Canada Trade Surplus With U.S. Narrows as Tariff Fight Looms

Canada’s trade surplus with the US helped the northern nation avoid a deeper overall deficit, underscoring the importance of its biggest trading partner as President-elect Donald Trump threatens crippling tariffs.

The country’s total imports exceeded exports for the eighth straight month in October, bringing the trade deficit to C$924 million ($658 million), Statistics Canada reported Thursday. That’s roughly in line with the median estimate in a Bloomberg survey, and down from C$1.3 billion in September.

Total exports grew 1.1% in October, after three straight monthly declines, while imports rose 0.5%. In volume terms, exports were up 0.4% and imports edged up 0.3%.

While Canada’s trade surplus with the US narrowed slightly to C$6.2 billion from C$7.9 billion in September due to falling exports, the US remains by far its largest trading partner. In October, the US bought 73% of Canada’s exports and made up 62% of the northern nation’s imports.

The numbers make clear just how exposed Canada is to the US economy and policies. Trump’s threat of 25% tariffs on all Canadian goods has raised alarm among government officials and business groups, with the former trying to placate the incoming president’s border security concerns and the latter arguing Canada can help boost US production and weed out unfair trade.

Trump views the Canada-US trade balance as unfair to his country’s economy, even though Canada is the biggest oil supplier to the US and sells it at a discount to West Texas Intermediate, the benchmark for American oil. During a meeting with Prime Minister Justin Trudeau at Mar-a-Lago last week, Trump complained that Canada was “ripping off the US to the tune of $100 billion,” Fox News reported. Canada’s surplus with the US was about $72 billion over the past 12 months.

While the current trade surplus isn’t near the record high seen in 2022, it’s significantly higher than during Trump’s first term. At that time, Trump used tariffs as a tool to redirect trade flows. His renegotiation of the North American trade pact was aimed at rebalancing trade with Canada and Mexico, but US deficits continued to rise even after he inked the agreement in 2018.

Canada and the US have one of the world’s largest bilateral trading relationships, worth about $2.6 billion in goods and services daily. Canada’s economy depends on its ability to sell energy, cars, minerals and other goods to the US. Its consumers and businesses also rely heavily on US-made imports.

Trevor Tombe, a University of Calgary economics professor, estimates a 25% tariff would shave off about 2.6% from real GDP annually and drive Canada into a recession next year.

In the report Thursday, Statistics Canada cautioned that due to delays in the receipt of some import data, estimates were made and so that side of the balance could see more significant revisions than normal in the months ahead.

Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said the overall increase in exports was far from broad-based, as it was largely driven by a sharp rise in gold shipments.

“Eight of 11 product sectors actually posted declines on the month, and export volumes were up by a more modest 0.4% as price increases led much of the nominal gain,” he said in a report to investors.