Canada’s trade deficit widened substantially in January, up to $3.6 billion from $1.3 billion in December.
Exports in January slipped 4.7% month-on-month (m/m), more than reversing last month’s gain. Exports of motor vehicles and parts fell sharply (-21.2% m/m) to its lowest level since late-2021. In line with recent trends, exports of unwrought gold, silver and platinum groups were volatile, down by 12.6% m/m. Energy exports, led by natural gas (+23.7% m/m) provided a bit of an offset. In total, 6 of 11 product categories registered a decrease on the month.
Goods imports fell in January (-2.2% m/m), with 7 of 11 subsectors booking a decline. Imports of motor vehicles and parts (-8.3% m/m) was also the biggest contributor to the contraction. A 3.6% m/m dip in electronic and electrical equipment also dragged the headline lower, with industrial machinery and equipment (+3.4% m/m) providing an offset.
In volume terms, exports sagged by 5.8% m/m while imports fell by a lesser 2.2% m/m.
Canada’s merchandise trade surplus with the United States narrowed from $5.7 billion in December to $5.3 billion in January. Exports to non-U.S. destinations fell by 6.5% m/m after reaching an all-time high last months.
Key Implications
Trade activity had a chilly start to 2026. Much of the weakness however came through the auto sector as prolonged seasonal production stoppages muddied both the export and import numbers – we expect some improvement as conditions normalize over the next couple of month. The recent sharp increase in oil prices won’t materialize in Canada’s trade balance until March, so with the limited data we have for the quarter, net trade will likely be a drag on Q1-2026 real GDP growth.
The recent U.S. Supreme Court ruling striking down the IEEPA tariffs is a small net positive for Canada, reducing tariffs on non-USMCA compliant exports from 35% to 10% and marginally lowering the country’s effective tariff rate. Now, the main focus is the upcoming CUSMA review, due by July 1st. Our base case is that the agreement remains in place, though the possibility of scenarios involving U.S. withdrawal will continue to weigh on business confidence and investment.
