Canadian Merchandise Trade (January 2025)

Canadian trade surplus widened significantly in January 

• Canada's merchandise trade balance widened from a revised $1.7 billion in December to $4.0 billion in January. This marked the largest surplus since May 2022.
• Merchandise exports jumped 5.5% month-on-month (m/m), following a 6% monthly gain in December. Exports of motor vehicles and parts (+12.5% m/m) jumped, while shipments of energy products (4.8% m/m), consumer goods (+7.8% m/m) and industrial machinery, equipment and parts (12.6% m/m) added to the headline gain.
• Merchandise imports also moved higher in January (+2.3% m/m), bolstered by a surge in imports of aircraft and other transportation equipment and parts (23.6% m/m). Imports of electronic and electric equipment and parts (+5.8% m/m) and energy products (+8.5% m/m) also made significant contributions.
• In volume terms, merchandise exports rose by 4.5% m/m while imports increased by 1.5% m/m.
• Canada's merchandise trade surplus with the United States widened to $14.4 billion in January from $12.3 billion the month prior. Amid the threat of tariffs, exports to the U.S. surged 7.5% m/m while imports increased 4.5% m/m.

Key Implications

• The strength in exports shown in January reflected companies attempting to stockpile inventories ahead of the imposition of tariffs. This dynamic could lift exports in February as well but may fade thereafter. 
• Trade data is often subject to heavy revisions, and we only have hard data for the first month of the quarter. That said, January's stronger growth in export volumes compared to imports points to a significant contribution (of 1 ppt or more) to Q1 real GDP growth from net trade.
• Canada's export outlook has soured amid the Canada-U.S. tariff war and the recent 30-day pause on auto sector tariffs does little to remove uncertainty for this industry. Indeed, the negative impact on U.S. bound shipments will be one of the primary channels through which Canada's economy is harmed. A weak Canadian dollar could provide some offset, although would add to tariff-related inflation pressures for Canadians.          

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