Canadian Analysis

The Bottom Line:

Canada’s goods trade balance recorded a $2.2 billion deficit in November, widening from October’s $0.4 billion deficit driven mostly by declines in gold exports (after sharp increases in prior months) and in motor vehicles and parts exports (to their lowest level in three years.) Imports largely held steady.

Despite the deteriorating trade balance, Canadian exporters continue to show signs of partial diversification into non-U.S. markets. Goods exports to non-U.S. destinations were 29% above year-ago levels in November, while goods imports from non-U.S. markets rose 18%—both near or at all-time highs.

Most of this early success, however, has been concentrated in commodities including gold and crude oil, partly due to their fungible nature but also to existing infrastructure (the new TMX pipeline) that enables exporters better access to other markets.

While uncertainty remains elevated, actual trade data continues to show signs of stabilizing trade flows. Controlling for price changes, net trade to-date is still on track to contribute positively to Q4 GDP growth, building on the 3.1 percentage point (annualized) add in Q3 to further retrace the record 8.9 percentage point subtraction in Q2, when the bulk of U.S. tariffs were imposed.

Importantly, CUSMA exemptions continue to provide critical support to Canada-U.S. trade, shielding 88% of Canadian exports to the U.S. in November. The review of the agreement is set to begin in July and is a key risk, but represents just the start of a ten-year process. We do not expect a significant increase in U.S. tariffs on imports from Canada this year and remain cautiously optimistic about Canada’s economic outlook for the year ahead.

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The November details:

• The merchandise trade balance dropped to a -2.2 billion deficit in November, with exports declining 2.8% from October while imports largely held steady (-0.1%). 

• The decline in goods exports were seen in both the U.S. (-1.8%) and non-U.S. markets (-4.9%), driven by a 24.4% drop in metal and nonmetallic mineral products, particularly unwrought gold. This only reversed part of the outsized gains over September and October to leave exports of metal and nonmetallic mineral products still 5.8% above year ago levels. 

• The other weak spot was motor vehicles and parts exports that fell 11.6% from October, driven by a decline in both passenger cars and light trucks exports (-9%) and medium and heavy trucks and busses exports (-53.8%).

• The prior was due to lower production levels near the end of 2025 from a semiconductor shortage and the latter due to new U.S. tariffs on medium and heavy trucks that kicked in on November 1.

• Auto exports likely remained subdued in December — Statistics Canada’s advance manufacturing sales estimate was for a 0.5% increase in December after a cumulative 2.2% decline over October and November, suggesting little unwinding in auto production disruption that month.

• Imports were relatively flat in November from October, with declines in motor vehicles and parts (-4.5%) and electronic and electrical equipment and parts (-3.8%) offset by gains in consumer goods imports (+6.2%). 

• Controlling for price changes, goods export volumes (chained basis) were an annualized 7.1% above their Q3 average in October and November following a 4.1% increase in Q3 and 29.6% plunge in Q2. That increase leaves net trade tracking another add to GDP growth in Q4. 

• From U.S. trade data also released this morning, most (87.9%) of Canadian goods exports to the U.S. continued to cross the border duty free in November, and the average effective U.S. tariff rates on Canada remained unchanged, at 3.7% that is the lowest of major U.S. trade partners and well below the 9.8% rate on U.S. imports from all countries.

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About the Author

Claire Fan is a Senior Economist at RBC. She focuses on macroeconomic analysis and is responsible for projecting key indicators including GDP, employment and inflation for Canada and the US.

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