U.S. President Donald Trump’s trade war is taking a bite out of Canada’s economy.
In April, Canada’s monthly trade deficit in goods hit $7.1 billion — its highest level ever — as exports plunged in the wake of U.S. tariffs.
And economists and industry leaders warn the numbers are likely to get worse in the coming months.
“The April trade figures were unsurprisingly ugly in the face of the ongoing trade war, with the doubling of steel and aluminum levies in June suggesting that Canada won’t be out of the woods for at least the next couple of months,” BMO senior economist Shelly Kaushik wrote in a research note.
In a report after the data was released by Statistics Canada, National Bank economist Jocelyn Paquet also noted that exports to non-U.S. markets rose 2.9 per cent to $18.3 billion, but that it wasn’t nearly enough to offset the 15.7 per cent plunge in exports to the U.S., compared to the previous month.
“This asymmetry makes clear that Canada will not be able to diversify its export markets quickly enough to counter the effects of the trade war,” Paquet wrote.
Eventually, argued Paquet, the trade data will have an impact on the broader Canadian economy, including jobs.
“The staggering deterioration in the merchandise trade balance is sure to translate into much weaker-than-expected growth in Canada in the second quarter of the year,” Paquet wrote. “While some may dismiss any economic contraction caused by changes in the trade balance, we believe it will leave its mark. This is because such a dramatic drop in exports is bound to have repercussions on production and hiring.”
Katherine Judge, executive director and senior economist at CIBC Capital Markets, called the numbers “really bad.”
“Essentially trade has totally collapsed,” Judge said in an interview.
“Obviously the U.S. is our biggest trading partner, so it didn’t really matter that trade with some other countries increased. I think this just exemplifies how dependent we are on the U.S. and also how difficult it will be to diversify our trade base away from the U.S.”
April was the first full month of tariffs between Canada and the U.S. and saw the implementation of tariffs on the auto sector.
Sectors hit hardest by tariffs saw the biggest drops in exports, with a 34.5 per cent fall in raw aluminum and 22.9 per cent drop in passenger vehicles, with lumber (15.9 per cent), as well as raw iron and steel (14.1 per cent) also falling.
Earlier this week, Trump signed an executive order doubling the tariff on steel and aluminum imports to 50 per cent.
The numbers were no surprise to the head of Canada’s automotive parts industry association, who said things are going to get a lot worse.
“I think the May number will shock people,” said Flavio Volpe, CEO of the Automotive Parts Manufacturers’ Association. “This was just the first month.”
And, argued Volpe, the trade war is at least as harmful to the U.S. economy as it is to Canada’s, and is benefitting one of the world’s other big auto and steel exporters.
“They’re dragging themselves down while they try to drown us, and China continues unfettered,” said Volpe, who noted production slowdowns or pauses by some American auto manufacturers in their Canadian operations.
“Stellantis shut down for a couple weeks in Windsor. We saw volumes coming down from other assemblers here. And then you blend that with the fact that even though some manufacturers decided to absorb the tariffs, there’s a limit to how long you can do that,” Volpe said.
With files from The Canadian Press
