It was the year Canadians danced to Disco Duck, bought $14-a-barrel oil, struggled with six per cent inflation, marched against wage and price controls and ate their first Timbit.

On the far right, the lines cross at the point when Canadians bought more from abroad than they sold.

And 1976 was also the last time Canada bought more from the world than it sold. That is, until December 2008, when, according to Statistics Canada, we ran our first trade deficit in more than 30 years. Exports fell at a faster pace than imports, and we ran up a $458-million imbalance. Compare that with November's trade surplus of $1.2 billion — oh, and the 405 consecutive months of surplus before that.

"When you start running a trade deficit, it's a drag on your economy," says Jayson Myers, president of the Canadian Manufacturers & Exporters Association. "I think it's the sign of a very serious deterioration in our exports and, unfortunately, a sign of things to come. Our last survey of our members says new orders are down by more than 30 per cent. In every sector, new orders are down significantly."

No question, a decline in exports is bad for the economy, and trade deficits are generally not considered a good thing. But is an imbalance really the worst thing to happen since Disco Duck?

A look at the trade status of countries belonging to the Organization for Economic Co-operation and Development offers few clues to whether it's better to run a surplus or a deficit. Japan and Germany are both well into surplus territory. The U.K. and New Zealand run deficits. The OECD as a whole is in deficit, largely because the U.S. trade deficit is so large. Russia is in surplus, but Italy isn't. Resource-rich countries are in surplus — except when they aren't. Countries are likely to be in deficit when they're poor — unless they're Canada and Australia. Is there a pattern here?

As you might expect, economists don't necessarily agree on trade deficits. John Maynard Keynes believed trade imbalances were a serious problem, and his thoughts on how to keep global trade in equilibrium affected economic thinking following the Second World War. Nevertheless, some large and prosperous countries kept large and growing deficits for decades.

The U.S. began a trade deficit in the late 1960s and has watched it grow ever since. (There was an exception in 1991, when the U.S. slipped into recession. Countries than run deficits often run trade surpluses during economic downturns.)

U.S. economist Milton Friedman didn't think trade deficits were much to worry about and believed they were constantly correcting themselves anyway as the changing values of currencies tended to encourage or discourage imports depending on their value.

And, hey, Friedman's right!

The Canadian dollar slumped below 80 cents US on Wednesday after Statistics Canada announced our new deficit status. It recovered slightly, but the lower dollar would presumably make our exports cheaper so we should be back to surplus status in no time.

But, no! Friedman's wrong!

'Canada's trade prospects will hinge on a rebound of the U.S. economy and, to spur commodity values, a pickup in global growth.'— Grant Bishop, TD Bank Economist

"Depreciation of the Canadian dollar had previously propped up nominal exports," writes TD Economist Grant Bishop in the bank's latest commentary. "However, exchange-rate relief can't buffer the plummet in commodities, nor the wallop to export demand as U.S. consumers tighten their purse strings. Canada's trade prospects will hinge on a rebound of the U.S. economy and, to spur commodity values, a pickup in global growth. However, such a recovery is unlikely until early 2010."

International Trade Minister Stockwell Day thinks it's hard to predict whether this is just the beginning of a string of trade deficits.

"It's predictable when we're in a worldwide downturn and some of our major purchasers — the United States, China — are going through very difficult times, and therefore they're buying less," Day said on Wednesday.

"If the United States continues to stay in the doldrums and if China's economy continues to move downwards, that means there will be less demand for Canadian products."

Exports to the U.S., which takes around 75 per cent of all Canada's exports, fell by 10 per cent in December.

Canada's trade deficit with countries other than the U.S. grew to $4.2 billion in December from $3.4 billion the month before.

'Each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment'— Prof. Peter Morici, University of Maryland

Buying less from Canada helped the U.S. reduce its deficit, slightly. It fell four per cent in December to $39.9 billion US.

It does appear economic thinking is again turning against running trade deficits.

"Each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment and shifts workers into activities where productivity is lower," says Prof. Peter Morici of the Robert H. Smith School of Business at the University of Maryland on his blog. "Lost growth is cumulative. Thanks to the record trade deficits accumulated over the last 20 years, the U.S. economy is about $3 trillion smaller."

"Had the Administration and the Congress acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger and the federal deficit would be much smaller. The recession would be much less severe," writes Morici.

No question, the Canadian economy is in better shape than that of the U.S., although things are changing, fast. Can we credit those 405 consecutive months of trade surplus for helping keep our economy healthy? Maybe. But the Canadian Manufacturers and Exporters Association believes the key in the next few months will be to use the government stimulus money to keep the credit markets moving so Canadian businesses can access enough cash in the rough months to come.

"We've been living in a bubble for the last three years with high oil and commodity prices," says association president Jayson Myers. "We got a very false sense of how well the Canadian economy is doing. If you take oil and gas and pricing out of the exports, you'd see the volume of our exports has actually fallen by 20 per cent since 2002. It's only because of strong commodity prices that we've been in surplus before this."

With files from the Associated Press and the Canadian Press