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Economic News

Canada: Surprise February Trade Deficit as Tariffs Loom Large

April 3, 2025
LJ Valencia
Economic Analyst

Highlights

  • Canada’s international merchandise trade balance fell to a $1.5B deficit in February (graph 1). This was significantly below the consensus expectation of a $3.5B surplus. See table for more details.
  • Goods exports were down 5.5% m/m in February, while imports rose by a more modest 0.8% for a fifth consecutive monthly advance. In real terms, exports declined 4.6% while imports grew by 0.3%.
  • Canada’s trade surplus with the US decreased from a record $13.7B to $10.6B in February, coinciding with tariff threats on US goods imports (graph 2). Meanwhile, the trade deficit with countries other than the United States widened significantly from $10.6B to a record high of $12.1B in the month.
  • The services trade deficit widened further in February as well, to $689M. Service exports fell by 1.6%, largely due to lower receipts of passenger fares pushing down exports of transportation services, while service imports declined by a more modest 0.8%.

Comments

Tariffs are the big story in February trade numbers, with export and import numbers showing increased volatility.

In contrast to our expectations of inventory stockpiling by US firms, 10 out of 11 export categories experienced a decline in February. Energy exports fell the most (-6.3% m/m) with lower shipments to US and foreign markets. After reaching its highest level since 2000 in January, motor vehicles and parts exports also fell (8.8%), likely a reflection of tariff uncertainty. Metal and non-metallic mineral exports declined (6.6%) after four consecutive monthly gains, due to lower exports of unwrought gold, steel and iron products to the US and the UK.

On the import side, Statistics Canada again noted that the CBSA's Assessment and Revenue Management (CARM) initiative may significantly revise import values from October 2024 to February 2025, so import data should be viewed cautiously. That said, the largest contributor was the imports of motor vehicle parts (+5.8%), a sign that the Canadian auto manufacturing sector increased imports of US goods likely in response to tariff threats. 

Implications

Canada posted a surprise $1.5B trade deficit in February, with Canadian firms increasing imports before retaliatory tariffs take effect. Consequently, net exports are expected to subtract -0.8 percentage points to Q1 growth, leading to annualized real GDP growth of around 2%. This is in line with the Bank of Canada's January Monetary Policy Report forecast, with weak domestic demand and trade offset by inventory accumulation.

February’s trade data is a worrying sign given increased trade tensions with the US. Looking ahead, we expect current tariffs and ongoing threats to heighten trade volatility, heavily influencing growth and the decisions of Canadian central bankers. Indeed, our latest Economic and Financial Outlook External link. points to a likely recession in Canada in 2025, starting as early as the second quarter, as a result of falling exports to the US combined with weak consumption and business investment. 

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.