Trade Deficit Narrows to $4.9 Billion in July

Canada’s merchandise exports were up by 0.9 per cent (month-over-month) in July. Meanwhile, imports fell by 0.7 per cent. As a result, Canada’s merchandise trade deficit narrowed from $6.0 billion in June to $4.9 billion in July.

Key insights

Tariff headwinds dragged down broader second-quarter trade performance. Following a record-low national trade balance in April—coinciding with the implementation of U.S. tariffs on Canadian imports—exports showed signs of a slight recovery in May and June. The data underscores the strategic value of diversifying Canada’s export destinations, with exports to non-U.S. markets rising 14.9 per cent in the second quarter of 2025. However, total second quarter exports fell 7.5 per cent compared to the first quarter, weighed down by sharp declines in motor vehicles and parts, and industrial machinery, equipment and parts—largely due to tariff-related pressures.

Imports fell in July, following a one-time high-value import in June. The monthly decline was largely driven by a sharp reduction in imports of industrial machinery, equipment, and parts. Imports in the logging, construction, mining, and oil and gas field machinery and equipment category fell by $2.0 billion, reflecting the absence of June’s one-time import of a module for an offshore oil project in Newfoundland and Labrador. Going forward, imports are expected to recover with the removal of many Canadian counter-tariffs on U.S. goods.

After plummeting in April, exports rose for a third consecutive month, but levels remained subdued. The increase in total exports this month was led by energy products and motor vehicles. Crude oil exports rose 2.3 per cent, supported by both higher prices and volumes, while exports of nuclear fuel and other energy products surged 49.7 per cent. In the automotive sector, July typically brings temporary plant shutdowns; however, tariff-related production slowdowns earlier in the year made seasonal stoppages less pronounced, resulting in a sharp 10.8 per cent increase in exports of passenger cars and light trucks. Looking ahead, Canada’s export outlook remains uncertain following U.S. President Donald Trump’s August 1 decision to raise tariffs on non-CUSMA compliant Canadian goods to 35 per cent. Although the vast majority of goods are still flowing between the two countries tariff-free, the unpredictability of U.S. trade policy continues to erode business confidence and is encouraging companies to internalize their supply chains where possible, likely weighing on trade volumes.

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