Canada's trade deficit surges; secret negotiations underway for a US

Export to the U.S. Plummets, Trade Deficit Hits Record

In April 2025, Canada's exports to the United States fell by 15.7% compared to the previous year, leading to a record-breaking trade deficit of 7.1 billion Canadian dollars (approximately 5.2 billion USD) for the month. This marks the lowest export level since June 2023, and the third consecutive month of decline. While exports to other markets increased by 2.9%, it was not enough to offset the loss in U.S. exports. The automotive industry was hardest hit, with exports of passenger and light trucks down by 22.9%.

Canadian and U.S. Leaders in Secret Talks for Trade and Security Agreement

Amid escalating trade tensions, Canadian Prime Minister Mark Carney and U.S. President Donald Trump are engaged in secret talks aimed at establishing a framework agreement encompassing trade and security. The negotiations might cover increasing the use of American auto parts in North America, improving U.S. access to Canada's critical minerals, expanding Canada's role in the Arctic, and enhancing coordination on defense spending, energy cooperation, border security, and curbing fentanyl smuggling.

Concerns Over Tariff Impact Wane Among Canadian Businesses

Despite ongoing trade tensions, the Bank of Canada noted that many companies and industry associations affected by tariffs believe the worst-case scenario regarding U.S. tariffs is now less likely than before. However, businesses still expect to raise prices to cope with rising costs. The Bank recently consulted with several companies and associations severely impacted by trade frictions, covering the period from mid-April to mid-May. Companies broadly anticipate a short-term weakening in economic activity and a threat to employment prospects.

Canadian Government Seeks Diplomatic Resolution to Dispute

Facing pressure from U.S. tariff hikes, the Canadian government has opted for a diplomatic approach to resolve the dispute. Prime Minister Carney emphasized that Canada is engaged in intensive negotiations over tariff issues and is prepared to take retaliatory measures if talks fail. Meanwhile, Canada's largest private sector union, Unifor, is urging the government to take immediate countermeasures to protect domestic workers and industries.

As trade tensions continue to develop, the relationship between Canada and the United States faces a severe test. The leaders of both countries are striving to resolve disputes through negotiations to prevent further escalation into a trade war. However, if talks do not achieve substantial progress, Canada may be compelled to adopt a tougher stance to safeguard its economic interests.

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