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Canada has recorded its highest trade surplus in four years as escalating oil prices and new market opportunities for aluminum exporters have bolstered the economy. According to Statistics Canada, merchandise exports rose by 0.9 per cent in May, reaching an unprecedented $77.1 billion—the fourth consecutive month of growth. Concurrently, imports dipped by 0.2 per cent, resulting in a trade surplus of $4.2 billion, significantly up from an upwardly adjusted $3.4 billion in April.
Surging Exports and Trade Dynamics
The recent surge in Canada’s trade surplus marks the largest since May 2022 and the second highest since the summer of 2008, prior to the global financial crisis. Notably, the trade surplus with the United States expanded to $11.6 billion, up from $10.3 billion in April, representing the most substantial surplus since January 2025. This increase can be attributed to Canadian companies rushing to export goods ahead of potential tariffs during the previous U.S. administration.
A pivotal factor in the strong export performance has been the rise in global oil prices, driven by the ongoing conflict between the U.S. and Iran, which has restricted oil tanker traffic through the Strait of Hormuz. From February to May, Canadian exports soared by 22 per cent, reversing a significant trade deficit of $5.3 billion recorded in February and leading to three consecutive months of surpluses.
Price Increases Drive Export Growth
While the overall export figures are promising, much of the growth is attributed to inflated prices rather than an increase in shipment volumes. In real terms, exports were virtually unchanged in May. Robert Kavcic, a senior economist at the Bank of Montreal, commented, “Canadian trade surpluses can come and go quickly with swings in oil prices, and this is probably the high watermark for now. Still, net exports look to add firmly to growth in Q2, another data point that suggests the Canadian economy has snapped out of its two-quarter funk.”
Since the announcement of a peace agreement between Washington and Tehran in June, the price of West Texas Intermediate crude has fallen to approximately US$70 per barrel, a significant decrease from the US$90 to US$110 range observed in May. This shift led to a 2 per cent decline in Canadian energy exports in May compared to April. However, this drop was more than compensated for by a substantial 16 per cent increase in exports of metal ores and non-metallic minerals, particularly sulphur.
Aluminium Exports Reach New Heights
Aluminium exports have notably surged, climbing by 50.7 per cent to attain a value of $1.2 billion—the highest since May 2022. This spike has been largely driven by increased shipments to the Netherlands, Italy, and Greece. The aluminium sector has been significantly affected by U.S. tariffs and the geopolitical situation surrounding the Strait of Hormuz, where around 10 per cent of global aluminium production originates. The rise in aluminium prices this spring reflects these market disruptions.
Despite the promising figures in aluminium exports to Europe, signs of a successful diversification of trade away from the United States remain elusive. Exports to the U.S. grew by 1.5 per cent, marking the fourth monthly increase in a row, while exports to other global markets fell by 0.3 per cent following a sharp decline of 4 per cent in April. Recent trade diversification efforts have focused on gold, with increased shipments to the UK, but these have slowed in recent months.
Broader Economic Implications
Overall, exports increased across seven of eleven categories in May, including consumer goods, chemical products, and food items. Meanwhile, imports decreased by 0.2 per cent, primarily due to a notable decline in metal imports, such as gold, iron, and scrap metal. However, beyond the metals sector, imports rose in nine out of eleven categories.
Economic analysts at the Royal Bank of Canada have noted that trade dynamics are being influenced by ongoing uncertainties surrounding U.S. trade policy. Despite these challenges, they maintain a cautious optimism, expecting that trade will be less of a burden on Canadian growth than it was in 2025, especially as the international landscape stabilises. They also highlighted that recent joint reviews of the Canada-United States-Mexico Agreement (CUSMA) have not altered their outlook on North American trade, although the negotiations are likely to remain a source of uncertainty.
Why it Matters
The remarkable trade surplus not only signals a recovery from previous economic stagnation but also illustrates Canada’s adaptability in the face of global market changes. This robust performance is crucial for sustaining economic growth in the coming quarters, particularly as the country navigates ongoing geopolitical tensions and fluctuating commodity prices. The resilience shown in trade diversifications, especially in sectors like aluminium, presents opportunities for long-term economic stability, reinforcing Canada’s position in the global market.
