MNI: Surprise Jump To Second-Largest Ever Canada Trade Deficit

Canada's trade deficit widened more than expected in August to the second largest on record with exports of metals and lumber hurt by U.S. tariffs, in new evidence of weakness in one of the areas central bank officials call vital to deciding whether to lower interest rates again this month. 

The deficit widened to CAD6.3 billion from July's CAD3.8 billion, Statistics Canada said Tuesday from Ottawa. That exceeds an economist consensus for CAD5.4 billion and approaches the April record of CAD7.5 billion. 

Exports fell 3% in August following three previous gains and imports rose 0.9%. Exports of industrial machinery, equipment and parts fell 10% in August, the first decline in four months. Lumber and other sawmill product shipments fell 25% to the lowest since May 2020 as the U.S. imposed a new tariff on that industry. 

The year-to-date shortfall is a record CAD29 billion, underlining the drag Bank of Canada officials say will limit growth to a 1% annualized pace in the second half of the year after a second-quarter GDP contraction. Bank Deputy Governor Rhys Mendes told MNI Thursday uncertainty from the trade war means officials must take a meeting-by-meeting approach, though economists surveyed by MNI on balance see another cut at one of the next few meetings. (See: MNI INTERVIEW: Further BOC Cut Unclear In Trade War Fog-Mendes) 

Prime Minister Mark Carney is visiting President Donald Trump around noon Tuesday, though there’s little sign of any breakthrough on the trade dispute. Trump has said tariffs on Canada are justified by illicit flows of migrants and drugs, though official figures from both countries show Canada makes up perhaps less than 1% of those flows.

The next trade report may be delayed because Canada uses some U.S. data that may be affected by their government shutdown, StatsCan said.