In an unexpected turn of events, Canadian exports to the United States plunged in March, only to be buoyed by a remarkable surge in goods shipped to other nations, yielding a surprising boost to Canada’s trade balance during the inaugural month of imposing tariffs.

Statistics Canada revealed a steep 6.6% drop in Canadian goods exported to the U.S., while imports from the south also decreased by 2.9%. This drop coincides with the Trump administration's hefty tariffs on steel and aluminum initiated in early March, alongside further levies on non-compliant Canadian goods under the North American Free Trade Agreement (NAFTA), prompting Ottawa to retaliate.

Yet, amidst this trade turmoil, a shining beacon emerged: a staggering 24.8% increase in exports to countries beyond the U.S., such as the UK, the Netherlands, Hong Kong, and Germany—marking one of the most significant monthly increases on record.

Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, encapsulated the mixed sentiments: "U.S. tariffs have undoubtedly strained Canadian exports, but the notable uptick in shipments, particularly oil, to other markets is a glimmer of hope. This diversification might just ignite some optimism for the future."

Overall, Canada’s merchandise trade saw a slight decline of 0.2% in exports, while imports dipped by 1.5%, resulting in a narrower-than-expected trade deficit of $506 million, down from $1.4 billion in February. This trade sluggishness may be attributed to declining prices, although in volume terms, exports rose by 1.8% while imports edged down by 0.1%.

Looking ahead, trade policy discussions will take center stage as Prime Minister Mark Carney meets with U.S. President Donald Trump in Washington. Carney is poised to advocate for a rollback of tariffs and set the stage for renegotiating the United States-Mexico-Canada Agreement (USMCA). However, the prime minister is tempering expectations, indicating that any agreements might be a long time coming.

Since Trump’s election on a strongly protectionist platform, Canada’s trade landscape has been anything but stable.

In late 2022 and January, Canadian exports surged past U.S. borders as businesses moved quickly to bypass anticipated tariffs. Despite this momentum slowing, car manufacturers continued to send vehicles south in March in a last-ditch effort before auto tariffs were rolled out in April, contributing to a 7.7% uptick in car and auto parts exports.

As industry-specific tariffs slowly take effect, March saw a 9% decrease in exports of basic and semi-finished iron and steel products, whereas unwrought aluminum and alloys saw a 4.4% increase—both facing a 25% tariff.

Marc Ercolao, an economist at Toronto-Dominion Bank, notes that while trade data for Q1 reflects stability, future numbers are expected to reveal the fallout of tariffs in real-time.

The healthy rise in Canadian exports to other global markets offers a promising outlook, particularly as Canada aims to reduce its dependence on the U.S. This boost includes increased shipments of gold to the UK and crude oil to both the Netherlands and Hong Kong.

However, experts warn that this favorable trend may not be sustainable. Stephen Brown, deputy chief North America economist at Capital Economics, stated that it seems unlikely exporters can indefinitely depend on alternative markets to compensate for diminished U.S. demand, pointing out that Canada’s export orders index has plummeted to a concerning 39.1 in April—mirroring historic lows.

In the face of ongoing trade tensions, Canada has managed to sidestep some of the harsher blows from Trump's trade war, securing exemptions that shield Canadian goods from certain U.S. tariffs.

Still, as most USMCA-compliant exports remain tariff-free for now, many economists predict that Canadian exports are poised for a rough patch ahead.

"While we expect a slight recovery in export orders in the upcoming months, it may not be enough to offset the projected decline in export volumes for the remainder of the year," Brown concluded.