Trade balance hits all-time high with U.S businesses front-loading orders amid tariff threats

“President Trump’s tariff talk has shaken up trade flows — and that’s before they’ve even hit. U.S. buyers have been scrambling to stock up on Canadian goods, pushing exports higher as they rush to beat the tariffs. In January alone, the auto sector shipped over $1 billion more than in December. This inventory stockpiling could backfire if the tariffs don’t last, but given the chaos, that seems unlikely. One thing’s for sure, this uncertainty is creating major fluctuations in the data, and it’s just the beginning. Businesses will hold with their piled-up supplies for the moment and look to weather this storm. Expect the pendulum to swing as the impacts of these new tariffs and perpetual tariff threats set in.” 

Headline

Canadian nominal merchandise exports grew 5.5% in January and 20% compared a year ago. With a further depreciation of the Canadian dollar (-1%) and threats of tariffs by U.S. President Trump in January, U.S. customers stockpiled Canadian goods to avoid these threats potentially becoming reality. The trade surplus with the U.S. reached a record high of $58.2 billion on the spike in exports.  In volume terms, exports grew an impressive 4.5%.

Key Takeaways

• 9 of 11 categories contributed to an increase in January exports. The sectors most at risk from tariffs disrupting trade flows saw a spike in exports. Motor vehicles and parts increased nearly 13%, with over $1 billion in added shipments compared to December 2024. Manufacturers are also stockpiling, with exports of machinery and equipment accelerating 13% monthly (27% year-over-year). Exports of consumer goods rose 8% including a large surge in pharmaceutical products (+42%).
• Services exports and imports were down 1% and 0.4% respectively in January.
• Merchandise imports increased in December by 2.3% due to higher imports of various machinery and manufacturing equipment.
• Overall, monthly exports of goods and services rose 4.1% and imports increased 1.7%.
• Exports to the United States increased $2.1 billion from December, expanding the trade surplus with the U.S. from $12.3 billion to $14.4 billion (the largest surplus since May 2022). Exports to other countries fell 1%.

Implications

• Canadian exporters will benefit from increase orders in the next few months of data as American customers stockpile supplies to get ahead of tariffs. We know that the President intended to impose tariffs on Canada as early as January 20, but instead further delayed them till March. Now that tariffs are in place (as of March 4), we can expect these patterns to continue until March.
• The Canadian dollar has depreciated further, offering some cushion to the price shock, but the Bank of Canada noted that a trade war will have significant impacts on the Canadian economy. It should be expected that they will lower their policy rate at their March 12 meeting.

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