico (up $0.3 billion) and China (up $0.1 billion), while imports from South Korea fell $0.2 billion. Truck imports grew 5.2 percent in 2011 to reach $12.2 billion. The United States accounted for half of the $0.6-billion gain, and the remaining half was due to the other suppliers, particularly to the doubled imports from Japan, the United Kingdom and Sweden. Additionally, tractor imports constituted 6 percent of the category and grew strongly in 2011, gaining $0.8 billion, largely from the United States.

Mechanical Machinery and Appliances¹¹

Mechanical machinery and appliances (hereafter referred to as machinery) represents one of the largest single chapters in the HS classification system, one of the “Big 3” chapters that collectively account for over a third of all international trade. Global values of trade for each of the three—machinery, mineral fuels and electrical machinery and equipment— exceeded $5 trillion in 2010. In Canada’s trade, it is the third-largest category (after mineral fuels and vehicles) and is extremely varied, comprising every piece of mechanical equipment from nuclear reactors to engines to pumps and valves.

Canada’s machinery exports resumed their growth in 2011, gaining $2.4 billion, or 8.2 percent, for the total of $31.1 billion. Total growth in exports to the United States was $2.0 billion, ten times as great as the $200-million gain in exports to China. Proportionally, however, the latter grew 31.3 percent, over three times the rate of the former at 9.9 percent. Double-digit growth also occurred in machinery exports to Australia (up $47 million) and Japan (up $55 million), while exports to Russia decreased by $66 million. Turbojets and other gas turbines¹² (mainly aircraft engines) remained the main export sub-category, growing 4.5 percent (up $183 million) to $4.3 billion, but the greatest gains occurred in exports of machinery parts, which grew by $408 million, and exports of pumps, which increased $473 million. On the other hand, exports of piston engines decreased $200 million.

Canada’s machinery imports narrowly edged vehicles to become the largest import category in 2011 at $63.6 billion on the strength of the 11.6-percent growth that added $6.6 billion to the total. Growth of imports from the top three suppliers—United States, Mexico and China—was slightly below average, but still accounted for about half of the increase. Double-digit growth in machinery imports came from Taiwan ($530 million), Germany ($488 million), South Korea ($351 million) and Japan ($340 million). But the biggest relative gain went to the United Arab Emirates, which supplied $717 million worth of machinery last year, up $712 million from the $5-million mark in 2010. This increase was due to a large contract for equipment for oil and gas production. Other sub-categories that experienced large increases were computers (up $1.0 billion mainly due to laptops from Taiwan), bulldozers and scrapers (up $1.0 billion from the United States and Japan) and pumps (up $0.5 billion from the United States and China).

With imports rising more than exports, trade in machinery continued to generate Canada’s biggest trade deficit of all categories, which grew $4.3 billion (or 15.1 percent) to reach $32.5 billion last year. Deficits have expanded with all of Canada’s suppliers, particularly with China, Germany, South Korea and Taiwan (by $0.5 billion each).

Electrical and Electronic Machinery and Equipment¹³

Exports of electrical and electronic products remained largely unchanged in 2011, adding just $169 million (1.1 percent) to reach $15.2 billion. The share of the United States in this total decreased from 70.0 percent to 68.5 percent as a result of the loss of $112 million in exports. The next three among Canada’s top export destinations—Mexico, the United Kingdom and China—also experienced export reductions. However, most of these losses were offset by Canada’s exports to Hungary, which nearly tripled, gaining $190 million (mostly in integrated electronic circuits) and propelling it to fifth spot on the list of Canada’s top export destinations for electrical and electronic products. Hong Kong and France also experienced moderate gains, but these more than made up for a 28.7-percent export cut to South Korea. Among the sub-products comprising this category, 27 of 46 went up while 19 decreased. Loss of exports was substantial in the top category, telephone equipment, which was down $270 million or 8.5 percent, and TV cameras and transmission equipment, down $124 million or 10.0 percent from 2010. This was offset by the gains in electronic integrated circuits (up $313 million), wire and cable, including optical (up $129 million) and TV and radio parts (up $86 million).

