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Trade Surplus Widens in January Amid Tariff Threats

Canadian Economics

By: David Ristovski

    

  • Canada’s merchandise exports rose by 5.5 per cent (month-over-month) in January. At the same time, imports rose 2.3 per cent. Consequently, Canada’s merchandise trade surplus widened from $1.7 billion in December to $4.0 billion in January—the largest surplus since May 2022.
  • Exports rose to $74.5 billion in January, a fourth consecutive monthly increase. Exports of motor vehicles and parts (+12.5 per cent), energy products (+4.8 per cent), consumer goods (+7.8 per cent), and industrial machinery, equipment and parts (+12.6 per cent) contributed most to the monthly increase. In volume terms, total exports rose 4.5 per cent.
  • Imports climbed to $70.5 billion in January. The largest contributors to the monthly gain were imports of aircraft and other transportation equipment and parts (+23.6 per cent), electronic and electrical equipment and parts (+5.8 per cent), and energy products (+8.5 per cent). In volume terms, total imports were up 1.5 per cent.
  • Canadian exports to the U.S. rose 7.5 per cent in January. Meanwhile, imports from the United States increased by 4.7 per cent. As a result, the merchandise trade surplus with the United States widened to a record high of $14.4 billion in January.

Insights

U.S. tariff threats influenced trade in December and January. The United States government announced that tariffs on Canadian goods would be imposed, which may have induced importers to increase shipments to avoid additional costs. Exports to the United States rose 7.5 per cent in January—reaching a record for a second consecutive month. Further, the value of the Canadian dollar averaged lower in January than in December, contributing to an overall increase in total exports.

The near-term outlook for Canadian trade is uncertain. On March 4th, the United States President Donald Trump announced a sweeping 25.0 per cent tariff on all Canadian goods entering the United States, with a 10.0 per cent tariff on Canada’s energy exports. Tariffs of such magnitude will devastate Canada’s export sector and have severe repercussions for the entire economy. In retaliation, the Canadian government imposed a 25.0 per cent tariff on $30 billion worth of American goods entering Canada. If the U.S. tariffs persist, Canadian retaliatory measures will be applied to another $125 billion worth of American imports. What this means for the short-term outlook on Canadian trade is that there will be a significant decline in both exports and imports as well as a change in consumer behaviour. The longer the tariffs are kept in place, the worse the overall outlook will become.

For a more detailed breakdown, check out our analysis on The True Cost of the Trump Tariffs.

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