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The Canadian goods trade deficit hit a record high in April in an ugly-looking round of data. Still, the monthly trade numbers were expected to be highly volatile around (before and after) the March/April U.S. tariff announcements as a surge in pre-tariff trade to build inventories unwinds.  

The data is consistent with an add to Canadian GDP growth in Q1 from net trade and an import-led jump in equipment investment reversing in Q2, and with our expectation that broader GDP growth will slow sharply after outperforming expectations in Q1. 

The broader concern is where trade flows settle after volatility tied to pre-tariff inventory building subsides — and on that front the data was more encouraging. 

From data reported by the U.S. Census Bureau, the average U.S. tariff rate on imports from Canada rose to 2.3% versus a 7% rate on average globally as exporters appear to have been largely able to comply with rules of origin under the CUSMA free trade agreement . Significant U.S. tariffs still apply on imports from Canada on products like autos and steel & aluminum, but almost 90% of Canadian exports appear to have accessed the U.S. market duty free in April. 

We continue to expect that current rules, if maintained as currently in place, would leave Canada with the lowest tariff rate of any major U.S. trade partner — putting Canadian exporters in a stronger relative  position to compete for U.S. import market share than other countries.  The concern remains, though, that US tariff hikes have been so large —and uncertainty so high surrounding their announcements—that US economic growth will slow with negative implications for close U.S. trade partners like Canada.

The March details

• The Canadian goods trade deficit widened to a record -$7.1 billion in April from a downwardly revised -$2.3 billion shortfall in March (previously -$0.5 billion) as exports plunged alongside a sharp reversal of a pre-tariff import surge in the United states. 

• Total merchandise exports fell 10.8% — shipments to the U.S. fell by 15.7% (adding to a 9.1% drop the prior month).  The decline in exports to the U.S. was only partially offset over the last two months by a surge in exports to the rest of the world (+2.9% in April to build on a 24% jump in March. 

• Part of that export decline was tied to price declines, including due to a 1.8 cents appreciation in the Canadian dollar in April. Export volumes, though, still posted an 8.3% monthly decline.

• The decline in exports in April coincided with a sharp 20% pullback in broader U.S. imports as an earlier surge to get ahead of tariffs unwound in April. Canada’s share of the U.S. import market actually ticked slightly higher in April, but remained low (10.5%) versus the 12.6% average in 2024. 

• Declines in Canadian exports were broadly-based, with just shipments of metal ores and non-metallic minerals posting a significant increase.

• Canadian imports also fell sharply, also reflecting an unwind of pre-tariff strength in some components in earlier months. Industrial equipment imports fell by 9.5% (-8.6% excluding price impacts), consistent with a pre-tariff surge in Q1 investment spending unwinding in Q2. 

• Imports of consumer products also fell sharply — motor vehicle imports were down 16.3% excluding price impacts, and imports of consumer goods excluding autos fell by 3.1%. 

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.