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The Bottom Line:
Canada’s international trade data is notoriously volatile, and February’s report was no exception with an unexpected surge in the Canadian trade deficit to a $5.7 billion deficit—larger than market expectations for $2.5 billion shortfall.
Still, details were mixed. Both exports and imports jumped sharply higher, with about a third of the latter coming from a surge in imports of gold products but also stronger equipment and consumer goods imports. That leaves net trade tracking a sizable subtraction from Q1 GDP growth, but also offsetting strength in business and consumer spending by domestic buyers.
And exports of motor vehicles surged higher, adding to evidence that a run of production disruptions that weighed on manufacturing output in late 2025 and early in 2026 is easing.
The monthly trade data will continue to be distorted by the timing of tariff announcements, but the U.S. tariff rate on imports from Canada was likely less impacted than most other countries by the shift in U.S. tariff policy in February in the wake of the U.S. Supreme Court ruling against IEEPA tariffs.
And the nominal trade deficit will likely shrink in March with the surge in gold imports in February not likely to be repeated. The spike in energy prices due to conflict in the middle east will push Canada’s net energy trade balance higher, but will also raise costs for consumers.
Significant trade uncertainty remains with negotiations on CUSMA renewal set to intensify in coming months, but we continue to expect, as a base-case, that a more stable international trade backdrop in 2026 (albeit still at significantly higher tariff rates) will leave trade as less of a headwind to growth than it was in 2025.
That, coupled with the lagged impact of earlier Bank of Canada interest rate cuts and higher government spending plans will support further improvement in per-person (and per-worker) economic conditions in the year ahead.
The February details:
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The Canadian merchandise trade deficit widened to -$5.7 billion in February—the largest shortfall since August 2025.
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Exports bounced back 6.4% but imports surged a larger 8.4% on firmer imports of equipment and consumer goods (a positive indicator for Canadian business investment and consumer spending) and a surge in imports of gold from the U.S.
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Exports to non-U.S. destinations jumped 10.5%—and were up 58% from a year ago—although also partly due to increased gold shipments to the U.K. and Australia.
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Still, the gain in exports was relatively broadly-based and more than retraced a 5.2% drop in January. Exports of motor vehicles and parts jumped 24% to reverse a 21% drop in January as disruptions reportedly tied to longer-than-usual time required to shift to new model production at some plants eased.
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Imports were heavily influenced by higher Canadian gold purchases—a third of the nominal increase in imports and almost half of the increase controlling for price changes came from higher imports of metal and non-metallic mineral products. But imports of equipment also jumped higher and consumer goods imports rose 3.7%. Those increases are a negative for the trade balance, but positive indicators of business and consumer demand.
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In separately reported data from the U.S. Census Bureau, the U.S. average effective import tariff rate on Canada remained around 3% in February (3.2%) with 88% of Canadian exports to the U.S. continuing to cross the border duty free.
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The overall U.S. effective tariff rate edged down to 8.4% from 9.8% in January, coinciding with the U.S. Supreme Court ruling against broad-based U.S. IEEPA tariffs in the month, and replacement of those measures with a 10% blanket rate on non-USMCA compliant imports. That change had limited impact on Canada’s tariff rate (most Canadian exports were already exempt from IEEPA tariffs) but likely slightly lowered the average U.S. tariff rate on imports from other regions.
About the Author:
Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.
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