Setting The Record Straight On Canada-U.S. Trade

Canadians remain defiant in the face of President Trump’s personal attacks on Prime Minister Trudeau in the wake of the debacle of the recent G-7 meeting in Quebec. Above all else, what rankles Canadians the most is the total mischaracterization of the trade relationship and the complete denial by the Trump Administration as to the facts of the bilateral relationship. Let’s look at the overall situation and then some specific sectors that have been singled out in the cross-border trade disputes.

Figure 1 depicts the major segments of the the trade balances. The United States over the past 3 years has enjoyed a surplus on total trade with Canada. Much to the chagrin of Canadian trade officials is the total lack of acknowledgement by the Trump Administration of the growing surplus in traded services. When Canadians travel to the United States, either for business or personal reasons, it is counted as an U.S. ‘export’. Similarly, commissions and fees charged to Canadians in the purchase of U.S. financial assets or real estate  are also considered as U.S. exports. US. export of services has been the fastest growing sector among all tradeable goods and services. The strength from the trade surplus in services puts the overall trade balance in favor of the United States.

Figure 1 Canada-US Trade Balances

When we examine the major sectors, we find that the United States does, on balance, enjoy a small surplus, but a surplus nevertheless. To avoid any accusations concerning bias, I have employed data provided by Office of the United States Trade Representative, Executive Office of the President for 2017. (Figure 2). Canada maintained a small surplus on goods, largely a reflection of the U.S. imports of oil, mineral and forest products. Within the goods sectors, the net balances registered hardly constitute a claim that Canada has ‘taken advantage’ of the United States, a phrase so often used by the Trump Administration.

Figure 2 Canada-US Trade Flows, 2017

So, who will benefit from a trade war with Canada? Given that bilateral agricultural trade involves so many products in various stages of processing, a tariff war would be ruinous for farmers on both sides of the border. The very same conclusion applies to the automotive sector with its highly complex supply chains.

Canadians are flabbergasted that Trump advisers speak of the imperative for the United States to ”upset the existing world order”. Canada, as the essential U.S. trade partner, is definitely part of the existing word order that the Trump Administration wants to destroy. Much to Trump’s displeasure Canada is not about to acquiesce to U.S. demands to undo a half century of successful trade relations.

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Norman Mogil 6 years ago Contributor's comment

If I may have the final word. All Canadian political parties are firmly behind the Prime Minister and his response to US #tariffs. It is rare that all parties agree in such a unified manner. Given the size of the US -Canada trade, the US will suffer just as Canada will suffer by putting up trade barriers. If only that concept could be understood by the Trump Administration, everyone would be better off. Lets hope saner heads prevail

Larry Ramer 6 years ago Contributor's comment

who put up a 270% tariff first?

Gary Anderson 6 years ago Contributor's comment

You would destroy a relationship which is pretty even as to trade balance over one industry? That is just a bullying tactic by Trump. Yet you adopt it too?

Larry Ramer 6 years ago Contributor's comment

Let's see if it gets "destroyed" or if this prediction ends up being as accurate as all of the other wild predictions of the Trump haters. As in, have we had nuclear war? has the president brought back Jim Crow laws? Has the stock market collapsed? Has he done everything Putin wants?

Larry Ramer 6 years ago Contributor's comment

As I said, Canada should take off its 270% tariff, and cut its ;umber subsidies and then well take off our tariffs. Why is that so complicated?

Gary Anderson 6 years ago Contributor's comment

It just isn't necessary. Canada is a tight country and they will stop buying American. Even the governor of Wisconsin, where much of the northern dairy farms are, says this trade war is not good.

James Hanshaw 6 years ago Contributor's comment

Interesting article and comments. Trump and his team are as ignorant of the facts on China/US trade too as I pointed out in seekingalpha.com/.../4168435-chinas-democracy-vs-u-s-tweetocracy

There is also the possibility that it is not ignorance but that the truth will get no publicity for a person that is addicted to publicity

Larry Ramer 6 years ago Contributor's comment

Why doesnt Canada just agree to compromise on the dairy and lumber issues? Anyone who backs free markets should not agree on the Canadian policies on both btw

Sandra Sinclaire 6 years ago Member's comment

Good question.

Norman Mogil 6 years ago Contributor's comment

For whose benefit should Canada do this? Canadian companies who process dairy products have publicly stated that they have no interest in the US dairy products because the quality is not as good. Canadian diary producers are not pushing for greater access to the US.

On lumber the issue it is all about stumpage fees and every international tribunal has found that Canada has not violated any international trade rules regarding how it applies stumpage fees ( a form of royalty on land use). The irony for Americans is that US lumber producers can sell all they produce which is not enough to satisfy the US housing demand, so they are forced to import lumber from Canada under a high US tariff. Canadian lumber companies are doing a roaring business selling to the US, despite the tariff and US customers are over-paying for their homes. How smart is that?

Larry Ramer 6 years ago Contributor's comment

Canada is providing tremendous subsidies to its lumber sector through free land. I doubt if what you say about American companies not being able to export to Canada is true otherwise the U.S. would not object to the subsidies. and the dispute has been going on for decades..way before Trump became president.

I would say that allies should not subject each other to 270% tariffs, which is Canada's policy on dairy. If no Canadian companies will buy U.S. dairy, why does Canada need a tariff on U.S. dairy?

For whose benefit should the U.S. take down its steel and aluminum tariffs? The answer is if you want your partner to give your companies good access to its markets, dont put huge tariffs on that partner and create massive subsidies that freeze the partner out.

Gary Anderson 6 years ago Contributor's comment

For Trump to attack Canada over these products is a joke. There is not enough difference in balance of trade for Trump to get away with this and he won't get away with it. Americans now are forced to pay too much for American lumber. Is Trump winning yet?

Dick Kaplan 6 years ago Member's comment

I have to agree with you Gary. Going after Canada doesn't make sense when there are some real trade imbalances out there.

Larry Ramer 6 years ago Contributor's comment

So if you have a company and you buy and sell products from another company, and you sell a little more to the other company than you buy form it, it wouldnt bother you if the other company cheated you a lot?

Larry Ramer 6 years ago Contributor's comment

Have you checked the economic data lately? Did you hear that ISIS lost?

Gary Anderson 6 years ago Contributor's comment

Prof, Canadians are already cancelling trips to the USA and are buying Canadian using the hashtag #Trumpfree which could be the beginning of a very powerful movement. Donald loves Kim and hates Trudeau, a true definition of insanity.

Norman Mogil 6 years ago Contributor's comment

Truthfully, I avoid any travel to the US. One of the big issues is the behaviour of US border guards at Niagara/Buffalo. One time the US custom officer saw that my passport showed that I travelled to Israel ( which I do often) and asked why I do so. Do I need to explain that to a US official in Buffalo?

Boaz Berkowitz 6 years ago Contributor's comment

Sorry to hear that @[Norman Mogil](user:26709). Being from Buffalo originally, and having been to Israel many times, I've never had this issue. I don't understand why the guard would comment on this as a concern being that Israel is a friendly ally to both the US and Canada. However, I too have rarely crossed the border since 9/11. The border crossing used to be as quick and simple as passing through a toll booth. Now it can be a grueling affair.

Gary Anderson 6 years ago Contributor's comment

By the way, prof., Americans who believe Canada is being unfairly treated should join this boycott and buy Canadian wherever possible. And Canada should direct as much trade as possible away from the United States.