Canada posts surprise trade deficit in February

By Promit Mukherjee

OTTAWA (Reuters) -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 built inventories in the United States to try to limit the impact of 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.

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

He has imposed tariffs on imports from Canada ranging 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 inventories to mitigate some of the cost impact.

This is reflected in Canada's trade statistics as the country's surplus with the U.S. rose for three consecutive months, 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.

Exports declined in 10 of the 11 product sections, but did not offset the gains of 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.

Although exports of motor vehicles and parts dropped 8.8% in February, with the exception of the month of January, they remained the highest in a year, the statistics agency said.

"The drop in exports gave away all off the gains of January and then some more showing the front-loading effect seen in the previous months was slowing down," Stuart Bergman, chief economist with Export Development Canada.

While stockpiling continued in February, the month was marked by volatility in exports and the trend would continue next month, Bergman said, adding the front-loading effect would fade further in April.

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.

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.

($1 = $1.4124 Canadian dollars)

(Reporting by Promit Mukherjee; Editing by Dale Smith, Andrew Heavens and Barbara Lewis)