Canada’s trade deficit shrank in July as exports increased, driven mainly by higher shipments of crude oil and passenger cars to the United States, Canada’s largest trading partner, according to Statistics Canada. The merchandise trade deficit for July was $4.94 billion, down from $5.98 billion in the previous month but higher than the same period last year. Total exports grew by 0.9% to $61.86 billion, while imports decreased by 0.7% to $66.8 billion.
This marked the sixth consecutive trade deficit following U.S. President Donald Trump’s imposition of tariffs on Canada. However, the deficit has been improving from the record high of $7.6 billion seen in April. The ongoing trade tensions have prompted businesses to adjust their supply chains, impacting trade dynamics between the two countries.
Despite the challenges, exports to the U.S. have been on the rise for the past three months. Canada saw a 5% increase in exports in July, particularly in crude oil and passenger cars. Energy products exports rose by 4.2%, while motor vehicles and parts exports increased by 6.6%. However, exports of aluminum and steel, subject to significant tariffs, declined by 30% and 25%, respectively.
Economists noted that while the recent trade data was more positive than anticipated, full export recovery has not yet been achieved. Exports to the U.S. have dropped by 2.9% in the first seven months of the year compared to the same period in 2024, while exports to other countries have increased by 14%. The repercussions of the tariffs are still unfolding and are expected to impact economic indicators in the coming months.
In July, exports to non-U.S. countries declined by 8.6%, while imports from these countries rose by 1.3%. Conversely, imports from the U.S. fell by 2.2% in July. Following the release of the trade data, the Canadian dollar depreciated by 0.21% to 72.34 U.S. cents, and government bond yields on two-year bonds decreased slightly to 2.61%.
With recent GDP figures showing a 1.6% contraction in the economy, financial markets are predicting a potential interest rate cut by the central bank on September 17, with a nearly 70% likelihood.