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Canada and the United States have traditionally enjoyed the largest trading partnership in the world, but these days that relationship is being tested, says a new report from BMO Capital Markets.

After the disruptions of the pandemic, globalization took a back seat to “reshoring, near-shoring and friend-shoring” as countries, particularly the United States, looked to lock down supply chains.

Both Canada and Mexico have benefitted from this trend, but mostly Mexico, say BMO economists Michael Gregory and Shelly Kaushik.

Trade between Canada and the United States totalled $920 billion in the year ending in the first quarter of 2024, or an average of $2.5 billion in trade crossing the border every day.

Two-way trade between the United States and Mexico totalled $905 billion, and is on track to surpass Canada sometime this year, they said.

This isn’t the first time.

According to U.S. Census Bureau data, two-way trade between Mexico and the U.S. hit a record high of $5.3 trillion in 2022, as the southern country usurped Canada as America’s top trading partner.

The United States’ trade deficit with Mexico, the amount by which imports exceeds the value of exports, is also much larger than with Canada.

Mexico’s $167 billion deficit compared to Canada’s $38 billion “is the largest it has ever been (partly mirroring a shrinking trade shortfall with China, which is raising eyebrows in Washington,” said the report.

Trade between Canada and the United States in goods was almost $780 billion in this past year, with services at about $140 billion. That’s a goods trade deficit of about $70 billion and a services trade surplus of $32 billion.

But goods trade is “very lopsided” when viewed by sector, say the economists.

America has a $92 billion trade deficit in the oil and gas sector with Canada, its largest source of petroleum and crude oil imports.

But since 2008 the United States has run a manufacturing surplus with Canada, amounting to $35 billion in the past year.

If you take oil and gas out of the picture, the U.S. has a $30 billion goods trade surplus with Canada.

Trade disputes are also brewing. The  USMCA,  the trade agreement between the United States, Canada and Mexico, is up for review in 2026, and at a meeting earlier this year U.S. officials raised three concerns, says the report.

• Canada’s Digital Services Tax: The 3 per cent levy on digital services revenue came into effect on June 28.
• Dairy, poultry and eggs supply management: Under the USMCA, Canada committed to give the U.S. greater access to these markets, particularly dairy. However, U.S. producers have complained about the way Canada has meet these quotas, saying that priority is given to lower value dairy ingredients rather than finished products.
• Quebec French language law Bill 96 regulations regarding trade marks

The list doesn’t end there. Other trade “irritants” between Canada and the U.S. highlighted by the economists include:

• The Online streaming Act, which gives power to the Canadian Radio-Television and Telecommunications Commission (CRTC) to order large online streaming services to contribute 5 per cent of revenues to funds that promote Canadians productions. This has been challenged in court by the Motion Picture Association Canada on behalf of Netflix, Walt Disney, Warner Bros Discovery and Paramount Global. Members of Congress have also petitioned for an investigation.
• The Online News Act, which aims to ensure digital platforms compensate news media for their content.
• Rules of origin in the auto industry: the criteria used to determine whether a good has undergone sufficient production in the USMCA region to be eligible for preferential tariff treatment.

“Despite total trade with Canada resulting in an overall U.S. surplus outside of the oil and gas sector, with U.S. elections approaching and 2026’s review of the USMCA on the docket for the next Administration and Congress (regardless of who, or which party, wins), the above U.S.-Canada trade irritants and others simmering on the backburner could become increasingly problematic,” said the economists.

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The spring housing market fizzled out so badly the Canadian Real Estate Association has slashed its forecast for the year. CREA said Friday that it now expects home sales to rise 6 per cent in 2024, down from an earlier forecast of 10.5 per cent. Its price forecast went from an almost 5 per cent gain to 2.5 per cent.

The diminished forecast comes amid a rising supply of homes on the market.

New listings were up again in June, the latest increase in five of the six past months.

“In some markets, the outstanding inventory of homes for sale has rarely been higher and, while location/type matter a lot, it’s fair to say that a gradual building of resale inventory continues,” said Robert Kavcic, senior economist at BMO Capital Markets.

“The months’ supply of homes for sale sat at 4.2 in June, or just off the highest in four years.”

• Bank of Canada releases its Business Outlook Survey and Canadian Survey of Consumer Expectations
• 2024 Summer Meeting of Canada’s Premiers, hosted by Nova Scotia Premier Tim Houston.
• Today’s Data: Canada manufacturing sales for May
• Earnings: BlackRock Inc, Goldman Sachs Group Inc, PrairieSky Royalty Ltd., Corus Entertainment Inc.

• For mortgage seekers, a good broker is paramount. Here’s how to find one
  
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Mutual funds are comparatively expensive and often don’t make up for it with better returns. That’s why portfolio manager John De Goey is calling “bullshift” on the industry, and offers three questions every investor should ask their investment managers when they try to offer mutual funds to you.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line with your contact info and the gist of your problem and we’ll try to find some experts to help you out, while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers, led by Julie Cazzin, can give it a shot.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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