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Economic News

Canada: Tariffs Loom Large Over the January Trade Surplus

March 6, 2025
LJ Valencia
Economic Analyst

Highlights

  • Canada’s international merchandise trade balance surged to a $4.0B surplus in January—the largest surplus since May 2022 (graph 1). This was well above to the consensus expectation of $2.1B. See Table for more details.
  • Goods exports were up 5.5% m/m in January, while imports rose by a more modest 2.3%. Both exports and imports reached record-high levels of $74.5B and $70.5B, respectively. In real terms, exports were up 3.4% while imports grew by 1.5%.
  • Canada’s trade surplus with the US increased from $12.3B to a record high of $14.4B in January, coinciding with tariff threats on goods imported to the US (graph 2). Meanwhile, the trade deficit with countries other than the United States narrowed slightly from $10.6B to $10.4B in the month.
  • The services trade deficit widened further in January, to $802M. Service exports fell by 1.1% while service imports declined by a more modest 0.4%.

Comments

Tariffs loomed large over January trade numbers as US firms increased imports of Canadian goods in response to tariffs. The January ISM survey External link. indicate immense concern among businesses regarding tariffs and their impact on costs. In addition, the depreciation of the Canadian dollar continued to boost nominal exports and imports. Note that since most transactions are converted from USD to CAD, a weaker Canadian dollar leads to higher export volumes and import prices.

On the export side, 9 out of the 11 categories experienced an increase in January. Exports of motor vehicles and parts (12.5% m/m) increased the most as US auto manufacturers responded to tariff threats. Exports of industrial machinery, equipment and parts (12.6%) also rose for a third consecutive month. Additional strong advances were observed in categories like consumer goods (7.8%) and energy products (4.8%).

On the import side, Statistics Canada mentioned again that the implementation of the CBSA Assessment and Revenue Management (CARM) digital initiative may lead to significant revisions to import values from October 2024 to January 2025. As such, import data should be taken with a grain of salt. That said, the largest contributor to the January increase was the rise in imports of aircraft and other transportation equipment and parts (+23.6%)—a sector characterized by significant swings in recent months.

Implications

The $4.0B trade surplus in January is likely to be followed by another in February, as US importers have made clear that they are building up inventory stockpiles ahead of tariffs. Consequently, net exports are currently expected to contribute a strong +2.6 percentage points to growth in our Q1 tracking. This points to annualized real GDP growth in Q1 2025 of around 2%, in line with the Bank of Canada’s forecast from the January 2025 Monetary Policy Report, leaving strong domestic demand largely met by a draw down in inventories. However, this will evolve through the quarter as we get new data, data is revised, and the impact of the US tariffs applied in March comes into view.

 

As positive as the January trade data was, it is a prelude to the trade war undertaken by the second Trump administration (see our recent analysis External link. on the implications for Canada). Looking ahead, we expect the threat of tariffs to heighten export and import volatility, heavily influencing growth and the decisions of Canadian central bankers.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively.
IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.