Canada’s trade deficit narrows in May, exports to U.S. decrease for fourth straight month

 

Canada’s trade deficit narrowed in May to C$5.9 billion from a revised C$7.6 billion in April, according to Statistics Canada. The improvement was largely due to a 1.1 percent increase in exports and a 1.6 percent decline in imports. This marks the first increase in exports in four months following a sharp 11 percent drop in April. However, exports and imports with the United States, Canada’s largest trading partner, both fell to their lowest levels since 2020, during the pandemic. Exports to the U.S. declined for the fourth consecutive month, falling 0.9 percent in May. The U.S. accounts for about 75 percent of Canada’s export market. The downturn is linked to ongoing trade tensions, including 25 percent tariffs imposed by President Donald Trump on Canadian automobiles and 50 percent tariffs on steel and aluminum. Canada responded with retaliatory tariffs. These measures have impacted Canadian exports and jobs. Despite the struggles with the U.S., exports to the rest of the world increased by 5.7 percent in May to a record high. This global rise was driven by strong performance in the metallic and non-metallic mineral products sector, particularly a 30.1 percent surge in unwrought gold exports, primarily to the United Kingdom. These gains helped support the overall export growth even as key sectors like canola and crude oil saw reduced demand from China.

Canada’s total exports in May were C$60.81 billion, up from C$60.12 billion in April. While this growth was mainly led by mineral products like gold, when these are excluded, overall exports actually declined by 1.2 percent. The data shows that without gold, the broader export picture remains weak, especially with continued losses in trade with major partners like the United States and China. Gold exports alone hit a record C$5.9 billion, with most of the gain from higher shipments to the United Kingdom. This shows that Canadian exporters are actively seeking to reduce their dependence on U.S. trade by expanding ties with other countries. Still, even with strong non-U.S. exports, the losses from the U.S. market have been difficult to offset. Imports also decreased by 1.6 percent to C$66.66 billion in May. U.S. imports fell 1.2 percent, contributing to the overall decline. While the reduced trade deficit is a positive sign, it still reflects trade weakness and a lack of momentum in several sectors. In financial markets, the Canadian dollar weakened slightly after the release of the trade data, falling by 0.23 percent to 1.3615 against the U.S. dollar. Government bond yields rose, with the two-year yield increasing by 3.7 basis points to 2.706 percent. Amid the ongoing trade skirmish between Canada and the United States, which last year had a bilateral trade volume exceeding a trillion Canadian dollars, leaders are working toward a resolution. Canadian Prime Minister Mark Carney and U.S. President Donald Trump have agreed to try and finalize a trade deal by July 21, aiming to deescalate tensions and restore stability to the critical trade relationship between the two nations.

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