- Exports rose to a new record with a fifth consecutive increase (chart 1). The value of Canadian exports rose by 0.4% in June with increases in six of 11 exports categories. Gold exports were responsible for the vast majority of the overall increase with a 28% m/m jump. The increases more than offset a 10% m/m drop in exports of energy products, which were impacted by lower prices in June. Total imports edged up 0.2%, led by a strong increase in processing units for data centres. Imports of industrial machinery and equipment (a key indicator for capital investment) fell 3.3% m/m but remained elevated for a fourth consecutive month. Export volumes (which adjust for prices) rose 1.1% and imports fell 1.4% on the month (chart 2). Overall, this report confirms that trade will contribute strongly to growth in Q2, which could come in above our July forecast of 2.8% SAAR.
- Strength in gold and energy exports continues to mask declines in some sectors. Exports are lower in most goods categories targeted by the U.S. sectoral tariffs (chart 3) including: steel (-43% vs Dec 2024), aluminum (-5%), and forestry (-15%). However, exports of automotive vehicles and parts, after initially falling roughly 10% last year, have gradually recovered and are back to 2024 levels.
- The share of Canadian exports bound for the U.S. is gradually trending lower, averaging 76% in 2024 and 72% in 2025, and coming in at 70% in June 2026. This has been driven by faster growth in exports to non-U.S. markets—especially Europe (chart 4). In June, exports to the U.S. rose 0.3% m/m and were up 24% y/y (aided by the increase in oil prices since last year). Exports to other countries increased 0.7% m/m, and were up 50.9% 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 60% in June 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 could shrink. 3.0% is our estimate (based on pre-tariff trade flows) of the increase in tariffs put in place since end-2024, thanks to most of our trade with the U.S. continuing on a tariff-free basis under CUSMA. However, this is set to rise to 4.6% later this month if the new U.S. tariffs in response to alleged discrimination by Canada on automobiles, alcohol, and dairy come into effect as currently planned. The reported average actual duties paid on U.S. goods imports from Canada dropped to 2.8%—down from close to 4% last Fall (chart 6). The proportion of Canadian goods imported into the U.S. facing tariffs rose to 23.6% (chart 7).
- The U.S. trade deficit fell (chart 8). In June, U.S. exports fell 0.9% and imports dropped 1.8%, resulting in a small decline of the U.S. trade deficit to US$73 bn, in line with its 2024 level.
- The U.S. import tariffs continue to create inflationary pressures in that country, with the latest estimate of the cumulative impact of the tariffs on U.S. core PCE at around 0.7% (chart 9)—clouding the outlook for further U.S. interest rate cuts, especially given the increase in oil prices since the start of the year.
- Tariffs and uncertainty (chart 10) continue to be elevated and dynamic. An agreement to extend CUSMA past 2036 was not achieved by the July 1st deadline, but the status quo continues until a deal is reached. As expected, the U.S. has escalated its trade war with Canada as CUSMA discussions begin to ramp up. Our baseline remains that Canada will emerge from the CUSMA negotiations with a competitive ETR and tariff-free access to the U.S. economy from the vast majority of our exports—but also that the path to this outcome will be volatile and marred by sensational negotiating tactics.
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