‘ Canada has arrived at one of those rare historical watersheds where there is broad political consensus on how to meet our continental and global economic challenges,’ write Jacquie LaRocque and Ken Polk.

Canada spread its export wings in May but the U.S trade war continued to darken the economic horizon.

The portion of overall exports going to the U.S. declined sharply to 68.3% in May, one of the lowest proportions on record, from an average 75.9% in 2024, Statistics Canada reported this week.

Total exports increased by 1.1% in May to $60.8 billion as shipments of metal and non-metallic mineral products increased 15.1%. That upsurge was attributable to a 30.1% hike in exports of unwrought gold, silver and platinum group metals and their alloys — a category largely comprising unwrought gold. Most of that was headed to the UK, StatsCan said. The agency also cited higher shipments of crude oil to Singapore and aluminum and pharmaceuticals to Italy. These balanced a drop in sales to China.

Mixed signals

Still, it was a month of mixed economic signals as the federal government and business tried to adjust to the impact from President Donald Trump’s fluctuating tariff policies against Canadian products. Much now hinges on Carney’s negotiations with Trump over the next several weeks as the agreed-upon deadline for reaching a deal on July 21 nears.

Despite last month’s uptick in exports to non-U.S. countries, Canada posted a $5.9 billion merchandise trade deficit, which was a substantial reduction from the record $7.6 billion revised shortfall in April, but still the second-largest ever gap ever. Continuing damage to Canadian manufacturing was felt in particular in the economically crucial auto sector, which saw exports of vehicles and parts drop by 8.4 per cent on a year-over-year basis in May.

Economists welcomed the signs of export diversification but stressed that Canada’s dependence on the U.S. market still dominates the economic picture. The economy performed relatively well in the early months of the year as businesses hurried to beat threatened tariffs, but conditions have worsened as the levies began to bite this spring, with GDP registering a 0.1 per cent decline in April and early estimates suggesting a similar underperformance in May.

Little relief

“While the trade figures improved a bit in May from a tough April, the deep shortfall highlights the uncertainty facing Canadian importers and exporters,” BMO Senior Economist Shelly Kaushik wrote in a report. “Exports are likely to face continued pressure with steel and aluminum tariffs doubling in June and little relief from a modest recovery in oil prices.”

The Canada-U.S. trade negotiations between Carney and Trump seemed to be back on the rails this week after Carney, facing an ultimatum from Trump, scrapped Ottawa’s Digital Services tax that would have covered large U.S. tech firms like Google and Facebook.

Carney defended the decision as "part of a bigger negotiation" with the Trump administration, but the prime minister was heavily criticized for what many saw as a weak response that gave away a Canadian bargaining chip with nothing in return.

“As recently as two days ago, the finance minister insisted the digital services tax would proceed,” Conservative leader Pierre Poilievre wrote in a post on X. “Then the prime minister put his elbows down and cancelled the tax at the 11th hour.”