Canada's trade deficit narrowed to $5.9B in May, but impacts of trade war continue

Canada's merchandise trade deficit narrowed to $5.9 billion in May, according to data from Statistics Canada, after hitting a record high in April.

The country's exports rose by 1.1 per cent, after falling steeply by 11 per cent the month prior. It also marked the first increase in exports in four months.

But exports to the United States dipped by 0.9 per cent in May, as U.S. President Donald Trump's trade war continued to impact business between the countries. Canada's share of total exports headed to the U.S. was 68.3 per cent — one of the lowest proportions on record between the major trading partners.

Overall, imports were down for the third month in a row, falling by 1.6 per cent, according to Statistics Canada. The amount of American-made products the country imported fell by 1.2 per cent as well.

While exports to the U.S. were down, trade to other countries was up. Canada sent 30.1 per cent more unwrought gold, silver and platinum group metals to other countries, including the United Kingdom, for example, and 13.3 per cent more meat products to Japan.

A sharp rise in mineral product exports overall helped pull the overall number of exports up. On the other hand, imports of motor vehicles and parts, which saw a big drop last month, continued to dip by 5.3 per cent in May.

In April, Canada's trade deficit had ballooned to more than $7 billion, from $2.3 billion in March.

While the May figure is an improvement from the month prior, Andrew DiCapua, principal economist for the Canadian Chamber of Commerce, says bouncing back won't be simple, and exports could fall again in the months to come.

"The worst may be behind us, but the road back will likely be uneven," DiCapua said in an emailed note.

Shelly Kaushik, a senior economist at BMO, agrees. She points out the trade deficit is still elevated — and that will continue to have impacts on the economy.

"While the trade figures improved a bit ... the deep shortfall highlights the uncertainty facing Canadian importers and exporters," Kaushik said in a note.

"President Trump and Prime Minister Carney are aiming to reach an agreement in the coming weeks; in the meantime, expect the challenging trade environment to continue weighing on economic activity."