Imports of electrical and electronic products expanded more robustly at 5.5 percent to reach $45.0 billion in 2011. The increase for the year constituted $2.3 billion, nearly three quarters of which came from China ($1.7 billion). Imports from Mexico grew $387 million and from Taiwan $288 million. Growth of imports from the United States was under 2 percent at $266 million. Imports from Japan and Malaysia retreated $161 million and $167 million, respectively, while imports from Denmark lost over half their 2010 value, plunging from $663 million to $318 million. The biggest gain among sub-categories occurred for telephone equipment, which grew $1.6 billion, or 21.7 percent, accounting for over two thirds of the overall gains. Cable and wire imports also increased, by $539 million. Imports of electric generating sets lost 33.4 percent of their value ($567 million) and turntables, records and cassette players plummeted 71.7 percent, or $265 million, ending at $105 million. Electronic integrated circuits, projectors, unrecorded media and TV cameras and transmission equipment all saw smaller losses in excess of $100 million.

With growth in imports exceeding growth in exports once again, the trade balance for electrical and electronic products continued to push deeper into the red, with deficit growing by $2.2 billion last year to $29.8 billion.

Technical and Scientific Equipment¹⁴

Also known as precision instruments, the category of technical and scientific equipment comprises accurate high-technology devices used in sciences, research, medicine, photography and geology. Exports of this equipment gained 8.3 percent ($448 million) in 2011 to reach $5.9 billion. The United States led the gains with $231 million, roughly proportional to its export share, and the remainder of the gains spread fairly evenly, with Germany up 15.1 percent, or $26 million, Australia up 29.4 percent, or $23 million, India up 40.2 percent, or $20 million and Russia doubling to $29 million standing out. Small losses were observed in exports to the United Kingdom, the Netherlands and Taiwan. By sub-category, the most notable increases took place in liquid crystal devices and lasers (up $136 million), surveying, meteorological and geophysical instruments (up $85 million) and various measuring and checking instruments (up $84 million).

Imports of technical and scientific equipment grew nearly as fast at 7.8 percent, but advanced $907 million due to larger value ($12.5 billion in 2011). The United States was the source for half of the imports and accounted for almost half of the increase at $417 million. Of note was the broadly based $116-million increase in imports from Germany; imports from China increased $55 million, showing slower than average growth, while imports from the United Kingdom expanded by $55 million, or 17.8 percent. Imports of medical, surgical and dental equipment expanded $180 million; instruments for flow, level and pressure checking grew $109 million and physical and chemical equipment imports expanded by $102 million; most of other categories also experienced modest expansion.

While exports grew a little faster than imports, import values were larger, leading to the deterioration of the trade balance for technical and scientific equipment. As a result, the trade deficit widened by $459 million in 2011 to reach $6.6 billion.

Agricultural and Agri food Products¹⁵

This category is one of the mainstays of Canadian exports and trade balance. Exports of agricultural and agri-food products expanded by 12.6 percent ($4.9 billion) in 2011, reaching their highest-ever level of $44.1 billion. Rising grain and oil prices contributed substantially to this expansion, as Canada’s primary exports in this category are cereals; oil seeds and miscellaneous grains; meat; and animal and vegetable oils (predominantly canola oil). These four commodities accounted for over three quarters of the total growth, with the first two gaining $1.2 billion each (representing 21.5 and 20.5 percent growth respectively), exports of animal/vegetable oils grew by $1.1 billion (42.8 percent) and meat exports expanded by $318 million (7.2 percent). Most of the other export subcategories expanded more moderately, the only significant decrease coming from live animal exports (down 15 percent, or $253 million). The United States accounted for less than half of the total $2.1-billion increase in exports; $472 million more exports went to South Korea (up 86.8 percent); exports to Japan went up by $671 million, or 20.8 percent; and exports to Mexico increased $305 million (21.5 percent). Once-substantial agrifood exports to Iraq fell by two thirds last year, shrunk by a factor of eight since 2009 and stood at $55 million in 2011.

Agri-food imports rose at a slightly slower pace of 10.7 percent (up $3.2 billion) to reach $33.1 billion last year. Beverages and spirits, the top import category, generated the most growth at $571 million. Considerable increases also took place in imports of coffee, tea and spices ($468 million), meat ($327 million) and fruit and nuts ($268 million). The United States remains Canada’s major food supplier, accounting for 57.6 percent of Canada’s imports, which expanded $1.8 billion last year to reach $19.1 billion. Other notable increases were in imports from Brazil (up $228 million) and China (up $115 million) while smaller gains were spread across a wide range of import suppliers in what is the most geographically varied import category of all.

