Canada posts surprise trade deficit in February, exports still near record level

Canada unexpectedly swung into a trade deficit in February but both exports and imports stayed at near record levels, data showed on Thursday, as businesses kept building up inventories to offset some impacts of impending tariffs.

The country's trade deficit for February was at C$1.52 billion ($1.08 billion), down from a 32-month high surplus of C$3.13 billion in January, Statistics Canada said.

Analysts polled by Reuters had forecast a trade surplus of C$3.55 billion in February.

The Canadian dollar extended gains and firmed 1.03% to 1.4084 against the U.S. dollar after the trade data, or 71.00 U.S. cents. Currency swap markets see a 73% chance of a pause in interest rate cuts on April 16.

Canada's merchandise trade has picked up momentum since November as the threat of tariffs from the U.S. President Donald Trump became more real.

He has slapped an array of tariffs on Canada from steel and aluminum to cars and parts, but on Wednesday did not impose any reciprocal tariffs.

Tariff threats have forced businesses, especially in the U.S., to build up on inventories to mitigate some impacts of higher costs.

This has reflected in Canada's trade statistics with the country's surplus with the U.S. rising for three consecutive months and reaching a record in January. Its overall surplus also jumped to record levels in January.

Total exports in February dropped by 5.5% to C$70.11 billion, Statscan said, adding that despite the drop, February exports were the second highest since May 2022.

The decline in exports were noted in 10 of the 11 product sections, but these declines did not offset the gains seen in the previous months.

Exports of energy products, with a drop of 6.3%, posted the biggest decline in February, the first decrease since September 2024, as crude oil exports fell on lower prices. Exports of motor vehicles and parts dropped 8.8% in February but except the month of January it was still highest since a year ago, the statistics agency said.

Imports continued their upward march for a fifth consecutive month and rose by 0.88% to C$71.63 billion, it said.

Exports to the U.S. were down 3.6%, but were still almost 80% of Canada's total exports in February. Imports rose 2.5% from the U.S., or 63% of its total imports.

($1 = $1.4124 Canadian dollars)