Canada’s merchandise trade deficit widened in August to $6.32-billion as exports fell faster in both value and volume than the rise in imports on a monthly basis, official government statistics showed on Tuesday.
The trade deficit in August was led by drop in exports not only to its top trading partner the U.S. but also because its shipments to the rest of the world shrank in the month.
Canada’s international trade numbers took a beating early this year as U.S. President Donald Trump imposed sectoral tariffs on the country, forcing businesses to reorient supply chain from its biggest trading partner. But the shift has been volatile and erratic.
Analysts polled by Reuters had forecast the August trade deficit at $5.55-billion, up from a upwardly revised $3.82-billion in the prior month.
Total exports dropped by 3 per cent while imports increased 0.9 per cent, Statscan said.
In August, exports to the U.S. were at $44.18-billion, down 3.4 per cent from July, StatsCan said, adding it was primarily led by unwrought gold exports. But even other product categories contributed to the decline including lumber, machinery and equipment.
Canada’s share of exports to the U.S. has been volatile but gradually shrinking. It had fallen below 70 per cent a few months ago before recovering to 73 per cent in August as compared with 75 per cent during the same period last year.
Prime Minister Mark Carney will be meeting with Trump on Tuesday as he comes under pressure to address the impacts of U.S. tariffs on critical sectors such as steel, cars and lumber. But experts have warned against the likelihood of any major deal.
Imports from the U.S. were down 1.4 per cent in August on a monthly basis, shrinking the total trade surplus with its southern neighbor to $6.43-billion from $7.42-billion in July.
Exports to countries other than the United States were down 2 per cent in August, a third consecutive monthly decline, Statscan said. Lower exports of crude oil and nuclear fuel contributed the most to the monthly decrease.
However, its imports from the rest of the world barring the U.S. rose 4.2 per cent, reaching a record in August, Statscan’s data showed, pushing Canada’s trade deficit with countries other than the United States to a record high of C$12.8 billion in August from $11.2-billion in July, Statscan said.
Oil prices rose more than 1 per cent on Monday after OPEC+’s planned production increase for November was more modest than expected, tempering some concerns about supply additions, though a soft outlook for demand is likely to cap near-term gains.
Brent crude futures climbed nearly US$1, or 1.5 per cent, to US$65.52 a barrel by 09:05 GMT, while U.S. West Texas Intermediate crude was at US$61.83, up 95 cents US, or about 1.6 per cent.
“The market was expecting a somewhat larger increase from OPEC+ as shown in the structure last week,” said Janiv Shah, an analyst at Rystad.
“However the modest 137,000 bpd (barrels per day) bloats the already-oversupplied balance for the fourth quarter of 2025 and 2026.”
On Sunday, the Organization of the Petroleum Exporting Countries plus Russia and some smaller producers said it would raise production from November by 137,000 bpd, matching October’s figure, amid persistent concern over a looming supply glut.
In the run-up to the meeting, sources said although Russia was advocating for an increase of 137,000 bpd to avoid pressuring prices, Saudi Arabia would have preferred double, triple or even four times that to quickly regain market share.
The modest production update also comes at a time of rising Venezuelan exports, the resumption of Kurdish oil flows via Turkey, and the presence of unsold Middle Eastern barrels for November loading, PVM Oil Associates analyst Tamas Varga said.
Saudi Arabia kept unchanged the official selling price for the Arab Light crude it sells to Asia.
While refining sources in Asia surveyed by Reuters had expected a slight increase, those expectations diminished as concerns about rising Middle Eastern crude supply felled the premium to a 22-month low last week.
In the near term, some analysts expect the refinery maintenance season starting soon in the Middle East to also help cap prices.
Rystad’s Shah added that Chinese stockpiling of oil, along with the geopolitical risk premiums and inefficient trade routes and sanctions, were also supporting the benchmarks.
Expectations of weak demand fundamentals in the fourth quarter are another factor limiting the market’s upside.
U.S. crude oil, gasoline and distillate inventories rose more than expected in the week ended September 26 as refining activity and demand softened, the Energy Information Administration said last week, with total product supplied – a proxy for demand – falling by 627,000 barrels per day in that week.
“If we see a steadier rise in production then the downside in oil prices may be contained. Much now depends on whether the U.S. economy can reaccelerate over the rest of 2025 and into 2026, which would help demand immensely,” said Chris Beauchamp, chief market analyst at IG Group.
Gold prices touched an all-time high on Monday, soaring above the US$3,900-per-ounce level, as investors flocked to safe-haven bullion amid the U.S. government shutdown, broader economic uncertainty and prospects of further Federal Reserve rate cuts.
Spot gold was up 1.5 per cent at US$3,942.59 per ounce, as of 09:10 GMT, after hitting US$3,949.34 earlier in the session.
