Statistics Canada reported that Canada’s economy experienced a trade deficit in February, with exports dropping and imports edging higher. The threat of tariffs weighed on exports to the US. On Wednesday, retaliatory tariffs from the US were announced. Canada was exempted from those retaliatory tariffs. However, the 25% tariff on goods outside of the United States-Mexico-Canada Agreement is still in effect, as are tariffs on energy products, steel, aluminum and now, automobiles. This has put a spotlight on Canada’s trade activity.

• Exports from Canada declined by 5.5% in February over the previous month. This marked the first decline in five months, pulling back from a record high set in January. Driving the decrease was a decline in exports of energy products and automotive vehicles and parts. Exports to the US fell by 3.6%.
• Imports increased to a new record high of $71.6 billion in February. Imports increased for automotive vehicles and parts and industrial machinery. Imports from the US increased by 2.5%.
• Canada’s economy ran a trade deficit of $1.52 billion in February. This was its first deficit since November 2024 and the largest since August 2024. Concerns are growing that Canada’s trade deficit could balloon amid the tariffs from Canada’s largest trade partner.
• US President Donald Trump announced his retaliatory tariffs on Wednesday. Canada was exempted from those retaliatory tariffs. However, automobile tariffs went into effect yesterday, which will apply to Canada along with other nations.

Trade activity, particularly export activity, is expected to drop, which could weigh on Canada’s economic growth in the second quarter. While Canada was exempted from retaliatory tariffs, it still faces tariffs on key sectors that could negatively impact economic activity. Yesterday, Prime Minister Mark Carney retaliated with a 25% tariff on automobile imports from the US. Trade tensions are escalating but changing often. Global equity markets fell sharply yesterday.

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