- Aluminum helps drive increase in export values to record level (chart 1). The value of Canadian exports rose by 0.9% in May with increases in seven of 11 exports categories. Aluminum exports led the overall increase with a 51% m/m jump, driven by increased shipments to Europe. Nuclear fuel, canola, and sulphur also contributed significantly to the monthly increase in overall exports, with the latter aided by the disruptions in the Strait of Hormuz. Oil exports dropped slightly from April but remained high—also reflecting impacts from global supply disruptions. Imports dropped 0.2%, given a large monthly decline in gold imports, which offset increases in most other categories. Imports of industrial machinery and equipment rose 2.8% and are up 6.8% y/y, which is a positive signal for business investment. Export volumes (which adjust for prices) were roughly flat and imports rose 0.4% on the month (chart 2). April exports were also revised slightly higher. Overall, the trade data have improved after a weak start to the year, and point to a rebound in Q2.
- Strength in gold and energy exports are masking declines in some sectors. Exports are lower in most goods categories targeted by the U.S. sectoral tariffs (chart 3) including: steel (-49% vs May 2024), forestry (-12%), and motor vehicles and parts (-7%). However, exports of aluminum, after initially falling roughly 50% last year, have now more than recovered—thanks to a normalization of U.S. demand (aided by a fire at a NY plant) combined with an increase in exports to overseas markets.
- 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 May 2026. This has been driven by a decline in most exports to the U.S. and increasing exports to other regions—especially Europe (chart 4). In May, exports to the U.S. rose 1.5% m/m and were up 9.3% compared to 2024, following three straight months of growth driven by higher oil prices. Exports to other countries dropped 0.3% m/m, but were up 49.5% 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 58% in May from an average of 62% in 2024.
- Canada continues to benefit from a (relatively) low effective tariff rate on total exports. 3.0% is our latest estimate (based on pre-tariff trade flows) of the increase in tariffs since end-2024, thanks to most of our trade with the U.S. continuing on a tariff-free basis under CUSMA. The reported average actual duties paid on U.S. goods imports from Canada was slightly above 3% for the sixth month in a row, down from close to 4% last Fall (chart 6). The proportion of Canadian goods imported into the U.S. facing tariffs held at 19% for a second consecutive month (chart 7).
- The U.S. trade deficit rose (chart 8). In May, U.S. exports fell 3.2% and imports increased 3.3%, resulting in an increase of the U.S. trade deficit to US$78 bn, slightly higher than 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 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. After a slow start, discussions on CUSMA are expected to ramp up over the Summer, though the timing of a potential agreement remains unclear. Renewed trade volatility can’t be ruled out, especially given the scheduled expiry of the U.S.’s global 10% tariff (Section 122) on July 24th.
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