- Exports rise in sixth consecutive monthly trade surplus (chart 1). The value of Canadian exports rose by 2.5% in August, led by energy products but also supported by increases in most other categories—and despite a large drop in volatile gold exports. Total imports fell 2.0%, led by an 8.8% drop in motor vehicles and parts (following a large temporary increase in July) and lower gold imports. Imports of industrial machinery and equipment (a key indicator for capital investment) continued its trend higher with a 3.5% monthly increase. Export volumes (which adjust for prices) also rose 2.5% but imports were only 1.1% lower (chart 2). Overall, a stronger report than July, but aided by front-running of new U.S. tariffs and import bans in September. Despite the stronger month, trade is likely to contribute only modestly to overall economic growth in Q3.
- Volatility in gold and energy exports continues to mask clear declines in some sectors. Exports are lower in most goods categories targeted by the U.S. sectoral tariffs (chart 3) including: steel (-40% vs Dec 2024), forestry (-14%), and autos (-2%)—though aluminum has recovered.
- The share of Canadian exports bound for the U.S. is volatile but trending lower, averaging 76% in 2024 and 72% in 2025, and coming in at 70% in July 2026. This has been driven by faster growth in exports to non-U.S. markets—especially Europe (chart 4). In August, exports to the U.S. rose 8.1% m/m after a drop in July, and were up 11% y/y (aided by the increase in oil prices since last year). Exports to other countries fell 8.5% m/m, but were up 51% from 2024—though much of this increase has been driven by gold. On the import side (chart 5), the share of Canadian imports from the U.S. has gradually fallen to 59% in August from an average of 62% in 2024.
- Canada continues to benefit from a (relatively) low effective tariff rate (ETR) on total exports, though this advantage has narrowed. We estimate that Canada’s ETR has increased from around 3% to 4.6% over the last couple of months. The reported average actual duties paid on U.S. goods imports from Canada (which reflects substitution effects) had been trending lower but rose from 2.8% to 3.2% in August (chart 6) and could increase further in the coming months. The proportion of Canadian goods imported into the U.S. facing tariffs rose slightly to 23% (chart 7).
- The U.S. trade deficit increased sharply (chart 8). In August, U.S. exports rose 1.4% but imports jumped 4.3%, resulting in an increase of the U.S. trade deficit to US$105 bn—substantially larger than its average 2024 level. The increase in imports was led by strong increases in imports of industrial supplies and capital goods.
- Tariffs and uncertainty (chart 9) continue to be elevated and dynamic. Canada continues to benefit from tariff-free access to the U.S. on the vast majority of our trade, but the trade war has heated up following the latest breakdown in negotiations. Our baseline remains that Canada will emerge from the CUSMA negotiations with a competitive ETR and tariff-free access to the U.S. economy for the vast majority of our exports—but also that the path to this outcome will be volatile. There has been some tit-for-tat tariff escalation over the past couple of months, though this fortunately seems to have settled down. However, additional U.S. tariffs on autos have been threatened for January. That said, given that a deal was so close in August, there remains the potential for a deal in the coming months to avoid those tariffs as well as reduce the significant tariffs impacting some sectors.
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