The Big Bear

Lazy day at work today, and I'm only working a half day anyways. Busy weekend coming up with some friends coming into town tonight for a weekend wedding, and me heading down to the old stomping grounds for some buffoonery. Should be a good one.

So, Canada had it's first trade deficit in 32 years in December. This did come as a bit of a shocker, and it was some great fodder for the hacks in Ottawa to start pointing fingers. Considering we had a trade surplus of $5.5 billion in August, a 5 month decline of $6 billion in the trade account is cause for a bit of alarm. Of course, the cries of "what is the government going to do" came out of parliament hill. Harper gave a nice stock answer about collaboration with other global leaders and blah blah blah. Translation - "What the hell can we do"?

Interesting to note that our imports were down in December as well, which meant that Canadians were buying less at the height of the busiest retail month of the year. So, this trade account deficit does not indicate we are heading to a United States model of a largely permanent trade deficit. Why does the United States have a permanent trade deficit? Largely because of oil and consumer goods. Everybody knows that U.S. imports a lot of oil, and almost all consumer goods these days are produced in Asia somewhere. When you have 300 million people buying clothing, toothpaste, and electronics that are built in other countries it is easy to see why the States have that permanent trade deficit. Of course I'm oversimplifying, but you get the idea.

Myself, I'm impressed with how well Canada is doing despite what is happening down in the States. Canada has done reasonably well to diversify its customers for its commodities, but the United States will always be our largest customer, and if they aren't buying two things happen. One, we sell much less to them. Two, the stuff we do sell to them is for a lot less then we are used to getting for it (oil and other commodities are prime examples of this). We will have a trade deficit for a while, but it will not be permanent. If anything, this is an example of how regardless on the scale of globalization of the world economy, it is still not robust enough to handle a sick United States. As Canadians, we have always known that. However, in the rapid growth since our last big recession in the early 1990's I think the rest of the world has forgot about that. George W. aside, I think this may have helped fueled global contempt for the United States - the attitude that "We don't need you anymore".

Maybe ask China right now how important the United States is to their economy. It has become apparent in the last few months that the Chinese might be more coupled with the U.S. economy than Canada is. Or you could ask the 25 million Chinese workers who lost their jobs in 2008. The U.S job losses of 2.6 million in 2008 is staggering to be sure, but on a per capita basis that is only 40% of what the Chinese have lost.

Fascinating stuff to be sure.

Cheers. Have a good family day long weekend.