U.S. gold futures for December delivery climbed 1.5 per cent to US$3,967.10.
Washington will start mass layoffs of federal workers if U.S. President Donald Trump decides negotiations with congressional Democrats to end a partial government shutdown are “absolutely going nowhere,” a senior White House official said on Sunday.
“Appetite for gold remains heavily stimulated by the ongoing U.S. government shutdown,” said Lukman Otunuga, senior research analyst at FXTM.
“There may be some FOMO buying on the current price but for others there is likely a sense that this particular financial lifeboat has sailed,” said independent analyst Ross Norman.
Gold has climbed nearly 50 per cent so far this year, underpinned by strong central bank buying, increased demand for gold-backed exchange-traded funds, a weaker dollar and growing interest from retail investors seeking a hedge amid rising trade and geopolitical tensions.
This rally, characterized by low participation and primarily driven by central banks with a long-term outlook and steady investors rather than speculative buyers, indicates that any pullback might be milder than expected, Norman said, adding that this could present a buying opportunity on dips while the rally maintains its momentum.
Alternative data from both public and private sources indicate signs of weakness in the U.S. labor market amid the government shutdown.
Investors are now pricing in a 25-basis-point cut at the Fed meeting this month, with an additional 25 bp cut anticipated in December.
“We see both fundamental and momentum-based reasons for gold to rally further, and now expect bullion to reach $4,200/oz by the end of this year,” UBS said in a note.
Non-yielding gold thrives in a low-interest-rate environment and during economic uncertainties.
Spot gold broke the US$3,000-per-ounce level for the first time in March.
Many brokerages have turned bullish on the rally.
Spot silver climbed 1.5 per cent to US$48.68 per ounce, hitting its highest level in more than 14 years. Platinum rose 0.5 per cent to US$1,613.75 and palladium gained 0.7 per cent to US$1,269.06.
Prime Minister Carney meets U.S. President Trump in Washington
830 am ET: Canada merchandise trade balance for August. Consensus is for a deficit of $5.7 billion
830 am ET: U.S. goods and services trade balance for August. A $61.0 billion deficit is expected (tentative)
10 am ET: Canada’s Ivey PMI for September
Several Fed members expected to speak throughout the day
Earnings include: McCormick & Co. Inc.
—
Wednesday October 8
2 pm ET: FOMC minutes from Sept. 16-17 policy meeting
Several Federal Reserve members scheduled to speak during the day
Earnings include: Trilogy Metals Inc.
—
Thursday October 9
8 am ET: Bank of Canada senior deputy governor Rogers speaks in Toronto
830 am ET: U.S. initial jobless claims for last week (tentative)
830 am ET: Fed Chair Powell gives pre-recorded welcome remarks at the Fed’s Community Bank Conference
Several Fed members expected to speak during the day
Earnings include: Aritzia Inc.; Delta Air Lines Inc.; Louis Vuitton ADR; PepsiCo Inc.; Progressive Corp.; Tilray Inc.
—
Friday October 10
830 am ET: Canada employment report for September. Consensus is for a net loss of 2,500 jobs, an improvement from August’s decline of 65,500 jobs. The unemployment rate is expected to rise to 7.2% from 7.1%. Average hourly earnings are expected to be up 3.2% from a year earlier, a steady reading.
10 am ET: University of Michigan consumer sentiment for October, which is expected to see a modest improvement from last month.
2 pm ET: U.S. budget balance (tentative)
Earnings include: BlackRock Inc.; MTY Food Group Inc.
U.S. President Donald Trump on Thursday took aim at a broad range of imported goods in announcing a new round of punishing tariffs, saying the U.S. will impose 100 per cent duties on imported branded drugs, 25 per cent tariffs on heavy-duty trucks and 50 per cent tariffs on kitchen cabinets.
Trump has launched numerous national security probes into potential new tariffs on a wide variety of products during his second term, casting a shadow over the global economic outlook and paralyzing business decision-making.
Trump also said he would start charging a 50 per cent tariff on bathroom vanities and a 30 per cent tariff on upholstered furniture next week, with all the new duties to take effect from October 1.
The new 100 per cent tariff on any branded or patented pharmaceutical product will apply to all imports unless the company has already broken ground on building a manufacturing plant in the United States, Trump said.
He said the new heavy-duty truck tariffs were to protect manufacturers from “unfair outside competition” and said the move would benefit companies such as Paccar-owned Peterbilt and Kenworth and Daimler Truck-owned Freightliner.
The new tariffs on kitchen, bathroom and some furniture were because of huge levels of imports which were hurting local manufacturers, Trump said.
