Canada's Trade Deficit Narrows, But Tariffs on Exports to US Continue to Rise

Strategic Insights -

The trade deficit in Canada narrowed in May from a record high in April, but the country's exporters continue to face headwinds due to tariffs imposed by the US government. The deficit totaled $5.9 billion, with exports to the US slipping 0.9% in May after a 16% decline in April. The US tariffs on steel, aluminum, and automobiles remain in place, with President Trump doubling the tariffs on steel and aluminum to 50% last month. The impact of the trade spat is being felt across various sectors, including the automotive industry, where tariffs are slowing down trade in both directions.

Key Takeaways:

  • The trade deficit in Canada narrowed to $5.9 billion in May, a decrease from the record high of $7.6 billion in April.
  • Exports to the US slipped 0.9% in May, after a 16% decline in April, due to ongoing tariffs.
  • The share of exports destined for the US fell to 68.3% in May, one of the lowest proportions on record (average of 75.9% in 2024).
  • Total exports rose 1.1% in May, boosted by a sharp increase in gold shipments to Britain, but excluding volatile metal and non-metallic mineral product exports, remaining exports were down 1.2% in May.
  • Tariffs imposed by the US are already slowing down the Canadian economy, with forecasters expecting the economy to shrink in the second quarter.
  • The ongoing trade challenges are expected to exert upward pressure on the jobless rate in Canada.
  • Prime Minister Mark Carney is attempting to negotiate an economic and security agreement with the US by July 21, aiming to secure a break from tariffs for Canadian businesses.

Statistics:

  • $5.9 billion: decrease in trade deficit in Canada in May
  • $7.6 billion: revised trade deficit in April, marking Canada's largest on record
  • 0.9%: decline in exports to the US in May
  • 16%: decline in exports to the US in April
  • 68.3%: share of exports destined for the US in May (lowest proportion on record)
  • 75.9%: average share of exports destined for the US in 2024
  • 50%: doubled tariffs on steel and aluminum by US President Trump
  • $71.5 billion: US trade deficit in May, an increase from $60.3 billion in April
  • $60.3 billion: US trade deficit in April
  • 1.6%: decrease in total imports in May
  • 1.1%: increase in total exports in May

Sources:

  • Statistics Canada
  • Bank of Montreal senior economist Shelly Kaushik
  • Capital Economics North America economist Alexandra Brown
  • CIBC senior economist Katherine Judge
  • US Commerce Department's Bureau of Economic Analysis