BMO Sees Further Challenges Ahead for Canada's Trade After August's Widening Deficit

10:11 AM EDT, 10/07/2025 (MT Newswires) -- Canada's merchandise trade deficit widened to $6.3 billion in August from a revised $3.8 billion -- previously $4.9 billion -- in July, said Bank of Montreal (BMO) after Tuesday's data.

Exports dropped 3.0% month over month, ending three months of recovery from the spring plunge. Most sectors posted declines, led by metal and non-metallic mineral products (-7.6% month over month, largely from a decrease in gold shipments), industrial machinery and equipment (-9.5%), and forestry products (-10.1% after the United States imposed higher duties on Canadian softwood lumber.

Notably, a 3.0% month-over-month increase in consumer goods exports bucked the trend, driven by a 22.2% surge in pharmaceutical and medicinal products -- perhaps front-running ahead of U.S. pharma tariffs, pointed out BMO.

Meantime, imports rose 0.9% month over month, with gold leaving its mark here as well (imports excluding metal and non-metallic mineral products were 1.0% lower).

In volume terms, exports fell 3.2% while imports edged up 0.2%. Even so, net exports are on track to modestly support growth in Q3 following a tough Q2, stated the bank.

Future releases could be impacted by the U.S. government shutdown since Statistics Canada uses U.S. customs data as an input, added BMO. Depending on how long the shutdown lasts, the September trade release could be postponed, which may affect the estimates in the Q3 gross domestic product report.

Separately, the services trade deficit was little changed at $300 million in August. Altogether, Canada's overall trade deficit deteriorated to $6.0 billion from $3.5 billion in July.

Looking through the noise, it's clear that Canadian trade flows continued to face tariff-related headwinds in August, according to the bank. The additional sectoral measures announced since then -- in other words, another tariff on lumber, pharmaceuticals, etc. -- point to further challenges in the months ahead.

All eyes remain on ongoing negotiations, highlighted by Prime Minister Mark Carney's visit to the White House on Tuesday.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.