Canada's 2025 Trade Deficit Widest on Record Excluding Pandemic Era
Canada's trade deficit expanded significantly in 2025, reaching $31.3 billion for the year. This marks the largest annual shortfall on record outside of the COVID-19 pandemic period, according to data released by Statistics Canada. The widening deficit has been primarily attributed to the impact of U.S. tariffs on key Canadian export sectors.
Export Declines and U.S. Trade Relationship Strain
Annual exports decreased by 0.2% in 2025, with declines observed across most product groups. Exports to the United States, Canada's most important trading partner, tumbled by 5.8%. The proportion of Canada's goods exports going to the U.S. fell to below 72%, down from approximately 76% the previous year.
The annual international merchandise data illustrates how U.S. President Donald Trump's tariffs have disrupted Canada's crucial trading relationship, creating challenges for exporters and forcing some to seek alternative markets for their products.
Gold Exports Mask True Trade Damage
A significant increase in gold exports has partially obscured the broader trade challenges. Canadian exports of unwrought gold, silver, and platinum group metals and their alloys surged by 41.7% last year, driven by strong price increases. When excluding this category, exports actually fell by three percent, revealing more substantial underlying weaknesses in Canada's trade performance.
Comparative Data and Economic Context
With the exception of 2020, when public health measures to contain the COVID-19 virus slowed cross-border business activity, Canada's total trade deficit was the largest in data going back to 1988. The United States simultaneously released its own trade data, showing a full-year deficit of US$901.5 billion, which remains among the largest deficits recorded since 1960.
Canada's trade surplus with its southern neighbor narrowed to $81.6 billion in 2025 from $101.3 billion the prior year, while imports from the U.S. decreased by 2.9%.
Market Reactions and Economic Analysis
Following the data release, financial markets showed modest reactions. The yield on the two-year Canadian government bond fell about a basis point to 2.447%, while the Canadian dollar weakened slightly to trade at $1.3709 per U.S. dollar as of 9:25 a.m. in Ottawa.
Doug Porter, chief economist at Bank of Montreal, provided context in a report to investors: "At around one percent of GDP for both the merchandise trade deficit and the current account gap overall, the imbalances aren't overly concerning." He noted that the volume of trade stabilized through the second half of last year after a significant decline in the spring, with net exports positioned to support GDP moderately again in the fourth quarter.
Non-U.S. Trade and Monthly Trends
Exports to countries excluding the United States rose by 17.2% in 2025, while imports increased by 12.4%. Despite this growth, Canada's trade deficit with countries other than the U.S. widened to $112.9 billion from $108.4 billion.
On a monthly basis, December 2025 showed some improvement with Canadian exports increasing by 2.6% and imports rising by 0.6%. Canada's trade deficit narrowed from $2.6 billion in November to $1.3 billion in December, coming in lower than the $2.2 billion deficit economists surveyed by Bloomberg had anticipated.
The uneven recovery in trade volumes throughout 2025 highlights the ongoing challenges facing Canadian exporters as they navigate changing international trade dynamics and seek to diversify their market access beyond traditional trading relationships.
