Canada's trade deficit narrowed to $5.9B in May, as trade with U.S. continues to decrease

Canada's merchandise trade deficit narrowed to $5.9 billion in May after hitting a record high in April as tariffs continued to weigh on trade between Canada and the U.S.

According to data from Statistics Canada, the country's exports rose by 1.1 per cent, after falling steeply by 11 per cent the month prior. It also marked the first increase in exports in four months.

Exports to the United States dipped by 0.9 per cent in May as U.S. President Donald Trump's trade war continued to impact business between the countries. Canada's share of total exports headed to the U.S. was 68.3 per cent — one of the lowest proportions on record between the major trading partners. By comparison, Canada sent 75.9 per cent of all exports to the U.S. on average each month in 2024.

Overall, imports were down for the third month in a row, falling by 1.6 per cent, according to Statistics Canada. The amount of American-made products the country imported fell by 1.2 per cent as well.

In April, Canada's trade deficit had ballooned to more than $7 billion, from $2.3 billion in March. 

Shelly Kaushik, a senior economist at BMO, says the May numbers point to a slight improvement in Canadian trade overall. But she points out the trade deficit is still elevated — and that will continue to have impacts on the economy.

"We are coming off of a very tough April ... so if you kind of zoom out a little bit past these volatile swings, I think it's pretty likely that trade is going to weigh heavily on economic growth for Q2," Kaushik said.

While trade to the U.S. dipped, Kaushik adds that the U.S. is still our biggest trading partner by far, and that's not something she says will change any time soon. 

While exports to the U.S. were down, trade to other countries was up. Canada sent 30.1 per cent more unwrought gold, silver and platinum group metals to other countries, including the United Kingdom, for example, and 13.3 per cent more meat products to Japan.

A sharp rise in gold exports helped pull the overall number of exports up. On the other hand, imports of motor vehicles and parts, which saw a big drop last month, continued to dip by 5.3 per cent in May.

Kaushik adds that some of the increases in trade to other countries were concentrated in really specific sectors or products, like gold. She says excitement over those figures should be tempered, as we can't necessarily expect those trends to continue. 

"I think we need to take a step back [and] remember that this is just one month of data. We need to see a lot more months to see if this is actually a sustainable trend," Kaushik told CBC News.

On top of that, whatever future trade deals take place between Canada and the U.S. will have a big impact on trade numbers in the months to come, Kaushik says. Trump and Prime Minister Mark Carney have committed to reach a trade deal by July 21. Talks to reach an agreement resumed this week after Trump first broke them off last Friday over Canada's digital services tax which Carney later scrapped.