Trade finds its footing again, even as domestic engine idles

Canada’s September trade data delivered a sharp and headline-grabbing swing back into surplus. On the surface, the move from a $6.4 billion deficit in August to a modest $153 million surplus looks dramatic. Underneath, the details tell a more nuanced and more constructive story: what we are seeing is less a sudden boom and more a tentative stabilization after months of disruption tied to tariffs, supply chain realignments, and geopolitical noise that intensified in the spring.

Exports rose 6.3% month over month in September, while imports fell 4.1%. In volume terms, exports more than reversed August’s decline, and imports contracted meaningfully. Volatility remains high, but the direction is notable. Trade flows are beginning to normalize at the margin, even if the underlying drivers are uneven.

This matters because net trade once again did most of the heavy lifting for growth in the third quarter. The 2.6% annualized increase in Q3 GDP was entirely explained by trade, with domestic demand flat. At first glance, that composition looks fragile. But the newly released September data suggests that the contribution from net trade was likely understated in the initial GDP estimate. Export volumes rose at a 3.3% annualized pace in Q3, far stronger than the 0.7% increase embedded in last week’s GDP report, which had to rely on placeholders due to missing U.S. customs data during the government shutdown.

The implication is that trade was not just a technical support to growth, but a genuine source of momentum as the quarter closed.

Diversification Is Doing Real Work

One of the most encouraging signals in the September report sits in the geography of exports. While shipments to the United States rebounded 4.6% from August, they remain down 5.6% from a year earlier, and year-to-date exports south of the border are still running nearly 4% below last year’s pace. That drag has not disappeared.

What has changed is the performance elsewhere. Exports to non-U.S. markets jumped 11% month over month and were up 18.6% year over year. This is not a one-off statistical quirk. It reflects a broader pattern of Canadian exporters finding alternative demand, helped by commodity exposure, improving logistics, and a gradual reorientation toward global rather than purely continental trade flows.

From a labour market perspective, this diversification matters more than the headline surplus. Jobs tied to export activity are more likely to stabilize when firms are not wholly dependent on a single trading partner. It also broadens the regional and sectoral footprint of hiring, particularly in resource extraction, metals processing, transportation, and export logistics.

Tariffs Hurt, but They Are Not Paralyzing Trade

U.S. tariffs continue to weigh on specific industries, particularly autos, steel, and aluminum. Yet the September data shows that most Canadian goods are still crossing the border without duties. 86% of exports to the United States remained duty free, unchanged from August. The effective U.S. tariff rate on Canadian imports held at 3.9%, well below the 10.7% average applied to all U.S. imports.

This distinction is important. Tariffs are painful where they apply, but they are not choking off trade in aggregate. In fact, some tariff-targeted sectors are showing signs of adaptation. Aluminum exports rose sharply for a second consecutive month, climbing nearly 19%, while copper exports edged higher after a steep August decline. Unwrought copper, nickel, gold, and silver all rebounded by more than 30% from August, reversing prior volatility.

For employment, this suggests that while certain plants and sub-industries remain under pressure, the broader industrial base is not collapsing. Stabilization in metals and mining supports employment in regions that had been bracing for deeper pullbacks earlier in the year.

Energy and Extraction Continue to Anchor Export Growth

Crude oil exports rose 5.8% in September, marking the fifth straight monthly increase. This aligns with earlier GDP data pointing to stronger oil and gas extraction activity. Energy continues to act as a ballast for Canadian trade and, by extension, for employment in Western Canada and associated service industries.

These gains are not without risk. Energy-driven trade growth is capital intensive and does not always translate into large net job creation. Still, it supports income, investment, and downstream activity that feeds into construction, maintenance, and professional services.

Imports Signal a Pause in Investment Appetite

The flip side of the trade rebound is the weakness in imports. While a large portion of September’s decline was driven by a sharp correction in unwrought gold imports following an August spike, the drop in industrial machinery and equipment is more concerning. Imports of industrial equipment fell 5.2% month over month and were down 4.5% from a year earlier.

This category is one of the clearest indicators of business investment intentions. Persistent softness here points to caution among firms, even as export demand improves. For the labour market, that suggests hiring may remain selective. Firms appear willing to work existing capacity harder before committing to new capital or significant workforce expansion.

A Trade-Led Cushion for the Labour Market

Despite flat domestic demand in Q3, consumer spending appears to be holding up better than feared early in Q4, and labour market conditions have improved. The unemployment rate fell sharply in November, reinforcing the view that the economy has avoided a more severe downturn.

Trade is playing a quiet but important role in that resilience. Export growth supports production schedules, preserves jobs in exposed sectors, and reduces the need for aggressive cost cutting. It does not yet signal a hiring boom, but it does reduce downside risk.

Looking ahead, uncertainty around Canada’s long-term trade relationship with the United States remains a significant overhang. Slower population growth will also weigh on aggregate demand, and weak productivity growth continues to limit how much output can expand without stoking inflation.

Still, absent another external shock, the direction of travel has improved. Trade is stabilizing, diversification is providing real offsets, and labour markets are no longer deteriorating. In that context, the case for further Bank of Canada rate cuts looks weak. The economy is not overheating, but it is no longer clearly underperforming either.

For employers and staffing firms, this environment points to a year defined less by contraction and more by uneven opportunity. Trade-exposed sectors are regaining their footing, while domestically focused industries remain cautious. The surplus itself may be small, but the signal behind it is larger. Canada’s external engine is running again, even if the rest of the machine is still warming up.