Canada today posted a trade surplus for the first time in 10 months in December, though it was slightly smaller than expected. For January, we are likely to see more of the same as shippers attempted to beat Trump's tariff deadlines.
For December, Canadian exports rose to $69.46B from $66.20B in a sign of both tariff angst and a weaker Canadian dollar.
"Exports to the US rose by 5% m/m, and likely reflected some front-running of potential tariffs, combined with higher oil prices. For 2024 as a whole, Canada's trade surplus with the US narrowed to $102.3bn from $108.3bn in 2023, although the surplus is entirely accounted for by energy products," writes CIBC.
The effect of tariff worries may persist through February as Trump only 'paused' tariffs. That should lead US buyers to stockpile needed supplies from Canada.
As a result, Q1 trade numbers from Canada should be very strong, perhaps making GDP growth look stronger than it is, and likely reversing whenever there is more trade certainty. Moreover, the political flux is nearly certain to hold back spending in Canada as the country remains on edge.
"While tariffs on Canada are now on hold for thirty days, the uncertainty will likely continue to result in US importers front-running potential tariffs in the near term. The uncertainty is clearly a negative for business investment in Canada, and supports our call for further Bank of Canada cuts as the weakness is occurring at a time when the economy is still operating with slack," CIBC writes.
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