May 8, 2025
Canadian exports to the United States slumped in March, but this was largely offset by a surge in shipments to other countries, leading to an unexpected improvement in Canada’s balance of trade in the first month U.S. tariffs were in force.
Goods exports to the U.S. declined 6.6 per cent while imports from that country dropped 2.9 per cent in March, Statistics Canada reported Tuesday.
This follows the Trump administration’s imposition of tariffs on steel and aluminum in early March, as well as tariffs on Canadian goods that don’t comply with the continental free trade agreement’s rules of origin. Ottawa retaliated with its own tariffs.
The pullback in south-bound shipments was mostly balanced out by a 24.8-per-cent jump in exports to other countries, including the United Kingdom, the Netherlands, Hong Kong and Germany – the second-largest monthly increase on record.
“U.S. tariffs have put real pressure on Canadian exports. The silver lining: Canadian exports to other markets jumped, especially oil shipments heading overseas. That diversification bump is a small spark of optimism,” Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, said in a statement.
Overall, merchandise trade exports fell 0.2 per cent while imports were down 1.5 per cent, leaving Canada with a smaller-than-expected trade deficit of $506-million, compared to $1.4-billion in February. The decline in the value of trade was partly due to lower prices. In volume terms, exports were up 1.8 per cent while imports were down 0.1 per cent.
Trade will be at the top of the agenda when Prime Minister Mark Carney meets with U.S. President Donald Trump in Washington on Tuesday. Mr. Carney is aiming to get Mr. Trump to back down on the tariffs, and to lay the groundwork for the renegotiation of the United States-Mexico-Canada Agreement (USMCA). However, he has tried to moderate expectations in recent days, suggesting any deal with the U.S. may take time.
Canadian trade has been turbulent since Mr. Trump’s election in November on an ultra-protectionist platform.
Exports to the U.S. surged late last year and in January as companies rushed to get products across the border before tariffs took effect. That trend has slowed, although carmakers continued to push vehicles across the border in March ahead of the auto tariffs that came into force in early April. Vehicle and auto parts exports were up 7.7 per cent in March.
Meanwhile, industry-specific tariffs are only just starting to bite. Exports of basic and semi-finished iron and steel products were down 9 per cent in March, but exports of unwrought aluminum and aluminum alloys were up 4.4 per cent. Both are subject to a 25-per-cent tariff.
“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,” Toronto-Dominion Bank economist Marc Ercolao wrote in a note to clients.
The jump in Canadian exports to other countries looks promising at a moment when the country is trying to cut its reliance on the U.S. market. This included an increase in gold shipments to the United Kingdom, crude oil to the Netherlands and Hong Kong and “various products” to Germany.
It’s unclear, however, whether this is a one-off blip or the start of something more durable, economists cautioned.
“It is unlikely that exporters can continue to rely on other countries to offset weaker demand from the US,” Stephen Brown, deputy chief North America economist at Capital Economics, wrote in a note to clients.
“The export orders index of the S&P Global Manufacturing PMI for Canada plunged to just 39.1 in April, the second weakest reading on record after the April 2020 trough during the COVID-19 lockdowns.”
Over the past month, Canada has largely avoided the escalation in Mr. Trump’s trade war with the rest of the world, and won some important carve outs for Canadian goods.
Both Canada and Mexico were exempt from the 10-per-cent baseline tariff the U.S. applied to other trading partners. Likewise, auto parts from both countries that comply with USMCA rules of origin will continue to enter the U.S. tariff-free, while vehicle exports won’t face a tariff on the portion of the vehicle made up of U.S. car parts.
Even so, economists expect overall Canadian exports to take a hit in the coming quarters.
“As Canada escaped relatively lightly from the US tariffs on ‘liberation day’ and most USMCA-compliant exports are currently exempt, we suspect that the export orders indices will rebound in the coming months, but not by enough to change the message that export volumes are likely to weaken over the rest of the year,” Mr. Brown wrote.
