Key Takeaways
- Canada’s trade deficit has increased due to a faster growth in imports compared to exports
- The country is diversifying its trade partners, with a significant increase in exports to countries other than the US
- Exports to the US have fallen, while exports to other countries, such as Britain and China, have risen
- The trade outlook is uncertain due to US protectionism and the ongoing review of the North American free-trade deal
- Canadian policymakers are seeking to find new markets for the country’s goods, with Prime Minister Mark Carney visiting China to boost trade and investment
Introduction to Canada’s Trade Deficit
Canada’s trade balance has swung back to a deficit, with imports growing at a faster pace than exports. According to Statistics Canada, the country imported $66.2-billion worth of goods in October, a 3.4% increase from September, while exports rose 2.1% to $65.6-billion. This resulted in a trade deficit of $563-million, compared to a surplus of $243-million in September. The faster growth in imports was driven by an increase in electronics and electrical equipment, which rose 10.2% in October.
Diversification of Trade Partners
Despite the trade deficit, there are signs that Canada is diversifying its trade partners. Exports to countries other than the US rose 15.6% in October to a record high, led by higher shipments of gold to Britain and crude oil to China. In fact, only 67% of Canadian exports went to the US in October, the lowest share on record since 1997, excluding the pandemic period. This suggests that Canadian businesses are finding new markets for their goods, which could help reduce the country’s reliance on the US market.
Impact of US Tariffs
The US has imposed significant tariffs on Canadian goods, including steel, aluminum, autos, and lumber. These tariffs have had a substantial impact on Canadian exports, which fell 4.1% in the first 10 months of 2025 compared to the same period a year earlier. However, while some Canadian industries face hefty US tariffs, the vast majority of goods can still flow south of the border duty-free. This has helped to blunt the damage to Canada’s economy from US protectionism. Nevertheless, the outlook remains uncertain, with the US Supreme Court set to rule on the legality of various US tariffs, including the "fentanyl tariffs" on Canada, Mexico, and China.
Uncertain Trade Outlook
The trade outlook is highly uncertain due to ongoing US protectionism and the review of the North American free-trade deal. Canada is facing a complex review of the US-Mexico-Canada Agreement (USMCA), which could result in a range of outcomes, from a renewal of the trilateral pact to a US withdrawal from the agreement. This uncertainty is likely to continue to affect Canadian exporters, who remain challenged by US tariffs and uncertainty around the USMCA renegotiations. As a result, Canadian policymakers are seeking to find new markets for the country’s goods, with Prime Minister Mark Carney visiting China to boost trade and investment.
Imports and Exports Trends
Imports bounced back in October after a 4.3% drop in September, led by an increase in electronics and electrical equipment. Computers and computer peripherals climbed more than 32% to a record high, driven largely by processing units from Ireland. Communication, audio, and video equipment also increased, supported by stronger smartphone shipments from China and the US. On the other hand, exports have been improving since the spring and summer, when US President Donald Trump was implementing many of his signature tariff policies. While the peak negative impacts from tariffs may be in the rear-view mirror, the path forward is still subject to significant risk, notably the upcoming and complex review of the USMCA agreement.
Conclusion and Future Prospects
In conclusion, Canada’s trade deficit has increased due to a faster growth in imports compared to exports. However, the country is diversifying its trade partners, with a significant increase in exports to countries other than the US. The trade outlook remains uncertain due to US protectionism and the ongoing review of the North American free-trade deal. Canadian policymakers are seeking to find new markets for the country’s goods, which could help reduce the country’s reliance on the US market. As the USMCA review approaches, Canadian businesses and policymakers will be watching closely to see how the agreement will be renegotiated and what impact it will have on the country’s trade prospects.