Canada unexpectedly swung into a trade deficit in February but both exports and imports stayed at near record levels, data showed on Thursday, as businesses kept building up inventories to offset some impacts of impending tariffs.

The trade gap contracted 6.1% to $122.7 billion from a revised record $130.7 billion in January, the Commerce Department's Bureau of Economic Analysis (BEA) said on Thursday. Economists polled by Reuters had forecast the trade deficit shrinking to $123.

Economists and legal experts question how the strongest economy in the world can be facing a national emergency over the trade deficit.

Mexico and Canada were exempted from President Donald Trump’s new round of tariffs, but the future of free trade in North America is very much in doubt.

U.S. President Donald Trump said on Wednesday he would impose a 10% baseline tariff on all imports to the United States and higher duties on some of the country's biggest trading partners, a move that could escalate a trade war and upend the global economy.