Canada is highly dependent on a healthy trade relationship with the U.S. since the vast majority of Canada’s exports end up in the U.S.

The U.S. is Canada’s most significant trading partner by a large margin, accounting for 10 times more of Canada’s imports and 20 times more exports in 2014 than Canada’s second greatest trading partner, China.

This is why Canadian economists and public officials are so perplexed about the election of Donald Trump. Trump is a protectionist on trade since he feels that the U.S. has been taken advantage of by its trading partners.

He plans to axe the Trans-Pacific Partnership, the agreement between 12 countries including the U.S. and Canada that account for 40% of global economic output. As well he has described the North American free-trade agreement as a disaster, that he would either renegotiate or possibly terminate.  

These new trade concerns arrive at a very fragile time for the Canadian economy. Ever since the world oil market collapsed back in 2014 Canada’s economy has been in trouble. In the recent past Canada’s energy exports to the U.S. soared primarily because high oil prices (rather than the volume of exports) compensated for the longer-term erosion of Canadian manufacturing exports.

Curently, however, Canada’s merchandise trade is heavily in deficit and of course the Canadian  currency has been quite depressed relative to the U.S. dollar.

The following two charts illustrate that in September Canada’s imports rose to a record $47.6 billion and exports were roughly flat at $43.5 billion. Consequently, Canada's merchandise trade deficit with the world widened from $2 billion in August to a record $4.1 billion in September.

As the second chart illustrates, in September Canada’s international trade deficit rose to its highest level since 2011.