“The reason for this is the large scale “FLOODING” of these products into the United States by other outside Countries,” Trump said on Truth Social.
The Pharmaceutical Research and Manufacturers of America opposed new drug tariffs, saying earlier this year that 53 per cent by value of the US$85.6-billion in ingredients used in medicines consumed in the United States was manufactured in the United States with the remainder from Europe and other U.S. allies.
The U.S. Chamber of Commerce urged the department not to impose new truck tariffs, noting the top five import sources are Mexico, Canada, Japan, Germany, and Finland “all of which are allies or close partners of the United States posing no threat to U.S. national security.”
Mexico is the largest exporter of medium- and heavy-duty trucks to the United States. A study released in January said imports of those larger vehicles from Mexico have tripled since 2019.
Higher tariffs on commercial vehicles could put pressure on transportation costs just as Trump has vowed to reduce inflation, especially on consumer goods such as groceries.
Tariffs could also affect Chrysler-parent Stellantis which produces heavy-duty Ram trucks and commercial vans in Mexico. Sweden’s Volvo Group is building a US$700-million heavy-truck factory in Monterrey, Mexico, due to start operations in 2026.
Mexico is home to 14 manufacturers and assemblers of buses, trucks, and tractor trucks, and two manufacturers of engines, according to the U.S. International Trade Administration.
The country is also the leading global exporter of tractor trucks, 95 per cent of which are destined for the United States.
“We need our Truckers to be financially healthy and strong, for many reasons, but above all else, for National Security purposes!,” Trump added.
Mexico opposed new tariffs, telling the Commerce Department in May that all Mexican trucks exported to the United States have on average 50 per cent U.S. content, including diesel engines.
Last year, the United States imported almost US$128-billion in heavy vehicle parts from Mexico, accounting for approximately 28 per cent of total U.S. imports, Mexico said.
The Japanese Automobile Manufacturers Association also opposed new tariffs, saying Japanese companies have cut exports to the United States as they have boosted U.S. production of medium- and heavy-duty trucks.
U.S. consumer spending increased slightly more than expected in August as households went on vacation and dined out, keeping the economy on solid ground as the third quarter progressed, while inflation continued to steadily pick up.
The report from the Commerce Department on Friday suggested the economy has so far retained most of its momentum from the April-June quarter. Signs of the economy’s resilience evident in other data this week showing low layoffs and strong demand by businesses for equipment would argue against the Federal Reserve cutting interest rates again this year.
But the hiring side of the labor market is struggling, with job growth almost stalling in the last three months amid a lingering drag from trade policy uncertainty as well as an immigration crackdown that has reduced the supply of workers.
“There is no support in this report for (Fed Governor) Stephen Miran’s suggestions that policy interest rates have to be cut right away, and by a lot,” said Carl Weinberg, chief economist at High Frequency Economics. “Indeed, there is no recommendation in these numbers for any easing of monetary conditions at all!”
Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.6 per cent last month after an unrevised 0.5 per cent advance in July, the Commerce Department’s Bureau of Economic Analysis said. Economists polled by Reuters had forecast consumer spending increasing 0.5 per cent.
Spending was boosted by outlays on services like transportation, which includes airline travel. Consumers frequented restaurants and bars, and also stayed at hotels and motels. They also boosted spending on recreation services.
Outlays on financial services and insurance rose as did those on healthcare, housing and utilities. Spending on services advanced 0.5 per cent, matching July’s gain.
Households also bought recreational goods and vehicles, clothing and footwear, and spent more on gasoline and other energy goods as well as food and beverages. Goods outlays shot up 0.8 per cent after rising 0.6 per cent in July.
Spending has marched ahead despite the significant slowdown in the labour market. Consumption is being driven by high-income households as a robust stock market and still-elevated home prices boost their wealth. Fed data this month showed household wealth jumped to a record US$176.3 trillion in the second quarter.
But lower-income households are struggling, and bearing a large share of the burden from higher prices on goods from import tariffs. More pain lies ahead when cuts to the federal government’s Supplemental Nutrition Assistance Program, commonly known as food stamps, take effect.
The dollar slipped against a basket of currencies. U.S. Treasury yields were little changed.
Economists expect spending will slow
Personal income rose 0.4 per cent last month after a similar gain in July. A 0.6 per cent increase in government transfers accounted for much of the rise in income, with wages rising only 0.3 per cent.
Strong consumer spending contributed to gross domestic product growing at a 3.8-per-cent annualized rate in the second quarter, the fastest in nearly two years. Before the consumer spending data, the Atlanta Fed was forecasting GDP rising at a 3.3-per-cent rate in the third quarter.
Economists expect spending to slow considerably by the end of the year, undercut by higher prices.
