Data Flashes

The Bottom Line:

Canada’s merchandise trade surplus widened to $4.2 billion in May from $3.4 billion in April (revised upward from $2.7B), as exports rose 0.9% while imports declined 0.2%.

Softer energy price growth provided less support to export values and exports of Aircraft & Other Transportation Equipment & Parts eased following gains in prior months. Still, monthly trade data are heavily influenced by commodity prices and individual product categories, making it important to look beyond headline values when assessing underlying conditions.

Export volumes excluding price effects fell 0.5% in May, providing a clearer read on underlying foreign demand, but are still tracking a large increase in the second quarter as a whole. Import volumes edged lower as well but largely due to a pullback in gold imports. Industrial machinery and equipment imports jumped 6.1% from April (up 12.8% year-over-year), offering a signal that business investment is edging higher as firms navigate an uncertain trade environment.

Trade flows continue to be shaped by uncertainty surrounding U.S. trade policy, although our broader expectation remains that trade will become less of a drag on Canadian growth than it was in 2025 as the international environment gradually stabilizes. The recent CUSMA joint review did little to change our base-case outlook that North American trade rules will remain broadly intact, though negotiations are likely to remain an important source of uncertainty.

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The details:

• Exports increased 0.9% in nominal terms. Energy exports fell 2% as oil price growth slowed after surging in prior months, with partial offset by metal ores and non-metallic minerals, which spiked 16.1% (led by surging aluminum exports), reversing declines in the prior two months.

• Given continued commodity price volatility, volumes provide a better indication of underlying demand. Excluding price effects, export volumes fell 0.5% in May, with gains in metal ores and non-metallic minerals as well as consumer goods offset by weakness in the energy category and a large drop in the (often volatile) aircraft component.

• Imports declined 0.2% from April. Excluding price effects, volumes dipped 0.8%. Metal and non-metallic mineral products drove most of the decline, led by declining gold imports.

• Offset came from higher imports of industrial chemicals, plastics and rubber products, industrial machinery and equipment and parts, as well as consumer goods – adding to signs that domestic demand (Canadian consumer and business spending) has remained relatively resilient through the spring oil price shock.

• Canada’s trade surplus with the United States totaled $11.6 billion in May, compared with $10.3 billion in April. Exports to the U.S. rose 1.5% while imports declined 1.4%.

• Trade with countries outside the United States showed continued pullbacks, with exports down 0.3% from April (though still up 21.2% year-over-year) and imports rising 1.5%.

• Separately reported U.S. data showed the average effective tariff rate on Canadian goods was little changed at approximately 3% in May (versus 3.2% in April). The share of exports crossing the border duty free remained at close to 90%, largely due to exemptions for duty free trade under CUSMA.

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About the authors:

Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.

Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.

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