Statscan noted that exports to the US of Canadian steel products subject to the new tariffs plunged 37 per cent in June, after having surged 40 per cent over the prior three months. In volume terms, exports grew 2.1 percent.
"But the first indications for the month suggest that there could be some growth left to come in the second quarter, upgrading the odds of a likely Bank of Canada rate hike in the coming months".
On Friday, Trump's chief economic advisor Larry Kudlow told Bloomberg TV that the administration will keep pressing China for trade reform after China on Friday announced a list of $60 billion in USA goods that will be impacted by a new tariff.
Canada's trade gap narrowed dramatically in June, to its smallest in 17 months, as the country's exports surged to record levels even as protectionist trade clouds gathered.
Statistics Canada says the improvement was due to a 4.1 per cent increase in exports compared with May, to a record high $50.7 billion, mainly from higher exports of energy products and aircraft.
Exports to countries other than the United States increased 8.7 per cent in June to a record $13.6 billion.
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In May, a rush by Chinese importers to beat Beijing's looming counter-tariffs led to a surge in USA exports of crude oil and soybeans, temporarily driving down the deficit and boosting GDP growth in the April-June period.
As a result, the trade surplus with the United States grew to C$4.12 billion in June from C$3.33 billion in May.
The favourable economic outlook and rising interest rates in the US have sent the USA dollar index up 6.7 per cent since March 26, further dampening the global competitiveness of American goods. Aircraft exports alone were up 44.5 per cent to $984 million. Energy exports were up 7.1 per cent month over month, while energy imports were down 15.1 per cent.
"We thought steel and aluminum tariffs would be the story of this morning's trade report, but strong export growth in most other sectors swamped the impact of those new duties", said Josh Nye, senior economist at RBC Economics Research.
"The advance in real exports, coupled with the retreat in real imports in the second quarter should allow trade to add to GDP in Q2 after five negative contributions in a row". The report raised expectations for a Bank of Canada rate increase in September to 39 per cent, from 32 per cent yesterday and 12 per cent a fortnight ago. The central bank has raised its rates four times since the middle of previous year as the economy has been strengthening.
"The almost month-long burst of strength in the Canadian data brings some additional intrigue to the outlook for Bank of Canada policy, but there's still a long way until the next meeting in September", Bank of Montreal's Mr. Reitzes said.