Canada’s trade deficit narrowed to $506-million in March, beating expectations as imports fell at a faster rate than the drop in exports, data showed on Tuesday.

Imports of goods dropped 1.5 per cent in March, driven by a 2.9 per cent slump in imports from the United States after Canada imposed retaliatory tariffs on its neighbor following President Donald Trump’s 25 per cent tariff on Canadian steel and aluminum from March 12.

Exports to the United States also dropped by 6.6 per cent but was almost compensated by an increase in exports to the rest of the world, Statistics Canada said.

Analysts polled by Reuters had estimated that the total trade deficit would widen to $1.56-billion in March, up from a revised $1.41-billion in February.

Trump’s tariff threats at the end of last year and the beginning of this year pushed Canadian firms to advance supplies south of the border, boosting trade surpluses in December and January. But as tariffs took hold, shipments to the United States have been squeezed.

The United States is Canada’s biggest trading partner and Trump’s tariffs have hurt trade, investments and jobs on both sides of the border.

Canadian Prime Minister Mark Carney will meet with Trump on Tuesday to start talks on a comprehensive trade and security deal, which experts have said could eventually lead to reducing the burden of tariffs on Canada.

Economists and analysts have said that as the impact of tariffs flow through the economy, growth would take a hit. This is already evident in investment and hiring intentions of companies and consumer spending.

The Bank of Canada has said that it would act quickly and decisively if the economy takes a sharp hit, with money markets now estimating almost a 52 per cent chance of a rate cut of 25 basis points in June.

The Canadian dollar was up 0.18 per cent to trade at 1.3801 to the U.S. dollar, or 72.46 U.S. cents. Bond yields for the government’s two-year bonds were down 0.5 basis points to 2.557 per cent.

Canada’s overall exports for March came in at $69.9-billion, down from $70.04-billion in February, led by the United States. This was the second month in a row when exports fell.

“Despite the two consecutive monthly declines, export levels remained relatively high in March, posting a 10.2 per cent increase compared with the same month a year earlier,” Statscan said, adding that lower prices primarily led to the drop.

In volume terms, exports were up 1.8 per cent in March, it said.

However, imports fell in both value and volume terms.

They dropped for the first time in five months, with the largest contributors being metal and non-metallic mineral products by 15.8 per cent and energy products by 18.8 per cent. In volume terms, total imports edged down 0.1 per cent in March.

Imports in March were at $70.40-billion, down from $71.44-billion.