TD Says Canada's Widening Trade Deficit in January Signals "Chilly" Start to Year, But It Sees "Some Improvement" Coming

09:38 AM EDT, 03/12/2026 (MT Newswires) -- Trade activity had a "chilly" start to 2026, noted TD Bank on Thursday, but it said much of the weakness came through the auto sector as prolonged seasonal production stoppages "muddied" both the export and import numbers and the bank expects some improvement as conditions normalize over the next couple of months.

TD noted the recent sharp increase in oil prices won't materialize in Canada's trade balance until March, so it said with the limited data there is for the quarter, net trade will likely be a drag on Q1 2026 real gross domestic product growth, the bank added.

Also, TD noted the recent U.S. Supreme Court ruling striking down the IEEPA tariffs is a "small net positive" for Canada, reducing tariffs on non-USMCA-compliant exports from 35% to 10% and marginally lowering the country's effective tariff rate. Now, TD said, the main focus is the upcoming CUSMA review, due by July 1.

TD's base case is that the agreement remains in place, though the possibility of scenarios involving U.S. withdrawal will continue to weigh on business confidence and investment.

Canada's trade deficit widened substantially in January, up to $3.6 billion from $1.3 billion in December, noted TD after Thursday's release of the data.

TD noted exports in January slipped 4.7% month over month, more than reversing last month's gain. Exports of motor vehicles and parts fell sharply (-21.2% MoM) to its lowest level since late 2021. In line with recent trends, exports of unwrought gold, silver and platinum groups were volatile, down by 12.6% month over month. Energy exports, led by natural gas (+23.7% month over month) provided a bit of an offset. In total, six of 11 product categories registered a decrease on the month.

The bank also noted goods imports fell in January (-2.2% month over month), with seven of 11 subsectors booking a decline. Imports of motor vehicles and parts (-8.3% month over month) were also the biggest contributor to the contraction. A 3.6% month-over-month dip in electronic and electrical equipment also dragged the headline lower, with industrial machinery and equipment (+3.4%) providing an offset.

In volume terms, exports sagged by 5.8% month over month, while imports fell by a lesser 2.2% month over month. Canada's merchandise trade surplus with the United States narrowed from $5.7 billion in December to $5.3 billion in January. Exports to non-U.S. destinations fell by 6.5% month over month after reaching an all-time high last month.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.