The trade gap narrowed by 0.1% in March from a month earlier to a seasonally adjusted $43.71 billion.
The trade deficit had been expected to widen to USD44.5 billion from the USD43.6 billion originally reported for the previous month.
Shortly afterwards, the US administration slapped tariffs on Canadian exports of softwood lumber and complained about Canada's dairy sector, helping to sink the Canadian dollar to 14-month lows.
Canada's trade deficit narrowed markedly in March, bolstered by a significant gain in exports of energy and food products to Asia.
Exports rose 3.8 per cent in March to $47.0 billion, due to higher shipments of energy products and consumer goods.
Meanwhile, the Commerce Department said the value of exports fell by 0.9 percent to $191.0 billion in March from $192.7 billion in February.
The group said export orders at USA service providers climbed quickly in April.
However, automobile imports increased by $1.0bn.
Exports to the United States, which accounted for 73.1 per cent of all Canadian exports in March, edged up by 0.1 per cent while imports increased by two per cent.
Energy exports rose 7% to C$8.75 billion.
NAFTA which was signed in 1994 by the United States, Canada and Mexico removed most trade and tariff barriers between the neighbors, but Trump and other critics have blamed it for deep USA job cuts.
The improved trade picture after a disappointing February report emerges as protectionist rhetoric from Washington escalated in recent weeks.
Trade figures also carry political implications as President Donald Trump seeks to revamp US trade deals with other countries. The U.S. also imposed last week a new 20% tariff on imports of Canadian lumber, alleging the Canadian government was subsidizing its domestic producers.