A truck carries cargo to be loaded on the Frankfurt Express container ship at the DP World Centerm terminal in Vancouver. Canada’s trade deficit was $6.3-billion in August.DARRYL DYCK/The Canadian Press
Canadian exports contracted in August, pushing the country’s merchandise trade deficit to the second-highest level on record as U.S. tariffs continued to disrupt Canadian trade.
Goods exports fell 3 per cent while imports increased 0.9 per cent, causing the merchandise trade deficit to nearly double to $6.3-billion from $3.8-billion in July, Statistics Canada reported Tuesday.
The broad-based decline in exports, which follows three months of growth, highlights how precarious Canada’s trade landscape remains as Prime Minister Mark Carney met with U.S. President Donald Trump in Washington on Tuesday to try to secure some tariff relief.
The contraction was led by a large drop in shipments of unwrought gold, which fell 11.8 per cent in August. There were notable declines in other sectors, including a 9.5-per-cent drop in exports of industrial machinery, equipment and parts, and a 10.1-per-cent drop in forestry products and building and packaging materials.
Exports of lumber and other sawmill products plummeted by 25.4 per cent, reaching their lowest level since May 2020. This followed the increase in U.S. anti-dumping and countervailing tariffs on Canadian softwood lumber that took effect in late July and early August.
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Overall, exports declined in eight out of 11 categories.
“Concerningly, a look at the country breakdown shows that, not only did exports to the US decline in August following three consecutive monthly rises, but exports to other countries also fell for the third month on the trot. This does not bode well as the government looks to diversify the country’s international trading partners,” Bradley Saunders, North America economist at Capital Economics wrote in a note to clients.
Canada’s trade numbers have fluctuated wildly this year as companies have tried to adjust to a new protectionist regime in the United States. Exports to the U.S soared in the first quarter with businesses rushing to get goods across the border before Mr. Trump’s tariffs took effect. Exports to the U.S. then plummeted 15.7 per cent in April.
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Since then, Canadian exports have stabilized somewhat, but at a lower level than before. And the August trade numbers show that there are still downside risks to the Canadian economy from trade.
“In volume terms, exports were down by 2.8 per cent, and imports were down by 0.3 per cent. This suggests that the tariff shock is still limiting activity, and net trade won’t be as big of a positive for Q3 GDP as we previously expected,” Katherine Judge, senior economist at Canadian Imperial Bank of Commerce wrote in a note to clients.
While around 85 per cent of Canadian exports to the U.S. remain tariff free, thanks to a carve-out for most goods that comply with North American free trade pact rules, the Trump administration has hammered a number of key sectors with tariffs, including steel, aluminum, automobiles and lumber.
Last week, Mr. Trump expanded this list to include heavy trucks, branded pharmaceuticals, upholstered furniture and cabinetry. Mr. Trump also announced an additional 10-per-cent levy on lumber, which will stack on top of existing anti-dumping and countervailing duties on Canadian wood.
Mr. Trump said in an Oval Office meeting with Mr. Carney on Tuesday morning that the U.S. does not want to import cars or steel from Canada, saying there is a “natural business conflict” between the countries.
“It’s a tough situation because we want to make our cars here at the same time. We want Canada to do well making cars. So we’re working on formulas, and I think we’ll get there,” Mr. Trump said.
When asked whether there would be some sort of trade deal between the U.S. and Canada, Mr. Trump said “I they’re going to walk away very happy.”
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Mr. Carney has said he is pursuing “small” deals with the White House that would remove or lower the sectoral tariffs. Canada and the U.S. have also begun formal consultations ahead of a review of the United States-Mexico-Canada free trade agreement that will take place next year.
Mr. Trump’s aggressive use of tariffs against all of America’s trade partners is upending global commerce.
The World Trade Organization on Tuesday sharply lowered its 2026 forecast for global merchandise trade volume growth to 0.5 per cent, down from its previous estimate in August of 1.8 per cent growth.
“The outlook for next year is bleaker … I am very concerned,” Director-General Ngozi Okonjo-Iweala told reporters in Geneva.
However, she said the world trading system is showing resilience, with the rules-based multilateral system providing some stability amid trade turmoil.
With a report from Reuters
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