Buoyed by growing exports, Canada’s $9.2-billion trade surplus in this category in 2010 widened to $11.0 billion in 2011. Japan was the top surplus partner at $3.8 billion and generated the biggest surplus gain at $671 million; Brazil was the top deficit partner at $1.0 billion, adding $322 million to this deficit last year.

Minerals and Metals¹⁶

As prices for resources and resource-related commodities continued to grow in 2011, global exporters of these items, including Canada, were able to benefit greatly. Canada’s exports of metals and minerals grew 18.7 percent last year to $75.3 billion, up $11.9 billion. The leading commodity group was precious stones and metals,¹⁷ which has doubled since 2009 and in 2011 registered $26.4 billion in exports—over a third of the total gain in this category. The $5.6-billion export growth in this category was mostly due to increased exports of gold ($3.0 billion) and silver ($1.7 billion). Most of this growth was accounted for by price increases for precious metals. Exports of precious metals increased primarily to the United Kingdom, Canada’s primary export destination for gold and silver (up $2.9 billion); to the United States (up $1.6 billion); and increased fivefold to Hong Kong to $1.1 billion. Ores were the next most important growth item, with exports strengthening by $2.7 billion to reach $8.9 billion (up 43.8 percent), accounted for mostly by iron and copper ores. Exports to China, Japan, the Netherlands and Finland were on the rise this year, with gains of $1.3 billion, $0.4 billion, $0.3 billion and $0.3 billion, respectively, while exports to Germany fell $0.4 billion.

Nickel exports were the third key item in this category, growing $1.5 billion, or 30.0 percent, to $6.6 billion. Notably, very little of that increase was due to price; almost all was attributable to dramatically expanded volumes of exports to several destinations. Shipments of nickel to the United States more than doubled, gaining $736 million to reach $1.3 billion. Other top export destinations, Norway and the United Kingdom, accounted for increases of $157 million and $183 million, respectively, while shipments to Taiwan gained 137.0 percent, or $168 million. Canada’s nickel exports made notable inroads into several other countries, like Spain (exports grew from $13 million to $33 million), Thailand (from $7 million to $26 million), Australia (from $6 million to $25 million) and Brazil (from $4 million to $20 million). If those increases can be sustained in the future, they would imply a significant step forward for the Canadian nickel industry.

In terms of destinations, the United States was chiefly responsible for the $11.9-billion increase in exports (up $3.8 billion), followed by the United Kingdom (up $3.1 billion), China (up $1.4 billion) and Hong Kong (up $0.9 billion). The growth to the United States was based on silver, which gained $1.6 billion,¹⁸ and nickel, which jumped $0.7 billion, while gold exports to the United States decreased by $0.7 billion. The $2.8-billion gain in gold exports to the United Kingdom explained most of the increase in exports to that country, while China’s status as the premier importer of Canadian ores (both iron and copper) was strengthened by the $1.3-billion growth in these items. Gold was also responsible for the tripling of exports to Hong Kong in this category.

Imports of metals and minerals grew $8.2 billion to reach $57.2 billion in 2011. This represented a 16.7-percent growth in imports—almost as fast as for exports. Almost half of that increase was due to gold (up $2.5 billion) and silver (up $1.5 billion). Iron and steel imports, and articles thereof, grew $2.4 billion, with notable increases in imports of tubes and pipes. Imports of ores grew $0.7 billion, with lead ores constituting over half of the increase. The United States accounted for one third of the import growth (up $2.7 billion), centred on silver, iron and steel and articles thereof. Imports from Argentina grew $0.8 billion (due to gold), from Peru $0.7 billion (gold and lead ores), from China $0.5 billion (largely articles of iron and steel) and from Mexico $0.4 billion (silver, gold, articles of iron and steel). Increased imports from Poland (predominantly silver) deserve mention, having expanded tenfold in two years and gaining $325 million in 2011.

Almost half of Canada’s $10.1-billion gold imports came from two countries: Peru ($3.1 billion, up 22.0 percent) and Argentina ($1.8 billion, up 67.5 percent). Eritrea and Turkey also became suppliers of gold to Canada last year, with new shipments of $319 million and $226 million, respectively.

Canada’s trade balance in metals and minerals expanded to $18.1 billion in 2011, up 25.7 percent from 2010 (a $3.7-billion increase) and double the 2009 level.

