Key Takeaways:
- Canada’s trade deficit increased to $563 million in October, driven by a faster growth in imports compared to exports.
- Exports to the US fell 4.1% in the first 10 months of 2025, while exports to other countries rose 15.6% in October to a record high.
- Canada is diversifying its trade partners, with a significant increase in exports to countries such as Britain and China.
- The US-China trade war and US protectionism continue to pose a risk to Canada’s trade outlook.
- Canadian policymakers are seeking to find new markets for Canadian goods, with Prime Minister Mark Carney visiting China to boost trade and investment.
Introduction to Canada’s Trade Deficit
Canada’s trade balance swung back to a deficit in October, with imports growing at a faster pace than exports. According to Statistics Canada, the country imported $66.2 billion worth of goods in October, up 3.4% 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, as well as metal and non-metallic mineral products.
Diversification of Trade Partners
Despite the decline in exports to the US, Canada appears to be finding new markets for its goods. Exports to other countries 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, marking the lowest share on record in Statistics Canada data going back to 1997, excluding the initial months of the pandemic. This diversification of trade partners is a positive sign for the Canadian economy, as it reduces the country’s reliance on a single market.
Impact of US Protectionism
The US-China trade war and US protectionism continue to pose a risk to Canada’s trade outlook. Canadian exports have been on a volatile ride this year, owing to substantial US tariffs that have targeted several key industries, including steel, aluminum, autos, and lumber. Exports to the US fell 4.1% in the first 10 months of 2025, compared to the same period a year earlier. However, the vast majority of goods can still flow south of the border duty-free, which has helped to blunt the damage to Canada’s economy from US protectionism.
Outlook and Uncertainty
The outlook for Canada’s trade balance remains highly uncertain, with several factors that could impact trade flows. The US Supreme Court is set to rule on the legality of various US tariffs, including the so-called "fentanyl tariffs" on Canada, Mexico, and China. Additionally, Canada is facing a review of the North American free-trade deal, which could result in a renewal of the trilateral pact or a US withdrawal from the agreement. Canadian policymakers are trying to find new markets for Canadian goods, with Prime Minister Mark Carney visiting China to boost trade and investment.
Imports and Exports Trends
Imports bounced back in October, driven by an increase in electronics and electrical equipment, as well as metal and non-metallic mineral products. Exports, on the other hand, have been improving since the spring and summer, when US President Donald Trump was implementing many of his signature tariff policies. According to Toronto-Dominion Bank economist Marc Ercolao, the peak negative impacts from tariffs are in the rearview mirror, especially as consumers and businesses adapt to the new normal. However, 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 increased in October, driven by a faster growth in imports compared to exports. However, the country is diversifying its trade partners, with a significant increase in exports to countries such as Britain and China. The US-China trade war and US protectionism continue to pose a risk to Canada’s trade outlook, and Canadian policymakers are seeking to find new markets for Canadian goods. As the global trade landscape continues to evolve, it is essential for Canada to remain agile and adapt to changing market conditions to ensure the long-term growth and prosperity of its economy.