Inflation rising steadily
Though there has not been a broad rise in inflation, there has been a surge in prices of some goods exposed to tariffs. Businesses have been selling inventory accumulated before President Donald Trump’s sweeping tariffs kicked in, preventing inflation from spiraling.
Producers have also been absorbing some of the duties. Economists, however, do not expect this trend to continue indefinitely and expect businesses will at some point pass on the tariffs to consumers on a wider scale. Inventories were drawn down in the second quarter.
The Personal Consumption Expenditures (PCE) Price Index increased 0.3 per cent in August after gaining 0.2 per cent in July, the BEA said. In the 12 months through August, the PCE Price Index advanced 2.7 per cent. That was the biggest year-on-year increase since February and followed a 2.6-per-cent rise in July.
Excluding the volatile food and energy components, the PCE Price Index rose 0.2 per cent last month after increasing 0.2 per cent in July. In the 12 months through August, the so-called core inflation index increased 2.9 per cent after rising 2.9 per cent in July.
The Fed tracks the PCE price measures for its 2-per-cent inflation target. The U.S. central bank last week resumed policy easing, cutting its benchmark overnight interest rate by 25 basis points to the 4.00 per cent-4.25 per cent range.
Fed Chair Jerome Powell said this week that “near-term risks to inflation are tilted to the upside and risks to employment to the downside – a challenging situation.”
Real gross domestic product grew in July for the first time in four months andby slightly more than expected, suggesting the economy will likely avoid a recession this year as U.S. tariffs batter key Canadian sectors.
Statistics Canada reported Friday that the 0.2-per-cent increase in real GDP was largely driven by growth in good-producing industries. The mining, quarrying and oil and gas extraction sector led growth in July, expanding by 1.4 per cent.
The federal agency’s advance estimate for August indicates the economy was unchanged that month.
The rebound in growth in July, along with the August estimate, suggest the economy expanded in the third quarter. That follows a 1.6-per-cent annualized contraction in the second quarter as the U.S. imposed steep tariffs on its trading partners.
“Growth in Canada’s tariff-impacted industries contributed most to July’s brighter-than expected print. Stabilization across these sectors underpins our view that GDP growth in the third quarter is set to recover modestly after last quarter’s trade-driven contraction,” wrote TD economist Marc Ercolao in a client note.
Auto manufacturing expanded, iron and steel declined as tariffs bite
Motor vehicle parts and motor vehicle manufacturing expanded by 10.5 per cent and 9.1 per cent respectively in July, which coincided with an increase in exports of those goods that month, the Statscan report noted.
However, activity in iron and steel mills and ferro-alloy manufacturing was down by about 25-per-cent since February, before the U.S. imposed a 25-per-cent tariff on steel imports in March.
The industry group in July experienced its steepest decline since April 2020, contracting by 19.1 per cent after U.S. President Donald Trump doubled the tariff rate to 50 per cent in June.
How GDP figures might affect Bank of Canada interest rates
CIBC senior economist Andrew Grantham said the economy is tracking for 0.8-per-cent annualized growth in the third quarter, which is stronger than previously expected but lower than the Bank of Canada‘s forecast in July.
“We think that a further interest rate cut is still warranted, and continue to forecast a move at the October meeting, although upcoming employment and CPI data remain important to that call,” Mr. Grantham wrote in a client note.
The Bank of Canada cut its key interest rate by a quarter of a percentage point last week for the first time in six months, in response to weakening economic conditions.
Governor Tiff Macklem offered no hints about where interest rates are headed next, despite an expectation amongst analysts that the central bank may have to cut again this year to give the economy a boost.
Mr. Macklem instead emphasized the ongoing uncertainty looming over the economy and said the central bank will be less forward-looking for that reason.
The outcome of the Bank of Canada’s next rate decision on Oct. 29 is up in the air.
Interest rate swaps, which capture market expectations of monetary policy, suggest there’s a 42-per-cent chance that the central bank cuts again by a quarter-percentage-point, according to Bloomberg data as of Friday morning, shortly after the GDP release.
However, with a slew of economic data being released over the coming month – including labour and inflation figures – rate expectations are poised to shift.
The Bank of Canada’s key interest rate now stands at 2.5 per cent.
U.S. tariff negotiations crucial to Canada’s economic outlook
The federal government’s ability to secure any tariff relief from the Trump administration will play a key role in the economic outlook moving forward.
The US. continues to impose 50-per-cent tariffs on all steel and aluminum imports.
The automotive industry faces a 25-per-cent tariff (with a carve-out for the value of U.S. auto parts in Canadian-made vehicles).
U.S. President Donald Trump on Thursday expanded his list of tariffs to include heavy-duty trucks, various home goods and pharmaceuticals, taking effect on Oct. 1
