Analysis of Canadian Tariffs and Trade Deficits

Canada’s economy is heavily reliant on international trade, with exports and imports accounting for a significant portion of its GDP. In 2024, goods and services exports grew by 2.0%, while imports rose by 2.7% compared to 2023, indicating a slight widening of the trade gap. The United States, Canada’s largest trading partner, accounts for about 75% of Canadian exports, with daily cross-border trade valued at approximately US$2.5 billion. Recent U.S. tariffs of 25% on Canadian goods (10% on energy exports), effective March 4, 2025, have prompted Canada to impose retaliatory tariffs of 25% on US$155 billion worth of U.S. imports, starting with US$30 billion immediately. These measures aim to protect Canadian industries but could exacerbate trade deficits in specific sectors if export volumes decline.

Canada typically maintains a merchandise trade surplus with the U.S., estimated at C$100 billion in 2024 (3.2% of GDP), though this shrinks to C$85 billion (2.8% of GDP) when services are included, where the U.S. has an advantage. However, from the U.S. perspective, the trade deficit with Canada is smaller, projected at US$45 billion in 2024 (-0.2% of U.S. GDP). This discrepancy reflects differing data methodologies and currency conversions. Globally, Canada’s trade balance varies by country, with surpluses in some cases (e.g., U.S.) and deficits in others (e.g., China, Mexico).

Tariffs influence these balances by raising the cost of imports and potentially reducing export competitiveness. The Bank of Canada modeled a scenario where U.S. 25% tariffs on all imports, met with full retaliation, would lower Canadian GDP growth by 2.5% in the first year and 1.5% in the second, with inflation rising temporarily due to higher import costs. Sectors like automotive (highly integrated with the U.S.) and energy (Canada’s top export) are particularly vulnerable, with potential job losses estimated at over 510,000 in Canada if retaliation escalates.

Countries by Tariff Rates and Canada’s Trade StatisticsBelow is a table ranking key trading partners by their applied tariff rates (weighted mean, all products, based on World Bank data where available, supplemented by recent policy changes) and Canada’s export and import numbers with them. Since exact tariff rates for 2025 aren’t fully detailed across all countries in my data, I’ve used the most recent available figures and adjusted for known policy shifts (e.g., U.S. tariffs of 25% as of March 2025). Export and import figures are annualized estimates for 2024 based on trends from Statistics Canada and other sources, converted to US$ billions for consistency.

Notes:

Tariff Rates:

U.S., China, and Mexico rates reflect recent policy changes (March 2025). U.S. tariffs jumped from a historical average of ~2.5% to 25% on Canadian goods. China’s rate doubled from 10% to 20% on U.S. imports, with Canada facing similar rates in retaliation scenarios. Mexico’s 25% is tied to U.S. policy and Canadian countermeasures.Other countries’ rates are based on World Bank 2023 data (latest comprehensive figures), as 2025 specifics are unavailable. These are weighted means across all products, not Canada-specific.

Trade Figures:

U.S. figures align with a US$600 billion goods trade estimate for 2024, adjusted for services. Canada’s surplus is smaller in U.S. data (US$45B) vs. Canadian data (C$85B ≈ US$62B).China and Mexico show deficits due to higher imports of manufactured goods vs. Canada’s commodity-heavy exports (e.g., energy, metals).EU, Japan, South Korea, UK, and India figures are approximations based on 2024 trends from Global Affairs Canada and Statistics Canada.

Trade Balance:

Positive values indicate a surplus; negative values indicate a deficit.

Highest Tariffs: The U.S., Mexico, and China now lead with 25% and 20% tariffs due to recent trade disputes, far exceeding historical norms. This escalation threatens Canada’s export-driven economy, particularly in energy and autos.

Export/Import Leaders: The U.S. dominates Canada’s trade, with exports of US$450 billion and imports of US$405 billion, yielding a modest surplus. China and Mexico, however, contribute to deficits due to lower export volumes.

Deficit Impact: Tariffs could widen deficits with countries like China and Mexico if Canadian exports drop more than imports. Conversely, retaliatory tariffs on U.S. goods might reduce Canada’s surplus by curbing import demand.

Global Context: Canada benefits from lower tariffs via free trade agreements (e.g., CPTPP, CETA), keeping rates with Japan, South Korea, and the EU below 7%, supporting balanced trade.