Chemicals, Plastics, and Rubber¹⁹

Canada’s exports of chemicals, plastics and rubber reached $47.0 billion in 2011, up $5.3 billion (12.9 percent). Fertilizers (largely potash) continued to account for the largest gain with $1.8 billion of additional exports, followed by inorganic chemicals, which grew $1.3 billion (primarily due to uranium, ammonia and rare-earth metal compounds), plastics, with a growth of $1.1 billion, and organic chemicals, which gained $0.8 billion. Exports of pharmaceutical products retreated $0.3 billion as exports of human and animal blood decreased.

The United States accounted for 71.8 percent of the increase, gaining $3.8 billion in broad-based exports, followed by China’s gain of $429 million. Exports also expanded to Indonesia (up $242 million) and the United Kingdom ($221 million).

Potash exports increased $1.5 billion; with increasing prices favouring this expansion to $6.7 billion, potash remained one of Canada’s principal export strengths. Just over half ($3.6 billion) of Canada’s potash was shipped to the United States, while the other half was distributed among a variety of countries, such as Brazil, Indonesia, China, India and Malaysia. Strong growth among these top customers took place in 2011, while Vietnam, Philippines and Costa Rica more than doubled their potash purchases from Canada.

Imports of chemicals, plastics and rubber grew more slowly (6.5 percent, or $3.6 billion), reaching $58.8 billion in 2011. Over half came from the United States, which accounted for the biggest import increase at $2.4 billion. Imports from China were a distant second with a $265-million increase. Imports from Ireland continued to plunge, down by $276 million last year.

The increases in imports were led by rubber products, which grew $1.1 billion (primarily tires and natural rubber), followed by plastics at $0.9 billion. Imports of inorganic chemicals grew $738 million, with uranium and aluminum compounds chiefly responsible. A large increase of $482 million (61.2 percent) was registered in fertilizer imports, primarily nitrogenous and various mineral fertilizers from the United States.

Faster growth of exports over imports has once again helped reduce Canada’s trade deficit in this category. The trade deficit for chemicals, plastics and rubber products was $11.9 billion in 2011, down $1.8 billion from $13.7 billion in 2010.

Wood, Pulp, and Paper²⁰

In 2010, this important cluster of Canadian industries arrested its long export decline and posted a gain for the first time in five years. In 2011, this group made another gain, but only barely. With only a 1.4 percent increase in value, exports grew a slight $374 million to reach $27.4 billion overall. Losses in the exports of paper and paperboard amounting to $113 million and a decline of $82 million in printed matter were outweighed by gains in wood exports (up $326 million) and wood pulp (up $243 million).

Analysis by destination shows that greatly increased exports to China (up $1.1 billion, a 36.5-percent increase) compensated for the continuing weakness of the United States as a market for wood and paper exports (down $728 million). Other movements were slight, with export increases to Indonesia (up $62 million), the United Kingdom (up $50 million) and South Korea (up $49 million) and declines to Italy (down $47 million), Belgium (down $47 million) and Saudi Arabia (down $35 million). Wood and wood pulp were responsible for the increased exports to China; wood was the primary source of weakness in the exports to the United States.

Imports of wood, pulp and paper fell 3.6 percent last year, or $465 million, to $12.4 billion. The United States accounted for 73 percent of the decline with a drop of $340 million—primarily paper, paper products and printed matter. Most of the other suppliers also decreased their shipments slightly, with the exception of Mexico, where Canadian imports increased $34 million (up 49.2 percent). Compositionally, all categories reduced their import values, with wood sustaining the largest reduction at $183 million, followed by printed matter at $167 million.

With growing exports and decreasing imports, Canada’s trade surplus in wood, pulp and paper products expanded $0.8 billion (up 6.0 percent) to reach $15.0 billion in 2011.

Textiles, Clothing, and Leather²¹

Canada’s exports of textiles, clothing and leather expanded again in 2011, gaining 5.8 percent, or $254 million, for the total of $4.6 billion. Increased exports to the United States (up $122 million) and China (up $104 million) accounted for almost 90 percent of the increase. No other notable changes by export destination occurred, with the exception of a contraction of $23 million to Hong Kong. Increases in 14 of 19 major sub-categories were registered in 2011, with furskins and artificial fur leading (up $71 million) followed by articles of leather (up $43 million), non-knitted or crocheted apparel articles (up $33 million) and raw hides and leather (up $26 million).

