Trade war clouds are looming over Canada this summer.

Data released by Statistics Canada on Thursday showed that exports to the US fell 6.6% month-on-month in July, the largest monthly decline since April 2025.

The share of exports to the US dropped to 66.3% of total exports, the lowest since 1997. The decline was mainly driven by a slump in gold and energy exports, with non-monetary gold, silver, platinum, and their alloys falling 13.1%, and energy exports down 4.4%, marking a third consecutive monthly decline.

Overall, Canada's exports to the world fell 2.3% while imports rose 2.2%, narrowing the trade surplus to C$769 million (approximately US$557 million).

Parallel to the inflection point in the data were two decisions made by the Carney government in early July: building a new oil pipeline from the oil sands region to ports in the Vancouver area, and awarding the contract to build a new naval submarine fleet to a German-Norwegian consortium.

Coupled with the retaliatory tariffs set to take effect on September 8, US-Canada trade relations are moving from verbal friction into a phase of structural adjustment.

Mixed export data, gold volatility distorts the real picture

Statistics Canada reported Thursday that exports to the US fell 6.6% in July, the largest monthly drop since April. The share of exports to the US fell to 66.3% of the total, hitting a near three-decade low (excluding the pandemic period), suggesting Canada is diversifying its export markets to some extent.

However, this figure needs to be interpreted with caution. According to Bloomberg reports, significant swings in gold exports may have exaggerated the magnitude of the decline in exports to the US.

Exports of unrefined gold, silver, platinum group metals, and their alloys dropped 13.1%, mainly due to reduced purchases of Canadian gold by foreign residents and lower shipments to the US, with falling gold prices over the same period also having a drag effect.

Energy exports declined for a third straight month, down 4.4% in July, as both crude oil prices and export volumes moved lower.

Overall, total exports to all markets fell 2.3% in July while imports grew 2.2%, causing the trade surplus to narrow sharply to C$769 million from previous levels. The increase in imports was partly driven by computer components needed for data centers, with Canadian imports from the US having set a record high in June.

Trade talks collapse, relations deteriorate sharply

US-Canada trade negotiations formally broke down this summer, triggering an escalating spiral of retaliatory tariffs and verbal clashes between the two sides.

On August 27, US President Trump announced he was renaming Lake Ontario the "American Lake" effective immediately, signing related executive orders. Lake Ontario is one of North America's Great Lakes, located on the border between the US and Canada, bordering Ontario to the north and New York State to the south.

Trump also attacked Canada again that day, claiming Canada has long been "taking advantage of" the US, and stating Canada wants to "be treated like a state, not as a country." When discussing the automotive industry, Trump said: "We don't want Canada to build cars for the US." He also said tariffs on Canadian-made cars are "very high" and accused Canadian officials of being "very bad to the US."

Ontario Premier Doug Ford compared Trump to a "schoolyard bully" and made disparaging remarks on a live broadcast; Trump fired back on Truth Social, saying Ford lacks the charisma and intelligence of his late brother, former Toronto Mayor Rob Ford.

Canadian Prime Minister Carney has adopted a restrained but firm stance. He said this week: "When Americans stop posting memes, stop pouring cold water, and stop posturing, and sit down seriously to negotiate, we're ready to talk anytime."

The spillover effects of this diplomatic friction are already visible. Canada's retaliatory tariffs are scheduled to take effect on September 8, bringing another round of stress tests to bilateral trade relations.

Strategic pivot: pipelines, submarines, and Asian market expansion

Facing economic and security pressure from the US, the Carney government made a flurry of moves in early July.

The Canadian government announced the construction of a new oil pipeline from the oil sands to ports in the Vancouver area, designating state-owned enterprise Trans Mountain as the builder, with the goal of channeling more of Alberta's energy resources to Asian markets and reducing dependence on the US, its largest buyer.

At the same time, the government selected a German-Norwegian joint proposal for the construction contract of a new naval submarine fleet. This move is part of Canada's accelerated efforts to boost defense spending after prolonged criticism from the US, with defense spending as a share of GDP only recently reaching NATO's 2% target.

Both projects represent long-term strategic deployments, reflecting Canada's policy direction of reducing dependence on the US in both trade and security dimensions.