For Canadian exporters, the past few months have felt like a game of dodgeball—only the balls are tariffs, and they’re being thrown without warning. The latest trade numbers for May offer some relief, but not without caution signs flashing along the way.
Nathan Janzen, Assistant Chief Economist at RBC Economics, puts it plainly1: “The Canadian goods trade deficit narrowed in May after spiking to a record high in April.” That’s a welcome shift—but he’s quick to add a caveat. “The monthly international trade data is being heavily distorted as exporters and importers adjust the timing of trade around U.S. tariff announcements (both threatened and actually imposed).”
In other words, the numbers may look better, but the playing field is anything but stable.
1. Trade Deficit Shrinks—But the Numbers Are Wobbly
Canada’s trade deficit narrowed to $5.9 billion in May, a noticeable drop from the revised $7.6 billion in April. Exports inched up by 1.1%, following a steep 11% plunge the month before.
So, is this a recovery? Sort of—but it’s more of a reset after a scramble. “Exports had risen substantially earlier in the year as businesses stocked up on inventories,” Janzen explains, “but plunged 11% in April when broad based U.S. tariffs kicked in before edging up 1.1% in May.”
The spike-drop-spike pattern suggests companies have been front-running tariffs, making it hard to draw clear conclusions from the data.
2. CUSMA Is Doing Its Job—for Now
One bright spot? The CUSMA (or USMCA) agreement appears to be working as a buffer. Janzen points to data from the U.S. Census Bureau showing that “about 91% of Canadian exports to the U.S. crossed the border duty-free,” reinforcing that “the exemption for CUSMA/USMCA-compliant trade from blanket U.S. tariffs imposed in March is working effectively.”
That said, not every industry gets a free pass. “Certain products like Canadian steel, aluminum, and non-U.S. content in finished motor vehicles still face specific tariffs,” Janzen notes. But for the majority of exports, the agreement is holding strong.
3. Canada Has a Tariff Edge
Here’s where things get interesting. While other countries are being hit hard by U.S. tariff hikes, Canada is skating by with relatively minor bruises. “The average effective U.S. tariff rate on imports from all regions rose to 8.7% from 7% in April,” Janzen says, “but the rate on imports from Canada actually edged lower to 1.9% from 2.3% in April—and remains among the lowest of U.S. trading partners.”
Let that sink in. Canada’s tariff rate is not just low—it’s getting lower, while others are rising. Korea sits at 14.1%, Japan at 14%, and China—brace yourself—at 45.6%.
That gap gives Canadian exporters a shot at grabbing a bigger slice of the U.S. market. “We continue to expect that current rules, if maintained as currently in place, would leave Canada with the lowest tariff rate of any major U.S. trade partner,” Janzen says, “putting Canadian exporters in a stronger relative position to compete for U.S. import market share than other countries.”
4. U.S. Weakness Could Spill Over
But even with that edge, Canada can’t afford to get comfortable. If the U.S. economy slows down, we’ll feel it.
“The concern remains... that U.S. tariff hikes have been so large—and uncertainty so high surrounding their announcements—that U.S. economic growth will slow with negative implications for close U.S. trade partners like Canada,” Janzen warns.
The latest U.S. job data was mixed, but the cracks are showing in manufacturing—a sector deeply intertwined with Canadian industry. That’s not a good sign.
5. Canada’s Trade Map Is Slowly Shifting
One quiet trend is worth watching: Canadian exporters are slowly diversifying beyond the U.S.
Exports to non-U.S. markets jumped 5.7% in May, pushing that category to 42% above year-ago levels. The share of exports heading outside the U.S. hit 31.7%—the highest since the ‘80s (pandemic years aside).
And what’s driving that growth? “Statistics Canada reported that much of the increase in exports overall came from a rise in gold exports to the U.K.,” Janzen notes. But there’s more: “Industrial equipment and electronic equipment exports also rose to partially retrace large earlier declines.”
6. Imports Hint at Cautious Optimism
Imports dropped again—down 1.6% in May, after back-to-back declines in March and April. A big part of that? A steep 18.7% fall in metal ore imports, which had previously spiked.
But not everything was shrinking. Consumer goods imports rebounded by 4.3%, which fits with steady domestic spending. As for business investment? “The volume of imports of industrial and electrical equipment... edged higher but still only partially retraced a large drop in April,” says Janzen.
Translation: Canadian businesses are still cautious. They’re not slamming the brakes, but they’re not flooring the gas either.
Final Thoughts: Holding Steady in Choppy Waters
Canada’s trade numbers show some resilience, but the waters remain rough. The tariff advantage under CUSMA is a lifeline—for now. But with rising global tension, unpredictable U.S. policy, and signs of softness in key sectors, Canadian exporters still face a bumpy road.
Janzen’s bottom line? Keep your eyes open and your strategy nimble.
“The concern remains... that U.S. economic growth will slow with negative implications for close U.S. trade partners like Canada.” – Nathan Janzen, RBC Economics
Sources:
1 RBC Economics, Nathan Janzen – “Canadian exports still low in May but CUSMA backstop holding”
Charts: U.S. Census Bureau, Statistics Canada,
