Morning Market Brief March 7, 2025

Canada’s trade surplus widens in January

Canada saw a record amount of exports and imports in January, helping it widen its trade surplus. Exports to the US were particularly notable, with US firms seeming to frontload orders ahead of expected tariffs. Extensive tariffs against Canada came into effect on Tuesday, which is expected to weigh on economic activity. Markets were left to wonder if the Bank of Canada (BoC) might cut rates again next week to support Canada’s economy through this difficult period.

• Exports from Canada rose by 5.5% in January, reaching a record high of $74.5 billion. January’s increase was driven by a 7.5% rise in exports to the US, due in part to US firms frontloading orders. Shipments of motor vehicles and parts and energy products increased markedly over the month.
• Imports also reached a record high of $70.5 billion in January, increasing by 2.3% from December. Imports from the US increased, which offset a drop in purchases from other countries.
• Canada’s trade surplus widened to $3.97 billion in January, its highest level since May 2022. Canada ran a $14.4 billion trade surplus with the US. President Trump has commented that one of the reasons for tariffs is that he isn’t satisfied with the US trade deficit with Canada.
• The US ran a trade deficit of US$131.4 billion in January, its largest deficit on record. Imports increased by 10.0% over the month, ahead of tariffs.

Yesterday, the US announced it would delay tariffs on Canadian and Mexican goods under the United States-Mexico-Canada Agreement. Tariffs have increased scrutiny of trade activity, which is a big component of Canada’s economy. In fact, it was one of the key drivers of growth in the fourth quarter of 2024. With growth now expected to slow, expectations are increasing that the BoC will lower interest rates by another 25 basis points at its meeting on March 12.

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