Canada’s Trade Deficit Hits Record $7.1B as U.S. Tariffs Crush Exports

Canada recorded its largest merchandise trade deficit on record in April 2025, reaching $7.1 billion, as U.S. tariffs imposed by President Donald Trump severely impacted exports, according to Statistics Canada.

The sharp decline from March’s revised $2.3 billion deficit highlights the escalating trade tensions reshaping the economic relationship between Canada and its largest trading partner, the United States.

As tariffs disrupt supply chains and business confidence wanes, the fallout threatens Canada’s economic stability.

Exports Plummet Under Tariff Pressure

Total merchandise exports plummeted 10.8% to $60.4 billion in April, the lowest level since June 2023, driven by a 17.4% drop in motor vehicles and parts and a 15.4% decline in consumer goods.

Exports to the United States, which account for 76% of Canada’s total shipments, fell 15.7%, marking a third consecutive monthly decline and a 26.2% drop since January’s peak.

The automotive sector, deeply integrated with U.S. supply chains, saw exports of passenger cars and light trucks plummet 22.9% in April, following a 21% surge from November 2024 to March 2025 as businesses front-loaded shipments to avoid tariffs.

Meanwhile, exports to non-U.S. countries rose 2.9%, with gains to China, the United Kingdom, Algeria, and Brazil, but this could not offset the U.S. demand collapse. The Canadian dollar’s 1.5% depreciation against the U.S. dollar in April further exacerbated the trade value decline.

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Trade War Intensifies Economic Strain

The trade deficit’s widening reflects a deepening trade conflict initiated by U.S. tariffs, starting with 25% levies on Canadian steel and aluminum in March, followed by automotive tariffs in April.

Canada retaliated with 25% tariffs on $30 billion of U.S. goods, including orange juice, peanut butter, and electronics, with plans for additional measures on $125 billion in imports.

In March, the average U.S. tariff rate on Canadian goods increased to 1.9% from 0.1% in February; however, 50% of Canadian exports qualified for CUSMA/USMCA exemptions in March, which is an increase from 33% in February.

Bank of Canada Governor Tiff Macklem warned that prolonged tariffs could reduce Canada’s GDP by 1.2% annually, potentially triggering a year-long recession.

Prime Minister Justin Trudeau emphasized the risk to U.S. jobs, noting that tariffs could disrupt American auto plants reliant on Canadian parts.

Did You Know?
In 2024, Canada’s trade surplus with the United States reached $102.3 billion, driven by automotive and energy exports, but tariffs have since eroded this advantage.

Broader Economic Fallout Looms

The trade disruption extends beyond U.S.-Canada flows, with global implications. While non-U.S. exports surged 24.8% in March, the second-largest increase on record, this growth slowed to 2.9% in April, insufficient to counterbalance U.S. losses.

Imports fell 3.5% to $67.5 billion, led by a 17.7% drop in motor vehicles and parts, reflecting Canada’s retaliatory tariffs. The Bank of Canada projects that sustained tariffs could permanently lower Canada’s potential output and living standards.

Business sentiment is deteriorating, with 62% of firms in a recent survey citing trade uncertainty as a barrier to investment. Cross-border travel also declined, with Canadian auto return trips from the U.S. down 31.9% year-over-year in March.

As Canada navigates this trade war, increased CUSMA compliance offers some relief, with 94% of exports potentially eligible for duty-free status, but the economic outlook remains precarious.