Canada's Trade Deficit Widens as Exports Plunge

Canada’s international trade deficit widened significantly in November, hitting C$2.2 billion compared to a revised C$395 million gap in October. According to new data from Statistics Canada, the change was driven by a sharp decline in merchandise exports, reflecting a broader push by Canadian firms to diversify away from the U.S. market.

This trade balance has been in deficit territory for most of the year, with a single marginal surplus recorded in September. The trend coincides with trade uncertainty that began in February 2025, linked to tariffs and policy threats from U.S. President Donald Trump.

Key Export Categories See Major Declines

The November deficit was primarily fueled by a steep fall in several key export sectors, with total export volumes down 0.9%. Imports, by contrast, saw a minimal decrease of only 0.1% to C$66.14 billion.

The most significant drops in exports included:

• Metals and Nonmetallic Goods: This category plummeted by 24.4%, led by a sharp fall in unwrought gold exports to Britain, the United States, and Hong Kong.

• Motor Vehicles and Parts: Exports fell by 11.6%, the largest drop for this category in three years.

The slight decline in overall imports was led by lower imports of motor vehicles, parts, and energy products.

The Complex Picture of U.S. Trade

Despite the widening overall deficit, Canada's trade surplus with the United States actually improved, climbing to C$6.6 billion in November from C$5.2 billion the previous month. This happened because imports from the U.S. fell more steeply (-5.4%) than exports to the U.S. did (-1.8%).

This dynamic reflects the impact of U.S. levies on Canadian steel, automotive, aluminum, and lumber, which have pushed exporters to seek new markets. As a result, the U.S. accounted for just over 68% of Canada's total exports in November, a notable decrease from 76% a year ago.

Diversification Efforts Show Mixed Results

While trade patterns with the U.S. are shifting, Canada's efforts to grow trade with other nations are producing uneven outcomes.

Imports from countries other than the U.S. surged by 7.8% to their highest level on record, with China and Germany leading the trend. At the same time, exports to these non-U.S. destinations fell by 4.9%. This combination widened Canada's trade deficit with the rest of the world to C$8.8 billion in November, up from C$5.6 billion in October.

Expert Outlook and Market Reaction

Stuart Bergman, chief economist at Export Development Canada, suggested that while the diversification effort is moving in the right direction, results will take time. "I do see the momentum moving in the right direction. Are we going to see results overnight? No," he said. Bergman expects exports to the U.S., which have now declined for two consecutive months, to continue shrinking as Canadian firms find new markets.

However, he warned that Canada's exports remain concentrated, with almost 90% still going to the U.S., Britain, the European Union, and China.

Following the data release, the Canadian dollar strengthened, trading up 0.32% to C$1.3511 against the U.S. dollar. Yields on two-year government bonds fell 0.5 basis points to 2.4192%.

Statistics Canada also noted that the release of the November trade data was delayed because a 43-day government shutdown in the United States had impacted data collection for several months.