The United States benefits as much as Canada from the current bilateral trade relationship, says a new report by economist Jim Stanford.
The equality of advantages is explained in part by the fact that Canada is the largest market for American exports. Mr. Stanford also highlights the large surplus of services that the United States exports to Canada, Canadian exports of raw materials and energy that the United States transforms into products, and the financing by Canadians of the American debt .
Canadian trade officials should keep the broader trade balance in mind when opposing the potential 25% tariff on Canadian goods that U.S. President-elect Donald Trump has pledged to impose , said Mr. Stanford.
“A mutual understanding of how a trade war could actually harm both sides is essential to leveraging the power of deterrence,” he argued.
If both sides were hit with similar economic pain in a trade war, Canada would feel it much more, because its overall economy is much smaller, creating what Mr. Stanford calls an “existential threat.”
He worries that the reasoning may not be enough to prevent tariffs from being imposed, especially given the larger size of the U.S. economy.
“Of course, superior economic logic cannot prevent a tyrant from exercising his power.”
However, if Mr. Trump looked more closely at the numbers, he would see that the trade deficit is much lower than the US$200 billion figure he cited at a news conference last week, Mr. Stanford said. .
When goods and services are combined, the United States trade deficit was US$40.6 billion in 2023, according to the US Bureau of Economic Analysis.
That’s because Canada imported about US$32 billion more in services from the United States than it exported, a figure that Mr. Stanford says likely greatly underrepresents the true total, being given the difficulty of measuring the category.
Looking at goods alone, the U.S. deficit widens to about US$64 billion in 2023, according to the U.S. Census Bureau, and widens even further according to Statistics Canada measures, which use a somewhat different methodology, but still far from Mr. Trump’s figure.
Even Mr. Trump’s US$200 billion is still well below that of countries like Japan, Germany, Mexico and especially China, where the US goods deficit stood at US$250 billion in 2023, Mr. Stanford said.
Energy and “unfinished products”
Canadian exports to the United States are also largely dominated by energy and “unfinished goods,” which are used as inputs to make goods in the United States and benefit both parties, he added.
The report notes that 76% of Canadian exports to the United States are used as inputs by American companies in their own production – more than with other trading partners.
The commodity trade profile helps explain why the U.S. trade deficit widened so much during the pandemic, when prices of oil and gas, minerals, lumber and agricultural products inflated.
Canada also helped the United States afford all these goods and trade deficits by purchasing U.S. debt, which totals more than US$23 trillion, Stanford said.
Canadians’ holdings of U.S. debt instruments such as Treasuries and bonds have more than quintupled since late 2013 to nearly $700 billion, he said.
“Canadians have certainly helped facilitate the financial flows that allow the United States to continue to run annual trade deficits.”
The combined trade picture shows mutual benefit, not unfair benefit from Canada’s surplus, Stanford said.
“Under no circumstances is the United States subsidizing Canada through this deficit.”