Canada’s imports of textiles, clothing and leather rose 8.3 percent in 2011, up $1.3 billion, to reach $17.3 billion. Increases were spread widely between China (up $448 million), Bangladesh (up $219 million), Cambodia (up $162 million), the United States (up $137 million) and others. Most sub-categories experienced import gains as well, with the bulk of the gains concentrated in non-knitted or crocheted apparel articles (up $412 million) and knitted or crocheted apparel articles (up $386 million).

As exports rose only $254 million and imports expanded $1.3 billion, a significant widening in the trade deficit took place in this category. The deficit increased $1.1 billion to reach $12.7 billion in 2011.

Consumer Goods and Miscellaneous Manufactured Products²²

Exports of consumer goods and miscellaneous manufactured products expanded by 4.3 percent in 2011, or $0.8 billion, and reached the mark of $19.6 billion. Over three quarters of the increase was due to greater exports to the United States (up $609 million); Germany (up $111 million) and Japan (up $94 million) accounted for most of the remainder. Germany in particular experienced fast growth with a 46.1-percent increase in Canadian exports. Exports to Italy fell $76 million, however, and exports to Brazil declined by $31 million.

Compositionally, the biggest increases occurred in the special provisions category (up $630 million), which consists of unclassifiable exports (generally low-valuetransaction or confidential commodities), repairs and goods of U.S. origin returning to the United States without transformation. Most of the increases for the rest of the year were due to the $182-million expansion in furniture exports, primarily in seats and lamps. Furniture exports went predominantly to the United States, which accounted for over 92 percent of all exports. Arms and ammunition exports declined by $39 million, which presented the only significant downward movement in this category.

Imports of consumer goods and miscellaneous manufactured products grew 3.4 percent in 2011 ($0.7 billion), reaching $21.6 billion. Imports from the United States increased $645 million, while imports from China dropped $324 million. Imports from Mexico, Austria and Cuba also expanded: by $79 million, $71 million and $53 million, respectively.

Furniture remained the main import article in this category, gaining $291 million (mostly an increase in imports from the United States), while imports of toys and games decreased by $484 million, or over 10 percent of their total value. The decrease was mostly attributable to China, Canada’s main supplier in this sub-category. A $561-million growth in goods classified under special provisions ensured an overall increase, while arms and ammunition imports added $145 million.

The trade balance in consumer goods and miscellaneous manufactured products was slightly improved in 2011, with Canada’s trade deficit in this category narrowing $91 million to $2.0 billion.

Other Transportation Equipment²³

Non-motor vehicle transportation equipment, which includes aircraft, railway stock, ships and boats, is among Canada’s important trade categories. In 2011, exports of other transportation equipment stood at $10.5 billion, a six-year low, having lost $267 million (2.5 percent). Despite a $571-million increase in exports to the United States, a loss of $1.0 billion (71.4 percent) in exports to the United Kingdom drove the overall decline. Furthermore, in spite of important increases in exports to France (up $245 million), Germany (up $216 million) and China (up $195 million), an unusually broad-based decline in orders from a number of other countries occurred, including Ethiopia (down $147 million), Saudi Arabia (down $145 million), Switzerland (down $134 million), Latvia (down $133 million), and many others. Lower aircraft exports were the principal cause of declines to the United Kingdom, Ethiopia, Switzerland and Latvia, while railway stock was behind the fall in exports to Saudi Arabia. It should be noted that the large-contract nature of this industry’s business creates significant year-to-year variations in trade numbers.

Among the sub-categories, exports decreased the most for aircraft (down $223 million), mitigated by the strength of the aircraft shipments to the United States; exports of aircraft parts remained stable overall. Exports of railway stock dropped $121 million, primarily in locomotives, while ship and boat exports gained $77 million (chiefly yachts and pleasure vessels).

Imports of other transportation equipment expanded 8.2 percent (up $614 million) in 2011 to $8.1 billion. The bulk of the increase came from the United States with $506 million more in imports across the board. Norway (up $228 million, mostly ships) and China (up $111 million, ships and railway stock) also made considerable contributions. On the other hand, imports from South Korea (down $180 million) and France (down $173 million) dropped sharply, while Canada’s imports of ships from Chile fell from $55 million in 2010 to zero in 2011.

