Canada’s goods trade deficit grows amid Trump’s tariffs and a stronger loonie

Canadian Prime Minister Mark Carney and U.S. President Donald Trump appear beside a stack of shipping containers in this image composite. (The Canadian Press / The Associated Press)

Canada has recorded a $19.5 billion deficit in goods and services trade, up from just $800 million in the first quarter, Statistics Canada reported Thursday.

Exports declined amid U.S. tariffs on Canadian goods, and the loonie closed some of the gap with its southern counterpart, the department said in its second quarter report.

The goods trade surplus with the United States – a pain point for U.S. President Donald Trump – narrowed from $31.3 billion in the first quarter to $10.1 billion in the second quarter.

What is a trade deficit?

If Canada has a trade deficit, that means it is importing more goods than it is exporting. The dollar figure – in this case, $19.6 billion in goods – represents the gap between those two amounts.

“Well, guess what’s happening in the middle of a trade war with the U.S.? We’re exporting substantially less stuff to our major trade partner,” said Moshe Lander of Concordia University’s economics department. “So, the fact that the trade deficit is getting bigger is not at all surprising.”

“Canada is an export-based economy. We are huge exporters … Even though the deficit is 20 some odd billion dollars, let’s not forget that we’re exporting about half a trillion dollars’ worth of stuff. It just means that we’re importing close to half a trillion dollars’ worth of stuff as well.”

If Canadian businesses are exporting less, that could mean that manufacturers don’t require the same number of workers, and unemployment could rise as a result, Lander explained.

What about other countries?

Goods exports to countries other than the U.S. also dropped, though more gently, from $31.8 billion in the first quarter to $29.6 billion in the second quarter.

Growing Canada’s footprint in the global marketplace has been a cornerstone of Prime Minister Mark Carney’s plan to weather a changing commercial relationship with the States.

Earlier this week, he took that cause on the road with a trip to Germany where, standing alongside German Chancellor Friedrich Merz, he touted a “huge range” of opportunities to bring critical metals, minerals and energy to the European market.

Those are relationships Canada should have been establishing years ago, Lander said.

“I think that Canada got complacent that once we had become friends with the cool kid in school and we had the Americans in a free trade agreement with us, we just stopped trying to make new friends,” he told CTVNews.ca.

“I think we saw the consequences of that about six months ago, when the U.S. started menacing us with the original tariff talk. Nobody came to our defence. We didn’t see European countries saying, ‘Hey, you can’t talk to Canada like that.’”

What comes next?

Canada has been largely shielded from the effects of Trump’s tariffs because of its free trade agreement with the United States, which Carney has cited when telling reporters this country has the “best trade deal” of any U.S. trade partner.

But that agreement is up for review next year. By Lander’s account, Canada does not appear to have sufficient leverage to come out of negotiations unscathed.

“He’s got a large brain. He (Carney) knows he’s the smartest person in the room,” said Lander. “And so, try and use those skills to negotiate at least to the best settlement that Canada can get, even if it’s not to the settlement that we had eight months ago when we were under free trade with the Americans.”