Canada Swings to Goods-Trade Surplus as US Tariff Threat Looms

Canada's merchandise-trade surplus with the world swung back into positive territory in December, reaching C$708 million ($494.3 million), the Wall Street Journal reports. This marks the country's first global surplus in 10 months, driven by a surge in energy exports to the US.

The December surplus, however, fell short of the C$1.03 billion surplus anticipated by economists. It also follows a revised upward revision of November's deficit to C$986 million.

The surge in trade activity comes as Canada navigates heightened uncertainty surrounding potential punitive tariffs threatened by US President Donald Trump. Exports for December jumped, exceeding the increase in imports, largely due to increased energy product shipments to the US.

"The uncertainty will likely continue to result in U.S. importers front-running potential tariffs in the near term," said Katherine Judge, senior economist at CIBC Capital Markets, to the WSJ. "The uncertainty is clearly a negative for business investment in Canada, and supports our call for further Bank of Canada cuts as the weakness is occurring at a time when the economy is still operating with slack."

Despite the overall global surplus, Canada's annual trade deficit widened to roughly C$7.2 billion, a significant increase from the C$610 million shortfall recorded in 2023.

While Canada's deficit with countries outside the US expanded, its longstanding surplus with its largest trading partner widened considerably in December, reaching C$11.34 billion from C$8.19 billion the previous month. This resulted in a C$102.3 billion trade surplus with the US for the entire year, slightly less than the C$108.3 billion recorded in 2023.

The focus on cross-border trade intensifies as the threat of a North American trade war looms following Trump's repeated claims that the US trade deficit with Canada amounts to a subsidy and that Americans do not require Canadian products.

Trump recently struck last-minute deals to delay plans for a 25% tariff on imports from Canada and a 10% tariff on oil by one month, hoping to negotiate an "economic deal" with Canada. Canada has pledged to retaliate with tariffs on US goods if necessary.

Economists believe Canadian trade figures will likely remain volatile until there is greater certainty regarding the tariff situation.

Merchandise exports in December jumped 4.9% to C$69.46 billion, the strongest increase since February 2024, partly due to the further depreciation of the Canadian dollar against the US dollar and a possible acceleration in US buying ahead of potential tariffs. A recent KPMG survey of 250 Canadian business leaders found that 65% proactively shipped goods or products ahead of Trump's inauguration.

Exports of energy products surged 9.5% from the previous month, driven by an increase in crude oil exports. Exports of mineral products also saw a significant rise, and Canada shipped more motor vehicles and parts, as well as farm, fishing, and intermediate food products during the month.

Canada's exports to the US increased by 5% in December, following a 6.7% rise the previous month, thanks to energy shipments. Energy products remain crucial to Canada's surplus with its southern neighbor. Of the C$176.2 billion worth of energy exported last year, approximately 88% went to the US.

Overall Canadian imports rose by 2.3% in December, but imports of US goods fell by 1.5%. The combined value of Canada's goods imports and exports with the US surpassed C$1 trillion for the third consecutive year. Statistics Canada noted that 75.9% of all exports from Canada were destined for the US, while the US was the source of 62.3% of imports.