Statistics Canada (StatCan) released its international merchandise trade report for August yesterday, showing a much larger trade surplus than expected. Canada’s trade balance benefited by a sharp rise in exports, due in part to an increase in purchases from the US before new tariffs were expected to go into effect. Towards the end of August, Canada and the US failed to reach a trade deal, which resulted in the US putting new tariffs on Canada. Canada imposed retaliatory tariffs in early September.

Canada's trade surplus rose to $4.2 billion in August from $787 million in July, well above the $1.50 billion economists had expected, based on a Bloomberg survey. Exports rose 2.5% to $77.9 billion, led by energy products, while imports fell 2.0% to $73.7 billion.
Exports to the US jumped by 8.1% as businesses raced to purchase goods before new 50% US tariffs on roughly $28 billion of Canadian products took effect on August 22. That lifted Canada's surplus with the US to $11.2 billion, a 19-month high.
Canada’s imports dropped in August. Purchases of motor vehicles and parts declined sharply, falling by 8.8%. Imports from the US dropped by 2.5%. 
The US trade deficit widened.  The US trade deficit grew to US$105.6 billion in August from US$92.8 billion in July, as imports rose at a faster pace than exports. US imports reached a record high of US$420.8 billion.
Economists say next month's data should better reflect the new US tariffs, Canada's own counter-tariffs and the US ban on some Canadian goods that took effect in late September.

August's sharp improvement may overstate Canada's underlying export strength, since some shipments to the US were simply pulled forward with new tariffs coming into effect. That raises the risk of a payback in the months ahead, adding to pressure on tariff-exposed sectors and on an economy that was already flat in July.

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