Canada slipped into a trade deficit in February, despite exports and imports holding record levels.
Statistics Canada’s most recent report, released on Thursday, revealed that the trade deficit reached C$1.52 billion ($1.08 billion), reversing a considerable surplus of C$3.13 billion reported in January.
According to Reuters, market analysts had a positive trade outlook for Canada, calling for a C$3.55 billion surplus in February.
But the numbers pointed in almost the exact opposite direction, raising the need to reconsider both earlier bullishness about the market.
Such trade balance variation is significant and also reflects the changes in the rules of international trade that take place within the world economy.
After the trade data were released, the loonie moved up to $1.0682, as investors responded to the unexpected outcomes.
Trump tariff threats and their impact
Canadian trade has also been impacted by the recent tariffs imposed by US President Donald Trump on Canadian goods, including steel, aluminum, and automotive parts.
Though no fresh tariffs were imposed on Wednesday, the continued threat of potential retaliatory measures has driven businesses to build up inventories to protect against the risk of an upward shift in price.
The strategy looks like a hedge against the uncertainty surrounding trade relations between Canada and its most important trading partner.
However, the overall trade deficit ballooned even as the surplus with the US rose to a record high in January.
Three months of gains are a sign that Canadian exporters are adjusting to changes in trade policy, specifically with the US.
In February, exports to the US decreased by 3.6%, raising concerns about the sustainability of this trend.
Export and import trends
Statistics Canada reported a 5.5% fall in overall exports in February, totaling C$70.11 billion.
Notably, this amount remained the second-highest level of exports since May 2022, demonstrating resilience in the face of changing demand.
The reduction in exports affected ten of the eleven product categories, with energy items experiencing the largest drop of 6.3%.
This was the first dip in crude oil shipments since September 2024, driven mostly by lower world prices.
Furthermore, exports of motor vehicles and parts declined by 8.8%, albeit remaining higher than all except January’s results over the previous year.
Imports, on the other hand, increased for the sixth month in a row, up 0.88% to C$71.63 billion.
This increase can be ascribed to ongoing domestic demand and inventory adjustments in preparation for potential levies.
Imports from the United States increased by 2.5%, accounting for 63% of Canada’s total imports, highlighting the two economies’ interdependence despite tariff threats.
What’s next for Canada amid tariffs
The impending trade negotiations will compound the market pressures that the Canadian economy would otherwise have to contend with as it recovers.
This slowdown in trade in Canada is a combination of some tariff-related inventory make-up and changes in the Export/Import dynamic.
Following the trade report, the Canadian dollar rose 1.03% to 1.4084 against the US dollar, or 71.00 cents.
Currency exchange markets predict a 73% possibility of a pause in interest rate decreases on April 16.
Overall, the trade imbalance is only one aspect of the complex interplay between foreign ties and domestic economic objectives.
The Canadian economy remains a significant player in the world arena, adapting to change as exporters and importers capitalize on a new climate and prepare for the challenges that lie ahead in the coming months.
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