Imports of aircraft and parts expanded only 2.2 percent, but given the size of this category the increase amounted to $123 million. The bulk of the increase in imports of other transportation equipment came from the $352-million jump (39.0 percent) in railway stock imports (parts and locomotives). Imports of ships and boats also increased, by $140 million, mostly due to the increase in imports of transport vessels, while imports of yachts and pleasure vessels declined.

With a decline in exports and an increase in imports, Canada’s trade surplus in other transportation equipment narrowed by $881 million to $2.3 billion in 2011.

Trade by the Provinces and Territories

In 2011, merchandise trade grew for all Canadian provinces and territories, both on the exports and imports side. Alberta experienced the largest export growth, gaining $14.1 billion to reach $93.4 billion in exports, an increase of 17.8 percent. The bulk of the growth occurred in mineral fuels and oil, specifically crude oil, exports of which gained $12.7 billion. The gain was attributable equally to higher prices and higher export volumes. On the other hand, exports of petroleum gases shrunk by $1.9 billion, mainly due to lower prices. Gains also took place in machinery exports, up $854 million, canola seeds, up $678 million, and cereals, up $582 million. Meanwhile, imports into Alberta grew much more rapidly than exports at 27.4 percent ($5.3 billion) to $24.5 billion, the highest recorded level. Increases were broad-based, but nearly half came from increased imports of mechanical machinery (up $1.5 billion) and mineral fuels and oil (up $1.1 billion). Increases in machinery centered on oil-related equipment: centrifuges, filtering machinery, bulldozers and scrapers, and pumps and valves. Mineral fuels imports comprised predominantly light petroleum oils. Other items of significance in Alberta’s notable import expansion included articles of iron and steel (up $510 million), electrical machinery (up $471 million) and vehicles (up $308 million).

Ontario was close behind Alberta in export expansion, posting a $12.9-billion gain (7.7 percent) for the final tally of $181.5 billion in exports. Together, these two provinces accounted for 55.8 percent of Canada’s export growth. The principal driver behind Ontario’s gains were exports of precious metals and stones, which grew $5.2 billion—primarily gold and silver, coin and waste and scrap of precious metals. The other two significant commodities that increased their exports in 2011 were nickel, which grew by $1.5 billion, and motor vehicles—primarily passenger cars—which expanded by $1.4 billion. Exports of mechanical machinery, inorganic chemicals (uranium), mineral fuels and oil, and plastics also increased. The $551-million contraction in aircraft exports was the only significant reduction in exports from Ontario last year. Imports expanded by $19.8 billion (8.4 percent) in 2011, reaching $255.0 billion, – considerably over half of Canada’s total imports. The commodities that posted the most significant growth in imports were mineral fuels and oil imports (up $4.9 billion), precious metals and stones (mostly gold, up $3.4 billion), motor vehicles (mostly passenger vehicles and parts, up $2.3 billion), electrical machinery (up $1.9 billion) and mechanical machinery (up $1.7 billion).

Saskatchewan was the third-ranked driver of export growth last year, posting a $6.0-billion increase (25.4 percent) to a total of $29.8 billion. Mineral fuels and oil grew $2.2 billion, fertilizers (potash) expanded by $1.5 billion, canola oil grew $0.7 billion and cereals and canola seeds contributed another $0.5 billion each. Imports grew $1.4 billion (16.0 percent) to reach $9.4 billion; machinery, oil, motor vehicles and non-potassic fertilizers accounted for much of the growth.

Quebec increased its exports by $4.4 billion, or 7.4 percent, on the strength of higher exports of ores ($787 million, mostly iron ores), aluminum ($611 million), mineral fuels and oils ($558 million) and motor vehicles ($500 million); however, exports of pharmaceuticals dropped $475 million. On the import side, pharmaceuticals also dropped (by $599 million), but a large increase in imports of mineral fuels and oil ($2.1 billion) accompanied by increases in mechanical machinery and precious metals drove total imports up 10.0 percent ($6.8 billion) in 2011.

British Columbia posted significant export growth: 14.2 percent ($4.1 billion), almost $2.0 billion of which was due to increased coal exports. Exports of wood, wood pulp and ores also contributed to the growth. Imports grew $3.2 billion, driven by machinery (mechanical and electrical), noncrude oil, and motor vehicles.

