Canada's merchandise trade balance has swung back into deficit, new data reveals, as the share of the country's exports destined for the United States plunged to a record low outside the pandemic era. The shift underscores the mounting pressure from American tariffs on key Canadian goods.
Trade Deficit Returns as Imports Surge
According to Statistics Canada data released for October 2025, the country posted a trade shortfall of $583 million. This deficit, while smaller than the $1.5 billion economists had forecast, marks a reversal driven by a surge in imports. Overall, Canadian imports climbed 3.4 per cent, fueled by record shipments of computers, computer parts, smartphones, and industrial machinery.
On the export side, total shipments managed a 2.1 per cent increase, but this growth was narrowly concentrated. A dramatic 47.4 per cent jump in exports of unwrought gold, silver, and platinum—primarily to the United Kingdom—offset broad weakness elsewhere. Notably, energy exports fell by 8.4 per cent.
U.S. Export Share Plummets to Historic Low
The most striking figure in the report is the declining reliance on the American market. The share of Canada's exports headed to the United States fell to 67.3 per cent in October. This is the lowest level recorded outside the pandemic period in data stretching back to 1997. Shipments south of the border fell another 3.4 per cent, driven by declines in aircraft and gold exports.
Economists point directly to the impact of U.S. trade policy. Under President Donald Trump, the U.S. has imposed major tariffs on imports of Canadian goods, with autos, lumber, steel, and aluminum facing particularly heavy levies. This has significantly slowed cross-border trade flows. For the first ten months of 2025, Canadian export volumes grew a meager 0.8 per cent compared to the same period last year.
Volume Data and Economic Outlook
When price effects are stripped away, the underlying picture appears even softer. On a volume basis, exports actually fell 0.4 per cent in October, while import volumes rose 2.6 per cent.
Analysts note that the trade landscape remains fraught with uncertainty. Shelly Kaushik, a senior economist at the Bank of Montreal, stated the mild trade balance deterioration was expected and "partially offset by ongoing strength in gold exports." However, she warned that "trade flows will continue to be under pressure as tariff and geopolitical uncertainty remain elevated."
The impending review of the Canada-U.S.-Mexico Agreement (CUSMA) this year adds another layer of complexity. While the deal provides exemptions for many products, economists estimate Canada still faces an effective U.S. tariff rate of between five and seven per cent.
Katherine Judge, an economist at CIBC, echoed the cautious sentiment, telling investors that Canadian exporters "likely won’t see a sustained improvement in activity until that uncertainty fades further into 2026." The financial markets reacted modestly to the data, with the Canadian dollar holding steady and traders still anticipating the Bank of Canada will keep its key interest rate at 2.25 per cent for most of the year.
