- Randall Bartlett
Deputy Chief Economist
Economic News
Canada: Trade Fell Off a Cliff in April
June 5, 2025
Highlights
- Canada’s international merchandise trade balance widened to a $7.1B deficit in April (graph 1). This was the largest trade deficit going back to at least 1988, and was significantly below the consensus of economists. See table for more details.
- Goods exports fell by 10.8% m/m in April—the largest percentage decrease in five years—while imports declined by a more modest 3.5%. In real terms, exports contracted by 8.3% while imports slumped 1.9% in the month.
- Canada’s trade surplus with the United States narrowed to $3.6B in April—the smallest surplus since December 2020 (graph 2). Coinciding with new tariffs on goods imported into the United States, this erosion in the bilateral trade surplus was largely driven by a 15.7% decline in exports headed stateside. Imports from the United States fell by an also notable 10.8% in April.
- The services trade deficit narrowed in April, to $340M. Service exports fell by a modest 0.5% while service imports decreased by 1.1%.
Comments
Ten out of 11 export categories declined in April. The drop in nominal exports was led by motor vehicles and parts (-17.4%), as additional tariffs were imposed on motor vehicles manufactured in Canada in early April. Exports of consumer goods fell 15.4%, the lowest value since December 2023, mostly due to lower exports to the United States. Exports of energy products (-7.9%) posted a third consecutive monthly decline in April, primarily due to lower crude oil export prices.
On the flip side of the trade balance, imports of motor vehicles and parts (-17.7%), industrial machinery, equipment and parts (-9.5%), consumer goods (-4.2%) and electronic and electrical equipment and parts (-5.5%) saw large declines. This likely resulted from the implementation of retaliatory tariffs by Canada on US imports. These were partly offset by a strong increase in imports of unwrought gold, silver, and platinum group metals; excluding these imports, total imports were down 6.9%. Note that past import data may be revised significantly.
Implications
While the trade data was expected to be weak in April on the back of US import tariffs and the resulting trade war, the release was much worse than expected by economists. The fall in trading activity was on par with the COVID‑19 pandemic, at least in percentage terms, and there won’t be an economic reopening that will come to the rescue this time. Indeed, much of this weakness will be here to stay until the trade conflict is resolved.
Looking ahead, we expect current tariffs and ongoing threats to heighten trade volatility, heavily influencing growth. Consequently, our latest Economic and Financial Outlook External link. points to a mild recession in Canada starting in mid‑2025, as a result of falling exports to the United States combined with weak consumption and business investment. With the April trade data clearly pointing to a severe trade shock starting in Q2, we believe the Bank of Canada External link. is likely to cut rates three more times before the end of 2025.