Canada Swings to Trade Deficit as Exports, Imports Stay High

Trade deficit in February reflects inventory buildup amid tariff fears

Canada unexpectedly posted a trade deficit of C$1.52 billion ($1.08 billion) in February, reversing the previous month’s surplus of C$3.13 billion, according to Statistics Canada data released Thursday. Analysts had predicted a trade surplus of C$3.55 billion for the month. Despite the shift to a deficit, both exports and imports remained near record levels, as businesses, particularly in the U.S., stockpiled goods in anticipation of ongoing trade tensions.

President Donald Trump’s tariffs on Canadian imports, covering everything from steel and aluminum to cars and parts, have led businesses to build inventories to mitigate the cost of the duties. The buildup of stock in the U.S. market, in response to potential tariff increases, is evident in the February trade figures.

Despite the trade deficit, Canada’s surplus with the U.S. rose for the third consecutive month, reaching a record level in January. Canada’s overall trade surplus also jumped to record heights in January, before declining in February. This shift highlights the front-loading effect of businesses rushing to build inventories ahead of tariff hikes.

Exports Dip, But Remain Strong

Canada’s total exports in February fell by 5.5% to C$70.11 billion, although they were still the second-highest level since May 2022. Exports decreased in 10 of the 11 product categories, with the biggest decline in energy products, which dropped by 6.3%. This marks the first decrease in energy exports since September 2024, as crude oil prices dropped.

Motor vehicle and parts exports also dropped by 8.8% in February, but remained the highest since January 2024. According to Stuart Bergman, chief economist at Export Development Canada, the decline in exports suggests that the previous months’ inventory buildup was slowing down, contributing to the front-loading effect fading.

Imports Continue to Climb

Meanwhile, imports continued to rise for the fifth consecutive month, increasing by 0.88% to C$71.63 billion. Despite a 3.6% decline in exports to the U.S., exports to the U.S. still accounted for almost 80% of Canada’s total exports in February. U.S. imports rose by 2.5%, making up 63% of Canada’s total imports.

The Canadian dollar strengthened following the release of the trade data, gaining 1.03% to 1.4084 against the U.S. dollar. Currency swap markets are now pricing in a 73% chance that the Bank of Canada will pause interest rate cuts during the upcoming meeting on April 16.