Canadian Merchandise Trade (March 2025)

Canadian trade deficit narrows in March

• Canada's trade deficit narrowed from a revised $1.4 billion in February to $506 million in March. 
• Merchandise exports edged lower (-0.2% m/m) continuing the slide from February's larger contraction (5.4% m/m). Exports of consumer goods (-4.2% m/m) and energy products (-2.2% m/m) contributed most to the monthly decline. Motor vehicle and parts exports (+7.7% m/m) bounced back after posting a double digit decline the month prior. In total 6 of 11 product categories registered a pullback in February.
• Merchandise imports reversed last month's gain, falling by 1.5% m/m in March. Imports of energy products (-18.8% m/m) and metal/non-metallic minerals (-15.8% m/m) contributed most to the decline, partially offset by gains in industrial machinery (2.0% m/m) and aircrafts/other transportation (3.7% m/m).
• In volume terms, merchandise exports were up by 1.8% m/m while imports edged down 0.1% m/m.
• Canada's merchandise trade surplus with the United States shrunk to $8.4 billion in March from 10.8 billion the month prior. 

Key Implications

• With first quarter trade data under the belt, net trade is tracking effectively flat in terms of contribution to Q1-2025 real GDP growth. More importantly, the trade data in the coming months should begin reflecting the impacts of tariffs. Steel and aluminum tariffs that came into effect in mid-March did not appear to impact trade flows of affected products, so far.
• Total trade volumes slowed in February and March after six consecutive months of solid gains, suggesting that tariff-related front-running and inventory stockpiling is coming to a halt. Canada was fortunately spared from Trump's reciprocal tariff plan but is still subject to the 25% “fentanyl/illegal immigration” tariff (10% on energy), with carve outs for USMCA compliant goods, which is likely to create ongoing frictions with the U.S. In the meantime, Canada will continue to brace for increasing headwinds to trade as the worst of the trade conflict is expected to take place over the coming quarters.          

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