Canadian Merchandise Trade (May 2025)

Exports Rebound in May, But Won't Save Q2 Growth 

• Canada's trade deficit narrowed from a record $7.6 billion in April to $5.9 billion in May. 
• Goods exports rebounded only modestly (+1.1% m/m) from April's plunge (-10.8% m/m). However, exports to the U.S. declined (-0.9% m/m) for the fourth consecutive month. The bounce back in exports was seen in 7 of 11 product sections, but was led by gold. Excluding metal and non-metallic mineral products (+15.1% m/m), total exports were down 1.2% m/m. 
• Goods imports fell 1.6% m/m in May, down for a third consecutive month. Notably, imports of motor vehicles and parts fell again (-5.3% m/m).
• In volume terms, merchandise exports were up 0.7% m/m while imports declined 0.6% m/m in May.
• Canada's merchandise trade surplus with the United States widened slightly to $3.2 billion as of May, as imports fell more than exports.
• Exports to countries other than the United States rose 5.7% m/m in May to reach a record high. As a result, the share of Canada's exports going to the U.S. fell to 68.3% in May, one of the lowest shares on record.

Key Implications

• It is hard to fall off the floor, and Canadian exports were widely expected to bounce back from the lowest level in nearly five years in April. April marked the first month that Canada faced the full suite of American tariffs. It is encouraging to see exports to non-U.S. markets ramp up, but it hasn't been enough to offset the sizeable retraction in shipments south of the border, with exports still down 3.2% versus a year ago.
• With two months of trade data for the second quarter on the books, net exports are likely to be a significant drag on second quarter growth (see our latest Forecast). Exports had grown quite briskly in the fourth quarter of 2024 and first quarter of 2025, as many businesses were likely rushing to ship their products ahead of potential U.S. tariffs. Growth in the second quarter is feeling the impact of those shipments slowing to a crawl. Better news could be on the way soon. Canada dropped the Digital Services Tax earlier this week to make progress in its negotiations with the U.S., so hopefully we see progress on the tariff front in the coming weeks.          

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