Ottawa, Canada – August 29, 2025 – Canada’s current account deficit surged to a record C$21.16 billion ($15.4 billion USD) in the second quarter of 2025, the widest since records began in the early 1980s, as U.S. President Donald Trump’s escalating trade war hammered exports to the country’s largest trading partner. Statistics Canada reported the shortfall on August 28, marking a dramatic widening from the C$1.32 billion deficit in the first quarter and exceeding economists’ expectations of C$19.3 billion. The deficit, driven primarily by a 13.1% plunge in goods exports to 2021 levels, underscores the severe economic strain from U.S. tariffs averaging 25% on key Canadian sectors like steel, aluminum, autos, and copper, imposed under Section 232 of the Trade Expansion Act. As the loonie trades at around C$1.377 per USD—up 4.5% year-to-date—the data signals potential headwinds for Canada’s economy, which likely stalled in Q2, and raises questions about the sustainability of bilateral trade relations amid ongoing negotiations.
The current account, a key indicator of a nation’s international economic health, tracks trade in goods and services, plus income and investment flows. Persistent deficits can pressure currencies and signal reliance on foreign capital, while surpluses bolster them. Benjamin Reitzes, rates and macro strategist at Bank of Montreal, described the quarter as “not a great showing for Canada, but clearly exceptional,” warning that without a reversal, the Canadian dollar “could be in for a rough ride.” The figures capture the fallout from Trump’s tariff barrage, which began in March 2025 and has disrupted the integrated North American supply chain, with Canada’s exports to the U.S. comprising about 75% of its total.
Breakdown of the Deficit: Trade in Goods Takes the Hit
The record shortfall was dominated by the goods trade balance, which deteriorated to a historic C$19.6 billion deficit—the largest ever recorded—primarily due to reduced shipments to the U.S. Exports of goods fell 13.1% quarter-over-quarter, reverting to 2021 levels, with key sectors like autos, energy, and metals bearing the brunt amid U.S. duties. In contrast, the first quarter saw a modest surplus as U.S. firms stockpiled inventory ahead of tariffs, but post-imposition demand evaporated.
Services trade contributed a smaller deficit of around C$1.5 billion, unchanged from prior quarters, while the primary income account (investment and wage flows) showed a slight surplus. Overall, the current account’s swing highlights the asymmetry: While imports held steady, exports cratered, exacerbating the imbalance.
| Component | Q1 2025 (C$ Billion) | Q2 2025 (C$ Billion) | Change |
|---|---|---|---|
| Goods Trade Deficit | -1.2 | -19.6 | Widened by 18.4 |
| Services Trade Deficit | -1.5 | -1.5 | Unchanged |
| Primary Income Surplus | +1.4 | +0.0 (approx.) | Narrowed |
| Total Current Account Deficit | -1.32 | -21.16 | Widened by 19.84 |
Data sourced from Statistics Canada and Bloomberg analysis.
Context: Trump’s Tariffs and the Broader Trade War
The deficit’s explosion aligns with Trump’s aggressive trade agenda, which has imposed 25% tariffs on Canadian autos (suspended temporarily but looming), 50% on steel and aluminum (doubled from 25% in July), and broader duties on copper and other goods under national security pretexts. Canada retaliated with 25% tariffs on U.S. products, but Prime Minister Mark Carney’s administration has partially lifted some measures to facilitate talks, led by Ambassador Kirsten Hillman and U.S. Trade Representative Jamieson Greer. Despite this, exports to the U.S. share of total Canadian exports dipped to historic lows, around 68.3% in recent months.
Earlier data foreshadowed the trend: April’s merchandise trade deficit hit a record C$7.1 billion due to a 22.9% drop in auto exports post-tariff. June’s deficit widened to C$5.9 billion (second-largest on record), with U.S. exports down 12.5% year-over-year. February saw an unexpected swing to a C$1.52 billion deficit as pre-tariff stockpiling peaked. The Q2 figures confirm the tariffs’ sustained bite, with Canada’s goods surplus evaporating amid supply chain disruptions.
The U.S. economy, by contrast, revised its Q2 GDP growth upward to 3.3% annualized, highlighting the asymmetry. Fitch Solutions forecasts a slight current account improvement to 0.3% of GDP deficit by end-2025, but persistent imbalances could pressure the loonie further.
Implications: Economic Stall and Policy Responses
The record deficit likely contributed to Canada’s Q2 GDP contracting by 0.7% annualized, per Bloomberg economists, stalling growth after a strong Q1. Household impacts include higher costs—tariffs equate to a $1,300 annual tax per U.S. household, with ripple effects for Canadians via reduced demand. Carney has called the tariffs “illogical” and pushed for diversification, but reliance on the U.S. market remains acute.
Bank of Canada Governor Tiff Macklem may face pressure to cut rates (forecast eop 3.00% in 2025) to support exports, though inflation risks from tariffs complicate this. Negotiations continue, with Canada eyeing exemptions, but Trump’s “scattershot” approach yields uneven results. As Q3 data looms (due November 2025), the deficit’s trajectory will test Canada’s resilience in the trade war.