Merchandise Trade February 2025: The floodgates are closing.

“American businesses didn’t continue stockpiling Canadian goods ahead of tariffs as we expected. It remains to be seen whether American companies stocked up sufficiently or if we’re witnessing the start of a sustained pullback in demand. With Canada’s steel and aluminum exports and anything non-CUSMA compliant facing steep tariffs, the real question is how Canadian businesses will navigate this new reality once the full weight of these tariffs impact their U.S. business and a slowing global economy. For the Bank of Canada, this confirms their worst fears are becoming reality, leaving them geared up to cut interest rates as the economy edges closer to recession.”

Headline

Canadian nominal merchandise exports declined 5.5% in February, and imports edged up 0.8%. With a temporary imposition of U.S. tariffs in February, spooked Canadian exporters reversed the previous exports surge to the U.S. The trade surplus with the U.S. narrowed, brining the overall trade balance into a $1.5 billion deficit. In volume terms, exports were down 5%.

Key Takeaways

• 10 of 11 categories contributed to the decline in February exports. Energy exports declined 6.3%, for the first time since September 2024 on the back of lower oil prices. Motor vehicles and parts decreased nearly 9%. Metal and non-metallic mineral products declined 6.6% on fewer shipments of gold. Exports of forestry products continue to face significant anti-dumping duties and declined nearly 11% in February.
• Services exports and imports were down 1.6% and 0.8% respectively in February.
• Merchandise imports increased slightly in February by 0.8% due to higher imports of autos and parts, industrial machinery, and energy products.
• Overall, monthly exports of goods and services declined 4.8% and imports increased 0.4%.
• Exports to the United States decreased $2.1 billion (-3.6%), with imports rising 2.5%. This narrowed the trade balance with the U.S. to $10.6 billion. Exports to other countries fell 12.4%.

Implications

• Canada was largely left out of the April 2 reciprocal tariff announcement, but tariffs remain on a large swath of goods. Canadian exporters pulled back on shipments to the U.S., as tariffs  were briefly imposed in February. The extent to which exports decline in the coming months will be an important indicator on the impact to the Canadian economy. A sustained shift in U.S. demand would push the Canadian economy into recession.
• The Bank of Canada will ready on the sidelines as their fears become reality. They will need to assume broad-based tariffs into their latest forecast at their next meeting on April 16. It is more likely that they will lower their policy rate.

Sources: Statistics Canada; Canadian Chamber of Commerce Business Data Lab