Canada’s trade deficit in July narrowed as exports increased, particularly driven by shipments of crude oil and passenger cars to the United States, its largest trading partner. Statistics Canada reported that the merchandise trade deficit for July stood at $4.94 billion, smaller than the previous month’s $5.98 billion but higher than the same period last year.
Total exports in July rose by 0.9% to $61.86 billion, while imports slowed by 0.7% to $66.8 billion. Analysts had predicted a trade deficit of $4.75 billion for July. This marked the sixth consecutive trade deficit since President Donald Trump imposed tariffs on Canada, but it shows improvement from the record deficit of $7.6 billion observed in April.
Despite the challenges posed by the tariffs, exports to the U.S. have been increasing for the past three months. Canada saw a 5% rise in exports to the U.S. in July, with notable increases in crude oil and passenger cars. However, on a year-on-year basis, exports to the U.S. were still down over 10%.
Exports of energy products and motor vehicles and parts saw increases in July, while exports of aluminum and steel, which face significant tariffs, declined. Shelly Kaushik, a senior economist at BMO Capital Markets, noted that the July trade data was not as negative as anticipated, attributing the resilience to certain sectors being heavily impacted by the ongoing trade tensions.
Economists cautioned that while there have been improvements, exports have not fully recovered yet. Ross Prusakowski, deputy chief economist at Export Development Canada, highlighted that exports to the U.S. were down 2.9% in the first seven months of the year compared to the same period last year, while exports to the rest of the world increased by 14%.
The Canadian dollar traded down by 0.21% against the USD following the release of the trade data. Additionally, recent GDP figures showing a 1.6% economic contraction have led to speculation of an impending rate cut by the central bank. Markets are now pricing in a nearly 70% probability of a rate cut on September 17.
