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Trade Deficit Narrows to $5.9 Billion in May

Canadian Economics

By: David Ristovski

  • Canada’s merchandise exports were up by 1.1 per cent (month-over-month) in May. Meanwhile, imports decreased by 1.6 per cent. As a result, Canada’s merchandise trade deficit narrowed from a record $7.6 billion in April to $5.9 billion in May.
  • Exports rose to $60.8 billion in May, the first increase in four months. Exports were up in 7 of 11 product categories, with exports of metal and non-metallic mineral products (+15.1 per cent) and consumer goods (+2.6 per cent) contributing most to the monthly increase. The increase in exports this month was partially offset by a 5.6 per cent decline in energy product exports. Excluding metal and non-metallic mineral products, total exports were down 1.2 per cent. In volume terms, total exports were up 0.7 per cent in May.
  • Imports fell to $66.6 billion in May. The largest contributors to the monthly decrease were imports of metal and non-metallic mineral products (-16.8 per cent), and motor vehicles and parts (-5.3 per cent). The decline in imports was partly offset by an increase in imports of consumer goods (+4.3%). In volume terms, total imports fell 0.6 per cent.
  • Canadian exports to the U.S. were down 0.9 per cent in May. Meanwhile, imports from the United States declined by 1.2 per cent. As a result, the merchandise trade surplus with the United States widened slightly from $3.1 billion in April to $3.2 billion in May.

Insights

Exports saw a slight rebound in May, despite tariff headwinds. Following a record-low national trade balance in April—coinciding with the introduction of U.S. tariffs on Canadian imports—Canada’s exports showed signs of recovery in May. Despite ongoing trade challenges, total exports posted a slight rebound. Notably, the data highlights the strategic importance of diversifying Canada’s export markets in light of heightened trade tensions with the United States. Encouragingly, exports to countries other than the U.S. increased by 5.7 per cent in May, reaching an all-time high. This growth was driven primarily by stronger shipments of unwrought gold to the United Kingdom and crude oil to Singapore.

Imports fell for a third consecutive month, with Canadian counter tariffs playing a role. The decline was primarily driven by reduced imports of unwrought gold, silver, and platinum group metals, as well as passenger cars and light trucks. Looking ahead, however, increased federal defense spending is expected to support higher imports of machinery and equipment, and parts. This anticipated uptick could provide a boost to both total imports and broader business investment over the coming year.

The near-term trade outlook remains uncertain amid escalating U.S. tariffs. Canada’s trade outlook continues to be overshadowed by growing uncertainty, exacerbated by U.S. President Donald Trump’s decision to double tariffs on steel and aluminum to 50 per cent. This move threatens to significantly impact Canadian exporters, particularly within the auto sector, which remains deeply integrated with U.S. supply chains. The unpredictability of U.S. trade policy is undermining business confidence and contributing to broader market volatility. In addition to disrupting global trade flows, elevated tariffs are prompting shifts in consumer and business spending behaviour as firms and households adapt to rising costs and supply chain disruptions. While future negotiations may ease some of the pressure, the prolonged application of tariffs risks dampening employment, curbing investment, and slowing broader economic growth.

For a more detailed breakdown, check out our analysis on The True Cost of the Trump Tariffs.

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