Data Flashes

The Bottom Line:

Canada’s trade surplus widened to $5.4B in September from $5.0B in August (revised up from $4.2B), marking the first full month since Section 338 tariffs took effect on August 22nd.

Exports rose 0.2%, driven by volatile metal exports (+9.8%, mostly gold) and energy exports (+8.2%) from higher crude oil prices. But these gains were largely offset by declines across various non-energy products, including consumer goods (-7.1%) and electronic equipment and parts (-13.8%), partly reflecting a reversal in U.S. purchases of targeted exports following August’s rush to front-run tariffs. Excluding energy and metals, exports fell 5.6%. Export volumes fell 4% when stripping out price effects.

Imports edged 0.3% lower, largely reflecting weaker motor vehicle and parts purchases due to unplanned supply disruptions in U.S. plants. This was moderated by continued spillover from the AI supply chain buildout into Canada-imports of electronic equipment and parts jumped a record 10.3%, mostly reflecting computer and peripherals (+29.4%), which includes processing units used in data centers.

By our count, Canadian exports of products targeted with the new 50% tariffs were down 28% year-over-year in September after rising 40% year-over-year in August¹. The estimated average effective tariff rate for Canadian exports to the U.S. ticked up to 4.2% from 3.2% in August, reflecting the impact of the new tariffs – now above some other major U.S. international trade partners (notably Mexico’s 3.2% rate) but still below the 6.5% average rate on all U.S. imports, and over 82% of Canadian exports continued to cross the border duty free in September.

While the monthly data is highly volatile and revision prone, we estimate a net add of around a percentage point to Q3 GDP growth – broadly consistent with our own projection for an annualized 1.8% increase in Q3 GDP.

Looking ahead, the reshuffling of products targeted by U.S. tariffs in both mid-September and late October did not materially change the share (~5%) of total U.S. import from Canada affected by the new measures. While product bans for a subset of dairy, alcohol, and motorcycle products went into effect on September 29^th, there was already a prohibitive 50% tariff applied to some of these goods, so the marginal impact of the ban on the macroeconomic growth backdrop is likely relatively small.

That being said, we continue to expect significant disruption in targeted sectors, but with more than 80% of Canadian exports maintaining duty-free access under CUSMA, spillover to the broader economy should remain limited.

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The details:

• Canada’s merchandise trade surplus widened to $5.4 billion in September, up from $5.0 billion in August—marking the seventh consecutive surplus.

• Overall exports edged up 0.2%, driven by higher metal (mostly gold) and energy exports that benefited from rising prices, but were offset by weaker non-energy exports such as consumer goods and electrical equipment and parts, some of which were targeted by Section 338 tariffs. Export volumes (excluding price effects) fell 4% in September.

• Imports edged 0.3% lower, largely reflecting sharp declines in motor vehicle and parts imports (-9.1%) due to unplanned supply disruptions and weaker consumer goods purchases (-2.9%).

• Both exports and imports edged up 0.2% in the third quarter. On a real basis, exports were down 0.6% in the third quarter, while imports were down 1.6%.

• Canada’s trade surplus with the United States widened slightly to $12.3 billion in September, compared with $12.1 billion in August. Exports to the U.S. rose just 0.7%, while imports rose 0.4%.

• The trade deficit with countries outside the United States was largely unchanged at around $7.0 billion in September. Exports fell for a second consecutive month but were up roughly 25% year-over-year. Imports also fell 1.4%.

• From separately reported U.S. trade data this morning, the average effective U.S. tariff rate on imports from Canada was 4.2%, up from 3.2% in August, partly reflecting the new Section 338 tariffs. The total U.S. average effective tariff rate declined to 6.5% from 6.8% in August.

• The share of exports crossing the border duty-free is estimated at around 82% (down from 84.6% in August and 85.7% in July), largely due to duty-free trade exemptions under CUSMA.

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About the authors:

Salim Zanzana is an economist at RBC. He focuses on emerging macroeconomic issues, ranging from trends in the labour market to shifts in the longer-term structural growth of Canada and other global economies. 

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