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Canadian exports of lumber to the U.S. surged 9 per cent in the month, as both Canadian exporters and their U.S. customers raced to make their shipments before the U.S. softwood duties kicked in at the end of the month.Sean Kilpatrick/The Canadian Press

Canada's April trade numbers look good for the country's economy. But they aren't going to help the political tension surrounding the country's trade relationship with the United States of Donald Trump.

Statistics Canada reported Friday that Canada's merchandise trade deficit narrowed to $370-million in April, from $936-million in March. Those figures aren't particularly glowing – after all, economists had generally expected an even smaller deficit, and the March number was revised from an originally reported (and considerably better) $135-million. Nevertheless, the details of the report put smiles on economists' faces. Exports were up a solid 1.8 per cent month over month, building on March's 3.2-per-cent gain. And just as in March, the bulk of the gains came from higher volumes, though price gains also helped. Imports also rose, their fifth straight monthly increase, a sign of buoyant domestic demand. Indeed, both imports and exports hit record highs in April, evidence of the increasingly healthy economic activity both at home and in trading partners abroad. In the past 12 months, Canada's exports have grown a torrid 14.7 per cent; imports have increased a brisk 7.4 per cent.

And notably, March's gains in Canada's trade balance came entirely courtesy of its biggest trading partner, the United States.

Statscan said Canada's exports to the U.S. rose 5.4 per cent in April, the biggest single-month gain in nearly two years, to a record high $36.1-billion. (By contrast, Canada's exports to the rest of the world slumped 7.8 per cent.) As a result, Canada's merchandise trade surplus with the U.S. widened to $5-billion in the month, a three-year high.

Talk about timing. In the past six weeks, the U.S. has imposed duties on Canadian softwood lumber; the Trump administration has formally given notice of its intention to reopen the North American free-trade agreement with Canada and Mexico, amid a steady stream of protectionist rhetoric from Mr. Trump himself; and the U.S. Department of Commerce has launched an unfair-trade investigation against Canadian jet manufacturer Bombardier Inc. Last week, the Canadian government fought back, introducing an $867-million aid package to defend its lumber producers and suspending talks to buy new fighter jets from U.S. manufacturer Boeing Co.

And now we get news of a ballooning Canadian merchandise trade surplus with the United States. Worse, on the same day that the U.S.'s own trade data showed that its own trade deficit widened to $47.6-billion in April, the third-biggest pool of red ink on the trade ledger in the past five years.

How to explain this to Uncle Donald? The most blatantly protectionist U.S. president in more than eight decades sees pretty much any bilateral trade deficit the United States has as evidence of an uneven playing field – a trading partner that is either breaking the rules, or taking advantage of a wildly unfair trade pact signed with some incompetent past U.S. administration. A widening deficit with Canada adds fodder to Mr. Trump's arguments that the U.S. needs a better NAFTA deal with Canada.

Perhaps someone should point out that this recent trade growth with Canada is a two-way street. Not only are Canadian merchandise exports to the U.S. at record highs, its imports of goods from the U.S. are very near record highs, too. Increased two-way trade flows are evidence of a well-functioning trade relationship in an increasingly robust continental economy; no one is "losing" in this trade relationship.

It should also be brought to Mr. Trump's attention that this Canadian trade surplus with the United States that we're talking about only involves goods. The U.S.'s own figures show that in 2016, Canada's services trade deficit with the U.S. was $24.6-billion (U.S.), more than double the size of Canada's goods trade surplus ($12.1-billion).

It's also notable that a good chunk of Canada's April goods surplus with the U.S. was Trump's own doing. Canadian exports of lumber to the U.S. surged 9 per cent in the month, as both Canadian exporters and their U.S. customers raced to make their shipments before the U.S. softwood duties kicked in at the end of the month. That will surely reverse course in May and beyond, as the duties weigh on Canadian lumber sales south of the border.

Finally, National Bank Financial economist Krishen Rangasamy noted that almost all of Canada's increase in export volumes to the U.S. in the year to date has come from a single sector: Energy. If there's one kind of Canadian exports that the United States covets, it's energy supplies. The U.S. still requires ample supplies of fossil fuels from outside its borders to provide for its energy needs, and Canada is a close, friendly and reliable supplier. Before railing against its goods trade deficit with Canada, the Trump administration might want to remember that much of that is, quite literally, fuelling the U.S. economy.

Natural Resources Minister Jim Carr says $867-million in funding for Canada’s lumber producers is aimed at helping with 'uncertain days' after the U.S. imposed new tariffs on Canadian softwood exports.

The Canadian Press

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