Canada’s trade deficit narrows in March

Investing.com -- Canada’s merchandise trade deficit narrowed in March, but tensions in U.S.-Canada trade relations remain in sharp focus as Prime Minister Mark Carney and U.S. President Donald Trump prepare to meet in Washington today. The leaders are set to begin formal discussions on the future of bilateral trade, following a flare-up in tariffs and a sharp drop in Canadian exports to the U.S.

Statistics Canada reported Friday that Canada’s merchandise trade deficit fell to $506 million in March, down from $1.4 billion in February. The narrowing gap came as imports declined 1.5%, outpacing a 0.2% drop in total exports.

Exports to the U.S., Canada’s largest trading partner, dropped 6.6% in March, impacted by newly implemented U.S. tariffs targeting a range of Canadian goods. The decline was partially offset by a 24.8% surge in exports to non-U.S. markets, reflecting early signs of trade realignment.

Consumer goods shipments, including meat and pharmaceuticals, were among the hardest hit categories, with sharp declines largely traced to reduced exports south of the border. Pharmaceutical (TADAWUL:2070) exports dropped 7.0% in March, primarily due to lower U.S. demand.

Despite the weakness in key sectors, vehicle exports rose 7.7%, buoyed by an 11.8% jump in passenger car and light truck shipments. Energy exports continued to soften, falling 2.2% in March after a 5.3% decline in February.

In response to rising trade friction, Canada imposed a 25% tariff on U.S. steel and aluminum in March. Imports of metal and mineral products fell 15.8% during the month, contributing to the overall drop in inbound goods.

Canada’s merchandise trade surplus with the U.S. narrowed to $8.4 billion in March, down from $10.8 billion a month earlier. Imports from the U.S. declined 2.9%, exacerbating bilateral trade imbalance pressures heading into today’s high-level talks.

For the first quarter of 2025, Canadian exports rose 6.0% and reached a record high of $214.0 billion, reflecting continued strength outside North America. Imports rose 5.2%, pushing the quarterly goods trade balance to a modest surplus.

As Carney and Trump meet, observers will be watching for potential signs of de-escalation. Tariffs introduced in recent months have begun reshaping Canada’s trade flows, and today’s summit could set the tone for the next phase of cross-border economic relations.