- Canada’s goods exports fell 4.7% in January and imports dropped 1.1% (chart 1). Motor vehicles and parts were the main driver on the export side, dropping to their lowest level since September 2021 on the back of a longer-than-usual seasonal production slowdown. Also contributing to the monthly export decline was a drop in gold shipments (unwinding part of a large increase in December) as well as lower exports of aircraft and other transportation equipment. Motor vehicles also led the decline in imports for the month. After adjusting for prices, export volumes were down 5.8% and imports were 2.2% lower on the month (chart 2). Exports should bounce back as auto production returns to normal, but the January report does set up trade to drag on Q1 growth a bit more than we expected in our latest economic outlook.
- Looking through the monthly volatility, exports are broadly in line with 2024 levels, though strength in gold has masked some clear declines. Excluding gold, Canadian exports have averaged about 11% lower over the past three months compared to the same period a year ago, led by the categories targeted by the U.S. sectoral tariffs (chart 3): steel (-51%), aluminum (-8%), forestry (-23%), and motor vehicles and parts (-22%).
- The share of Canadian exports bound for the U.S. is gradually trending lower, averaging 76% in 2024 and 72% in 2025, and coming in at 68% in January 2026. This has been driven by a decline in exports to the U.S. and increasing exports to other regions—mainly Europe (chart 4). In January, exports to the U.S. fell 3.8% m/m and were down 13.7% compared to 2024. Exports to other countries fell 6.5% m/m but were 28% higher than 2024—though much of this has been driven by elevated overseas exports of gold. A similar dynamic is playing out on the import side (chart 5), as the share of Canadian imports from the U.S. is down to 56% from 62% in 2024.
- Canada continues to benefit from a (relatively) low effective tariff rate on total exports. 3.1% is our latest estimate (based on pre-tariff trade flows) of the increase in tariffs since end-2024, thanks to most of our trade with the U.S. continuing on a tariff-free basis under CUSMA. This is down from 4.5% last month due to the country-specific U.S. IEEPA tariffs being replaced by a 10% global tariff. The reported average actual duties paid on U.S. goods imports from Canada was 3.1% for the second month in a row, down from close to 4% six months ago (chart 6). This should continue to trend lower through February and March. The proportion of Canadian goods imported into the U.S. facing tariffs has settled around 10% (chart 7).
- The U.S. trade deficit is back close to its pre-tariff level (chart 8). U.S. trade saw significant volatility early in 2025 in response to the tariffs, before stabilizing later in the year. In January, U.S. exports rose 5.5% and imports fell 0.7%, resulting in a decline in the trade deficit to US$55 bn, down from around US$70bn in 2024.
- The U.S. import tariffs continue to create inflationary pressures in that country, with the latest estimate of the cumulative impact of the tariffs on U.S. CPI reaching nearly a full percentage point (chart 9)—clouding the outlook for U.S. interest rate cuts, especially given recent increases in oil prices.
- Tariffs and uncertainty (chart 10) continue despite the U.S. Supreme Court ruling. While the U.S. IEEPA tariffs were struck down last month, a new temporary global tariff of 10% was immediately implemented to replace them (with a promised increase to 15%) and work is underway to design the longer-term replacements—which could be higher. The new global tariff is lower than the 35% tariff on non-CUSMA-compliant goods that Canada previously faced, though the vast majority of our trade has been compliant and thus exempt from those tariffs. The sectoral tariffs are by far the most impactful for Canada, and have not been impacted by recent changes.
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