MNI: Canada Exports To U.S. Fall Fastest Since 2020 On Tariffs
Canada's exports to the U.S. dropped the most in March since April 2020 during pandemic shutdowns as the tariff war escalated, shrinking the trade surplus again from the record high set in January when firms stockpiled goods in anticipation of souring relations.
Shipments of merchandise south of the border fell 6.6% in March according to Statistics Canada's report Tuesday, giving back some gains of a similar magnitude in the run-up to penalties on products such as autos and crude oil. Exports to the U.S. remained 2.5% greater than November.
Canada's bilateral trade surplus with the U.S. narrowed to CAD8.4 billion from CAD10.8 billion in February and the record CAD13.8 billion in January. The trade balance globally narrowed to a deficit of CAD506 million from CAD1.4 billion as imports fell 1.5% and exports by just 0.2%.
Prime Minister Mark Carney is due to visit President Donald Trump later on Tuesday, just days after Trump repeated his desire to make Canada the 51st State in an NBC interview. Carney on Friday downplayed chances of any major breakthrough and said the talks must take place on the understanding Canada will remain a sovereign nation.
The trade file has implications for the Bank of Canada, which held borrowing costs at 2.75% last month after seven prior reductions. Officials laid out two economic scenarios where the economy stalls or falls into a recession this quarter because of shifting tariff threats. Governor Tiff Macklem also says he must ensure one-time price increases don’t turn into persistent inflation.
Even the big drop in U.S. exports in March as tariffs hit may understate the danger ahead. Auto and parts exports rose 7.7% in March, and autos have jumped 23% since November as dealers stocked up ahead of some tariffs that took affect at the start of April.
In recent weeks many private-sector economists have penciled in a technical recession for Canada this year. Some economists see room for the Bank to cut rates a couple more times this year, given the current 2.75% benchmark is at about neutral and some stimulus could be helpful. Canada sends three-quarters of its exports to the U.S. and officials have said perhaps a million jobs are at risk in a nation of about 40 million people.
Trump has said tariffs on Canada are justified by illicit flows of migrants and drugs, though official figures from both countries show Canada makes up less than 1% of those flows. Canada’s surplus in merchandise trade also masks the country’s frequent deficit in services often linked to tourist trips. Most of Canada’s U.S. surplus is also from goods such as crude oil, natural gas, uranium and critical minerals, which American officials have sought out in response to geopolitical threats and are tied to global benchmark prices, while Trump says Canada is manipulating trade.
Trump has described U.S. trade deficit with Canada as a $USD200 billion annual subsidy. Most economists would describe it as more tied to higher American incomes, and the deficit is a sliver of U.S. gross domestic product.
The two countries have a long history of shifting support for free trade. Canada needed a hotly contested election before Brian Mulroney won a mandate to ink a free trade deal with Ronald Reagan, and Canada was founded in 1867 partly on a deal to create a strong domestic industrial economy in resistance to potential U.S. domination. Fights over softwood lumber have gone on for more than a century.
