Canada’s trade balance took a significant hit at the start of the year, as a sharp decline in vehicle exports pushed the country’s trade deficit to $3.6 billion in January, according to the latest figures released by Statistics Canada.
The data shows that Canadian exports fell by 4.7 per cent in January compared with December 2025, marking the steepest monthly drop since April last year. Imports also declined, but only slightly falling by 1.1 per cent resulting in the trade deficit widening dramatically from $1.3 billion in December.
A trade deficit occurs when a country imports more goods and services than it exports, while the opposite situation is known as a trade surplus.
One of the most notable declines came from the automotive sector. Exports of motor vehicles and parts dropped by 21.2 per cent during the month. Passenger cars and light trucks experienced an even sharper fall, plunging 32.5 per cent to $5.4 billion. Statistics Canada noted that this was the lowest export level for these vehicles since September 2021, largely due to reduced production at Canadian manufacturing plants.
Overall, exports declined in six out of the country’s 11 major sectors, highlighting the broad slowdown in international shipments.
Economist Jasleen Kaur Trehan from the Canadian Chamber of Commerce said the country’s trade performance started the year on a weak footing. According to her, sectors that had driven export growth at the end of 2025 particularly autos and gold experienced major pullbacks in January. She also warned that if export volumes remain weak in the coming months, it could weigh on Canada’s economic growth.
Canada’s economy expanded by just 1.7 per cent in 2025, a modest pace that fell below the roughly two per cent average growth seen in the previous two years.
The downturn in exports also comes amid rising trade tensions with the United States. The administration of U.S. President Donald Trump recently imposed a 25 per cent tariff on Canadian-made vehicles and auto parts, along with tariffs on goods from several other countries. Since the majority of Canada’s vehicle exports are shipped to the U.S., the new tariffs have increased costs for American buyers and placed additional pressure on Canadian manufacturers.
The effects are already being felt in the labour market. In January, General Motors laid off hundreds of workers at facilities in Ontario. Meanwhile, Statistics Canada reported that manufacturing employment dropped by 28,000 jobs during the month, contributing to a national unemployment rate of 6.5 per cent.
Trade activity between Canada and the United States also slowed. Canadian exports to the U.S. fell by 3.8 per cent in January, while imports from the U.S. declined by 3.4 per cent. Canada still maintained a trade surplus with its southern neighbour, but it narrowed slightly to $5.4 billion, down from $5.7 billion in December.
Exports to countries outside the United States dropped even more sharply, declining by 6.5 per cent. Statistics Canada attributed much of this decline to reduced shipments of unwrought gold to the United Kingdom. At the same time, imports from non-U.S. countries rose by 2.1 per cent, largely driven by increased purchases of industrial machinery from China.
Amid the ongoing trade tensions, Prime Minister Mark Carney has outlined plans to reduce Canada’s reliance on the U.S. market by expanding trade with other countries. He has set a goal of doubling Canadian exports to non-U.S. destinations over the next decade.
Other sectors also recorded declines in January. Exports of metal and non-metallic mineral products, which include gold, silver, platinum group metals and related alloys, fell eight per cent after a strong increase in December. Aircraft and transportation equipment exports also dropped by 16 per cent following several months of stronger performance, including shipments of Canadian-made private jets produced by companies such as Bombardier.
The latest figures suggest that Canada’s trade sector is facing mounting pressure from weaker global demand, production disruptions and escalating trade tensions factors that could influence the country’s economic outlook in the months ahead.
