Cargo containers stacked at the Port of Vancouver Centerm container terminal on Oct. 14, 2022. Canada’s trade deficit ballooned to $7.1-billion in April from $2.3-billion the prior month, far above analyst expectations.DARRYL DYCK/The Canadian Press
Canadian exports cratered in April and the trade deficit soared to a record high, as U.S. tariffs hammered demand for Canadian goods and companies pulled back after rushing products across the border.
The value of exports to the U.S. fell a stunning 15.7 per cent, compared to the previous month, Statistics Canada reported Thursday. The decline was broad-based, led by a sharp pullback in autos, consumer goods and crude oil exports. Imports from the U.S. dropped 10.8 per cent.
This contraction in trade follows a barrage of tariffs by U.S. President Donald Trump over the past three months. This includes levies on steel, aluminum and automobiles, as well as on all goods that don’t comply with the continental free-trade agreement’s rules of origin. Earlier this week, Mr. Trump doubled tariffs on steel and aluminum to 50 per cent.
The drop in exports will weigh on Canada’s trade-oriented economy, with the Bank of Montreal forecasting a contraction in the second quarter. Economists widely anticipate the Bank of Canada will have to respond with rate cuts, despite its decision to hold steady this week.
Canada’s overall merchandise exports to all countries, including the U.S., dropped 10.8 per cent while imports fell 3.5 per cent compared to the previous month. In volume terms, total exports declined 9.1 per cent. The country’s trade deficit, the difference between imports and exports, ballooned to $7.1-billion from $2.3-billion the prior month – the highest recorded to date.
BMO senior economist Shelly Kaushik said that while Thursday’s numbers were far worse than analysts expected, the decline in exports was not surprising given the slew of U.S. tariffs that took effect in the spring. (Trade data can also be volatile from month-to-month, with figures frequently revised in future releases.)
“We are expecting Canadian trade to be pretty soft, at least in the coming months, and certainly as long as it takes to get actual certainty on the trade front,” said Ms. Kaushik in an interview.
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The trade outlook depends heavily on whether Canada can re-establish a relatively tariff-free relationship with the United States. Pete Hoekstra, the U.S. ambassador to Canada, told The Globe and Mail on Thursday that Mr. Trump and Prime Minister Mark Carney are holding talks on trade and security that may result in a deal of sorts by September.
Mr. Trump’s aggressive protectionism was also apparent in the latest U.S. trade numbers, published Thursday. U.S. imports from the rest of the world fell 16 per cent, the largest drop ever, while exports rose 3 per cent. That caused the U.S. trade deficit – a major focus for Mr. Trump – to contract sharply to US$61.5-billion in April from US$138.3-billion in March.
However, Moody’s Analytics chief economist Mark Zandi said he doesn’t expect tariffs to reduce the U.S.’s trade deficit in a “meaningful and sustained way.”
“The only way to get the trade deficit down in a sustained way is to address that imbalance between consumption and production. And really what it means is getting a grip on our fiscal situation, which doesn’t feel like that’s going to happen anytime soon,” Mr. Zandi said in an interview.
The drop in cross-border trade is partly the result of Canadian and U.S. companies pulling back after racing to get goods across the border and stockpiling products earlier this year to front-run tariffs.
“As observed with many products, amid threats by the United States to impose tariffs on Canadian goods, exports of passenger cars and light trucks saw high levels in the three months preceding April,” Statscan said, explaining the 17.4-per-cent drop in vehicle and parts exports.
“After tariffs on foreign motor vehicles were imposed by the United States at the beginning of the month, manufacturers in Canada reduced production in April, resulting in a sharp drop in these exports.”
Crude oil exports fell by 11.7 per cent, driven by a drop in prices amid economic uncertainty and a planned increase in production by OPEC+. The temporary shutdown of a pipeline in the northern U.S. also contributed to a decline in the volume of crude oil exports.
The Canadian trade numbers were also impacted by a large appreciation in the Canadian dollar in April. Most import and export transactions happen in U.S. dollars, which must be converted back into Canadian dollars to compile the monthly statistics, Statscan said.
“All other things being equal, when the Canadian dollar appreciates against the US dollar, monthly trade values expressed in Canadian dollars are lower,” it noted.
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Still, the price effect only explains part of the contraction in trade. Export volumes were down sharply.
Meanwhile, there was a 2.9-per-cent increase in exports to countries other than the U.S., led by exports of various products to China, unwrought gold to the United Kingdom, iron ore and wheat to Algeria and potash to Brazil. This suggests some trade diversification is happening, but the increase was much smaller than the 24.8 per cent jump in non-U.S. trade seen in March.
“We are cautiously optimistic that April’s data marks the worst for the trade figures … We expect some rebound in exports over the next couple of months as producers adjust their output to be USMCA-compliant and the drag from the end of tariff front-running passes,” Bradley Saunders, North America economist at Capital Economics, wrote in a note to clients.
“Nevertheless, the trade data present a downside risk to the advance estimate that GDP rose by 0.1 per cent month-to-month in April and yesterday’s doubling in the US’ steel and aluminum tariffs serves as a valuable reminder that Canadian exporters remain at President Trump’s whim,” he wrote.