Canadian Merchandise Trade (February 2025)

Canadian trade pulls back in February

• Canada's trade books swung into a $1.5 billion deficit in February from a revised $3.1 billion surplus the month prior. 
• Merchandise exports slid 5.5% month-on-month (m/m), following a 5.6% monthly gain in January. Exports of energy products contributed most to the decline, falling for the first time in five months (-6.3% m/m). Meanwhile, exports of motor vehicles and parts hit the brakes, sliding by 8.8% on the month. A 6.6% decrease in metal and non-metallic mineral products also contributed to the exports decline. In total 10 of 11 product categories registered a pullback in February.
• Merchandise imports moved slightly higher in February (+0.8% m/m), helped by a hefty 5.8% m/m gains in motor vehicle and parts and a 3.1% m/m increase in industrial machinery, equipment and parts imports. Energy products (+5.2% m/m) also provided an assist. 
• In volume terms, merchandise exports fell by 5% m/m while imports remained effectively flat.
• Canada's merchandise trade surplus with the United States shrunk to $10.6 billion in February from a record $13.7 billion the month prior. 

Key Implications

• January's export surge came to an abrupt halt in February after the U.S. (and other major importers) spent months stockpiling inventories ahead of the imposition of tariffs. It's too early to tell if we'll see a temporary resumption in tariff-related front-running in March, but the data suggest the strain on global trade is beginning to take hold. As it stands, net trade may pose a headwind to Canadian Q1 GDP growth, especially as domestic firms pull forward inventories of their own, beefing up the import side of the ledger.
• Canada was fortunately spared from Trump's reciprocal tariff plan outlined yesterday. That said, Canada 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 frictions with the U.S. in the coming quarters. Longer-term, the U.S. administration outlined a plan to chop the non-compliant USMCA goods tariff of 25% in half should progress be made on fentanyl and illegal immigration. It's a small silver lining, but in the meantime, Canada continues to brace for increasing headwinds to trade.          

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.