Source: The Canadian Press

Canada’s trade surplus with the United States has fallen to its lowest level in almost two decades in a further sign the cross-border relationship is becoming less critical to both economies.

Meanwhile, October’ trade report from Statistics Canada shows Canadian exporters are increasingly making inroads in Asia and Europe, opening up promising new markets.

Overall, October was a good month for the economy, with the trade deficit falling by $600 million to $1.7 billion as exports rebounded by 3.1%, Statistics Canada said.

Analysts said the export bounce, after several months of weakness, will likely mean economic growth resumed again during the month, after a tiny dip in September.

The bigger surprise was that Canada’s exporters made such gains with little help from their standby markets in the U.S.

The value of shipments to the U.S. edged up a mere 0.4%, slicing the Canada’s surplus with its southern neighbour to $1.1 billion, the smallest in more than 18 years.

Meanwhile, exports to the rest of the world shot up by 10.1%, helping to reduce the monthly deficit by almost $1 billion to $2.8 billion.

“I think it’s the most exciting thing that is happening in the Canadian economic landscape,” said Export Development Canada economist Peter Hall.

And it’s not just oil and minerals, he added. Although the volumes are small compared with overall trade, Canadian value-added exports to countries other than the U.S. in machinery, auto parts and office equipment are growing strongly as well.

“There is a growing diversification,” he said. “What we’re seeing is that there are not a lot of industries being left out. It is very encouraging.”

Canada’s most important trading relationship and market remains the U.S., and here the trends are not so encouraging.

Canadian shipments to the U.S. now account for 70% of overall exports, the lowest portion in 28 years, while Canadian goods now represent only 14% of U.S. imports, a record low that is down from 20% just nine years ago.

“We have lost quite a bit of share, particularly in the auto sector,” said TD Bank economist Diana Petramala.

“I think we’ve just become less competitive and it can be directly tied to the Canadian dollar.”

Over the last nine years, the loonie has appreciated from about 62 cents US to today’s near-parity levels.

Another factor weighing down on southward bound trade is the weak economy, although that is expected to spring back once U.S. consumer and business demand recovers.

Petramala believes Canada has hit the bottom in terms of market share in the U.S. for now.

In a note, Bank of Montreal economists also found the shift away from reliance on the U.S. market as a positive, since it means Canadian firms are broadening their horizons when it comes to trade.

Hall said Canadian companies may have turned to non-traditional markets out of “desperation,” but that the strategy is promising given that emerging markets are the fastest growing and will likely remain so.

In October, the biggest gains were in exports of industrial goods and materials, which rose 13.7%, and metals and alloys, which increased 17.8%. Shipments of precious metals reached a record high of $1.6 billion in October.

After four months of decline, exports of automotive products also had a good month, rising 3.5% to $4.9 billion. Exports of passenger autos rose 2%, following an 11% decline the previous month.

Imports grew more moderately, by 1.2% to $35.5 billion, as import volumes grew 1.7% and prices declined 0.5%, largely due to the strong loonie.