Growing volumes, and especially prices, of crude oil added $1.9 billion to Newfoundland and Labrador’s exports, a significant contribution to the province’s $2.9-billion export gain, with iron ores accounting for most of the remainder. Rising oil prices also spurred New Brunswick’s mineral fuels and oil exports to a $2.0-billion gain (primarily on the strength of non-crude oil exports), accounting for the bulk of the $2.2-billion export growth for the year.

In 2011, Manitoba entered the business of exporting copper ore, which added $601 million to the province’s exports. A variety of mechanical machinery exports, including agricultural machinery and aircraft engines, added another $245 million to the total $1.7 billion in export growth. Tires remained the primary article exported from Nova Scotia, adding $67 million in export value last year. Increased exports of fish and crustaceans added another $99 million to the province’s total $155-million export gain. In Prince Edward Island, a $35-million boost in potato exports and a $29-million increase in exports of aircraft engines offset the decline in exports of vegetables and fish and ensured an expansion of $39 million on the year. Exports of $1.0 million worth of telephone equipment contributed to Nunavut’s $2.1-million boost in exports, while $13 million in new shipments of zinc ores propelled the Yukon Territory to a $14.3-million gain in exports last year.

ⁱ Data collected and presented on the Customs basis measures the change in the stock of material resources of the country resulting from the physical movement of merchandise, in this case, into or out of Canada. When goods are imported into or exported from Canada, declarations must be filed with the Canadian Border Services Agency (CBSA) detailing such information as description and value of goods, origin and port of clearance of commodities and mode of transport.

To obtain data on the Balance of Payments (BOP) basis, Customs basis information is adjusted to conform to the Canadian System of National Accounts concepts and definitions, so as to cover all economic transactions between residents and non-residents that involve merchandise trade.

The main differences are as follows: on a BOP basis, transactions are defined in terms of ownership change (i.e. BOP trade can sometimes occur completely within or completely outside of Canada). On a Customs basis, a transaction occurs when a good crosses the border. Other major differences involve the country of attribution for imports (BOP is country of shipment; Customs is country of origin) and valuation (most notably, freight for BOP purposes is moved out of merchandise trade and into transportation services). BOP adjustments to Customs data are frequently carried out at aggregate levels (both for commodity and country groupings), making the identification of a direct relationship of detailed Customs data to the BOP data difficult where possible at all.

¹ Canadian trade statistics are provided in two basic forms: Customs basis and Balance of Payments basis. In Chapter Four, the analysis of trade with "major partners" used trade data prepared on the Balance of Payments basis. More detailed trade statistics—at the individual country levels and by detailed commodity—are available on a Customs basis only. As Chapter Five examines trade developments in detail, the data in this chapter are provided on a Customs basis. See endnote for details on Customs vs. BOP data.

² Canada’s merchandise trade is most commonly reported using the Harmonized System (HS) of Trade Classification, an international system for codifying traded commodities. Within the HS system, trade is classified into 99 chapters, also known as the 2-digit HS level. Commodities in each chapter are further subdivided into 4-, 6- and 8- digit HS levels, with international comparisons possible down to the 6-digit HS level. This section examines those commodities, expressed at the 4-digit HS level that drove the change in Canada’s trade balance during the past year.

³ HS Chapter 27.

⁴ HS 2709.

⁵ Exports to Singapore ($43 million) and Malaysia ($39 million) were small in 2010; Canada did not export energy products to either country in 2011.

⁶ HS 2710.

⁷ HS 2711.

⁸ HS 2701.

⁹ HS Chapter 87.

¹⁰ The largest import category from South Africa, at $180 million, was armoured fighting vehicles (HS 8710). South Africa also was the largest import supplier to Canada for this category in 2011.

¹¹HS Chapter 84.

¹² HS 8411.

¹³ HS Chapter 85.

¹⁴ HS Chapter 90.

¹⁵ HS Chapters 1-24.

¹⁶ HS Chapters 25, 26 and 68-83.

¹⁷ HS Chapter 71.

¹⁸ 97 percent of Canadian silver exports are destined for the United States.

¹⁹ HS Chapters 28-40.

²⁰ HS Chapters 44-49.

²¹ HS Chapters 41-43, 50-65.

²² HS Chapters 66, 67 and 91-99.

²³ HS Chapters 86, 88 and 89.

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