Canada’s trade surplus with U.S. records biggest monthly jump as exporters front-run tariffs

Canada’s merchandise trade surplus rose to $4.2 billion in August, up from $787 million in July, as exporters rushed orders to the United States ahead of new tariffs. Statistics Canada said Tuesday that August was the sixth straight monthly trade surplus.

Total exports increased 2.5 per cent to $77.9 billion for the month. Energy product exports rose 4.7 per cent, the first increase since April. Excluding energy, exports were up 1.8 per cent.

Imports fall as U.S. shipments jump

Total imports fell 2 per cent in August to $73.7 billion, the first decline since January. Imports of motor vehicles and parts dropped 8.8 per cent.

Exports to the United States rose 8.1 per cent in August, while imports from the U.S. dropped 2.5 per cent. That widened Canada’s trade surplus with the United States to $11.2 billion from $6.1 billion in July.

StatCan said: “This is the largest positive monthly change ever observed in Canada’s trade balance with the United States.” The agency suggested threats of new Section 338 tariffs from the United States may have fuelled a rush in orders from U.S. businesses trying to get ahead of higher duty payments.

Tariff deadline triggered rush

Trade talks between Canada and the United States broke down at the 11th hour. A range of exports were hit with 50 per cent tariffs starting Aug. 22.

Katherine Judge, senior economist at CIBC, said in a note to clients that the spike in U.S. exports came from firms front-running tariffs. The increase is therefore probably temporary and will unwind in September, she said.

Canada’s counter-tariffs against the United States came into effect on Sept. 8. That will likely see a flood of imports in the early days of the month.

“Canada’s trade position is likely to deteriorate and exports will remain under pressure in Q4 unless a trade deal with the U.S. is reached,” Judge said.

Limited spillover expected

The latest U.S. tariffs target roughly 5 per cent of Canada’s exports south of the border, at a value of around $28 billion. These tariffs do not include an exemption for compliance with the Canada-U.S.-Mexico agreement, unlike previous waves of U.S. duties.

RBC assistant chief economist Nathan Janzen said in a note that ongoing exemptions for other exports under CUSMA should keep economic damage contained.

“We continue to expect the new tariffs imposed by the U.S. administration will have a significant impact on directly targeted sectors but with more than 80 per cent of Canadian exports to the U.S. still maintaining duty-free access under CUSMA we expect limited spillover to the broader economy,” he said.