Canada's trade deficit has surged to an unprecedented $7.1 billion in April, marking the highest level ever recorded. This alarming figure comes as exports plummeted due to the impact of U.S. tariffs, which have significantly affected demand for Canadian goods. The trade deficit jumped from $2.3 billion in March, far exceeding analysts' expectations.

In April, Canadian merchandise exports fell by 10.8 percent, while imports decreased by 3.5 percent compared to the previous month. The decline in trade was primarily driven by a staggering 15.7 percent drop in exports to the United States, which is Canada's largest trading partner. Exports to the U.S. fell in 10 out of 11 categories, with notable declines in motor vehicles, consumer goods, and crude oil.

BMO senior economist Shelly Kaushik commented on the situation, stating, "The April trade figures were unsurprisingly ugly in the face of the ongoing trade war, with the doubling of steel and aluminum levies in June suggesting that Canada won’t be out of the woods for at least the next couple of months."

National Bank economist Jocelyn Paquet noted that while exports to non-U.S. markets increased by 2.9 percent to $18.3 billion, it was insufficient to offset the losses from the U.S. market. "This asymmetry makes clear that Canada will not be able to diversify its export markets quickly enough to counter the effects of the trade war," Paquet said.

The automotive sector has been particularly hard hit, with a 34.5 percent drop in raw aluminum exports and a 22.9 percent decline in passenger vehicles. Flavio Volpe, CEO of the Automotive Parts Manufacturers’ Association, warned that the situation could worsen. "I think the May number will shock people. This was just the first month," he said, emphasizing the potential for further declines.

The trade figures reflect the broader economic implications of the tariffs imposed by U.S. President Donald Trump, who recently signed an executive order doubling tariffs on steel and aluminum imports to 50 percent. The Canadian economy is expected to feel the repercussions, with Paquet predicting weaker-than-expected growth in the second quarter. "The staggering deterioration in the merchandise trade balance is sure to translate into much weaker-than-expected growth in Canada in the second quarter of the year," she stated.

The decline in trade is also attributed to a significant appreciation of the Canadian dollar in April, which affects the value of trade transactions. Despite the challenges, there was a slight increase in exports to countries other than the U.S., indicating some level of trade diversification.

Economists remain cautiously optimistic about a potential rebound in exports as producers adjust to comply with the United States-Mexico-Canada Agreement (USMCA) and as the effects of the tariffs begin to stabilize. However, the ongoing trade tensions and the recent tariff increases serve as a stark reminder of the vulnerability of Canadian exporters to U.S. policy changes.