Canada's trade deficit hits record high $7.1-billion as tariffs hammer exports

Globe and Mail

2 days ago

Canadian exports cratered in April and the trade deficit soared to a record high, as U.S. tariffs hammered demand for Canadian goods and companies pulled back after rushing products across the border.
Canada's merchandise exports dropped 10.8 per cent while imports fell 3.5 per cent, compared to the previous month. The country's trade deficit, the difference between imports and exports, ballooned to $7.1-billion from $2.3-billion the prior month – the highest recorded, and far above analyst expectations.
Trade with the U.S. accounted for the collapse. Total exports heading south across the border fell 15.7 per cent in nominal terms and 9.1 per cent in volume terms. Exports declined in 10 out of 11 categories, led by a sharp pullback in motor vehicles and parts, consumer goods and crude oil.
Imports from the U.S. dropped 10.8 per cent in April.
Carney faces pressure to retaliate against Trump's steel, aluminum tariffs
The decline in trade follows a barrage of tariffs by U.S. President Donald Trump over the past three months. This includes tariffs on steel, aluminum and automobiles, as well as on all goods that don't comply with the continental free trade agreement's rules of origin. Earlier this week, Mr. Trump doubled tariffs on steel and aluminum to 50 per cent.
Mr. Trump's aggressive protectionism was also apparent in the latest U.S. trade numbers, published Thursday. U.S. imports from the rest of the world fell 16 per cent, the largest drop ever, while exports rose 3 per cent. That caused the U.S. trade deficit – a major focus for Mr. Trump – to contract sharply to US$61.5-billion in April from US$138.3-billion in March.
The drop in cross-border trade is partly the result of Canadian and U.S. companies pulling back after racing to get goods across the border and stockpiling products earlier this year to front-run tariffs.
'As observed with many products, amid threats by the United States to impose tariffs on Canadian goods, exports of passenger cars and light trucks saw high levels in the three months preceding April,' Statistics Canada said, explaining the 17.4-per-cent drop in vehicle and parts exports.
'After tariffs on foreign motor vehicles were imposed by the United States at the beginning of the month, manufacturers in Canada reduced production in April, resulting in a sharp drop in these exports.'
The Canadian trade numbers were also impacted by a large appreciation in the Canadian dollar in April. Most import and export transactions happen in U.S. dollars which must be converted back into Canadian dollars to compile the monthly statistics, Statscan said.
'All other things being equal, when the Canadian dollar appreciates against the US dollar, monthly trade values expressed in Canadian dollars are lower,' it noted.
Still, the price effect only explains part of the contraction in trade. Export volumes were down sharply.
Meanwhile, there was a 2.9 per cent increase in exports to countries other than the U.S., led by exports of 'various products' to China, unwrought gold to the United Kingdom, iron ore and wheat to Algeria and potash to Brazil. This suggests some trade diversification is happening, but the increase was much smaller than the 24.8 per cent jump in non-U.S. trade seen in March.
'We are cautiously optimistic that April's data marks the worst for the trade figures … We expect some rebound in exports over the next couple of months as producers adjust their output to be USMCA-compliant and the drag from the end of tariff front-running passes,' Bradley Saunders, North American economist at Capital Economics wrote in a note to clients.
'Nevertheless, the trade data present a downside risk to the advance estimate that GDP rose by 0.1 per cent month-to-month in April and yesterday's doubling in the US' steel and aluminum tariffs serves as a valuable reminder that Canadian exporters remain at President Trump's whim,' he wrote.