Canada Sustains Net Lender Position to United States Amid Trade Uncertainties
In a notable demonstration of enduring economic ties, Canada has maintained its status as a net lender to the United States for the ninth consecutive year in 2025. This trend persists despite ongoing trade tensions and the rise of protectionist sentiments often referred to as the "elbows up" movement. According to a comprehensive report released by Toronto-Dominion (TD) Bank, the financial outflow from Canada to its southern neighbor remains substantial, highlighting a complex cross-border investment landscape.
Substantial Asset Acquisitions Drive Financial Outflow
During the third quarter of 2025, which represents the latest available data, Canadian entities—including households, businesses, and governments—collectively acquired more than $230 billion in U.S. assets. Projections for the entire year indicate that the total could reach approximately $255 billion, equating to roughly eight percent of Canada's nominal gross domestic product (GDP).
While this figure is higher than the 2024 levels, it remains lower than the peaks observed in 2021 and 2023, when flows surged to about 15.1 and 12.9 percent of GDP, respectively. TD economist Maria Solovieva, who authored the report, noted these fluctuations, emphasizing the dynamic nature of cross-border investment patterns.
Lopsided Investment Flows and Comparative Analysis
In contrast, U.S. investment in Canada is expected to total around $150 billion for the year, or just over five percent of Canada's GDP. This disparity underscores Canada's sustained position as a net lender, with a significant financial outflow to its primary trading partner. The imbalance reflects both opportunities and challenges in the bilateral economic relationship.
Portfolio Investment as the Primary Driver
Portfolio investment emerged as the key driver for Canadian money flowing into the United States in 2025. Solovieva explained to the Financial Post that during the first three quarters of the year, Canadian portfolio investment into U.S. securities reached $200 billion, surpassing the record set in the same period of 2024.
"It's up and down sometimes, but most of the time, especially in the last three years, with the U.S. market being so strong, it attracted investment from Canada," Solovieva stated. More than two-thirds of this investment was directed toward U.S. debt securities, likely influenced by higher interest rates in the United States compared to Canada. The remaining third flowed into equity and investment funds, buoyed by another strong year for the U.S. tech sector, despite temporary market pullbacks due to global tariffs imposed by former President Donald Trump.
Contrasting Trends in Foreign Direct Investment
While portfolio investment showed robust activity, foreign direct investment (FDI) figures presented a contrasting picture. FDI typically signals longer-term interest as businesses make significant investments in another country. Historically, Canada and the United States have been top foreign direct investors for each other.
However, in the first three quarters of 2025, Canadian direct investment in the U.S. amounted to just $14.3 billion, which is roughly $31.5 billion less than during the same period in 2024. This suggests that full-year flows could reach only about $19 billion in 2025—the lowest total since 2009.
Solovieva attributed any inflows to reinvested earnings rather than new investments, noting, "Companies just left funds in there. Because of the trade uncertainty, it became less clear for Canadian companies whether they should be investing in the U.S." This decline in FDI reflects heightened caution among Canadian businesses amid ongoing trade uncertainties.
Investment Returns and Market Performance
Interestingly, Solovieva pointed out that staying invested in Canada might have yielded better returns for investors in 2025. Canadian equities delivered 25 percent returns, compared to 13 percent on U.S. holdings when accounting for the depreciation of the U.S. dollar. This performance differential highlights the potential advantages of domestic investment, even as capital continues to flow southward.
Additionally, there were strong portfolio flows from the United States into Canada, with domestic debt markets benefiting from a record $150 billion in net inflows from the U.S. This reciprocal movement underscores the interconnectedness of the two economies.
Implications for Future Economic Relations
The sustained net lender status of Canada to the United States, now in its ninth year, reveals a multifaceted investment relationship. While portfolio investment remains vigorous, driven by market strength and interest rate differentials, the decline in foreign direct investment signals a more cautious long-term outlook among Canadian businesses.
As trade tensions and policy uncertainties persist, these trends may continue to evolve, shaping the future of cross-border economic engagement. The data from 2025 serves as a critical benchmark for understanding how investment flows adapt to changing geopolitical and economic landscapes.
