Ottawa, Canada – Canada’s merchandise trade deficit shrank to C$4.94 billion ($3.57 billion) in July 2025, down from C$5.98 billion in June, as exports rose modestly while imports declined, according to Statistics Canada data released September 4, 2025. The narrower-than-expected deficit, which beat economists’ median forecast of C$5.3 billion, signals a slow rebound in Canadian exports despite ongoing pressures from U.S. tariffs.
Total exports climbed 0.9% to C$61.86 billion, marking a third consecutive monthly increase, driven primarily by a 5% surge in exports to the United States, Canada’s largest trading partner. Energy products, particularly crude oil, rose 4.2%, while motor vehicle and parts exports jumped 6.6%, bolstered by fewer seasonal production stoppages. In volume terms, exports grew 1.6%, reflecting stronger economic momentum. Imports, meanwhile, fell 0.7% to C$66.8 billion, largely due to an 18.8% drop in industrial machinery and equipment following a one-time import of an oil module in June.
The trade surplus with the U.S. widened to C$6.7 billion, the highest since March 2025, as U.S. imports dropped 2.2%. However, the deficit with non-U.S. countries grew to C$11.7 billion, with exports to these nations falling 8.6% and imports rising 1.3%. When combined with services, total exports reached C$80.6 billion, and imports stood at C$85.0 billion, reducing the overall trade deficit to C$4.4 billion.
Despite the improvement, U.S. tariffs continue to weigh heavily on Canadian industries. Aluminum exports, facing a 50% tariff, plummeted 31% in July, while steel exports, hit with a 25% levy, dropped 2% for the month and 25% year-to-date. “The rebound in exports is more a recovery from tariff-induced lows than a sign of robust growth,” said Alexandra Brown, North America economist at Capital Economics. Year-over-year, exports to the U.S. remain down 2.9% for the first seven months of 2025, and global exports are 4.8% lower than in July 2024.
The Canada-United States-Mexico Agreement (CUSMA) has shielded many exporters, with 91% of Canadian goods entering the U.S. duty-free. However, non-CUSMA-compliant exports face effective tariff rates of 5-7%, adding costs and uncertainty. “Exporters are restocking at higher costs as U.S. inventories deplete, but the trade war’s effects linger,” noted Jocelyn Paquet, senior economist at National Bank of Canada.
Recent “technical” talks between Canada and the U.S., led by Minister Dominic LeBlanc, aim to ease sectoral tariffs on steel, aluminum, autos, and lumber. While no breakthroughs have been announced, these discussions signal ongoing efforts to mitigate trade disruptions.
Economists see the trade data as a potential boost for Canada’s GDP in Q3 2025, following a 1.6% contraction in Q2. “Net trade could be a positive contributor, but we’re still below pre-tariff trends,” said Andrew Grantham of CIBC. However, with the Bank of Canada eyeing a possible rate cut on September 17, 2025, amid weak employment data, the trade recovery’s sustainability remains uncertain as inflationary pressures from tariffs persist.
Sources: Statistics Canada, Canadian Mortgage Trends, Yahoo Finance, CBC News, Morningstar, Reuters