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President Donald Trump is mad online about America’s trade deficit with Canada even though the United States does not have a trade deficit with Canada.
According to the US Trade Representative’s official statistics, the United States runs a $12 billion trade deficit in goods with Canada. That is more than offset by our $24 billion trade surplus in services, leading to a $12 billion total trade surplus. Running an overall trade deficit is not really a bad thing, and looking at particular bilateral trade balances is totally irrelevant.
The data says we have a surplus with Canada. But Trump says otherwise!
We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive). P.M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S.(negotiating), but they do...they almost all do...and that’s how I know!
— Donald J. Trump (@realDonaldTrump) March 15, 2018
The context for this controversy is reports that last night, Trump admitted to making things up about the US-Canada trade relationship, something he now seems to be denying he did.
Speaking to donors in Missouri, Trump explained that he got into an argument with Prime Minister Justin Trudeau about trade figures even though he didn’t actually know what the real numbers are. Via the Washington Post:
“Trudeau came to see me. He’s a good guy, Justin. He said, ‘No, no, we have no trade deficit with you, we have none. Donald, please,’ ” Trump said, mimicking Trudeau, according to audio of the private event in Missouri obtained by The Washington Post. “Nice guy, good-looking guy, comes in — ‘Donald, we have no trade deficit.’ He’s very proud because everybody else, you know, we’re getting killed.
“ ... So, he’s proud. I said, ‘Wrong, Justin, you do.’ I didn’t even know. ... I had no idea. I just said, ‘You’re wrong.’ You know why? Because we’re so stupid. … And I thought they were smart. I said, ‘You’re wrong, Justin.’ He said, ‘Nope, we have no trade deficit.’ I said, ‘Well, in that case, I feel differently,’ I said, ‘but I don’t believe it.’ I sent one of our guys out, his guy, my guy, they went out, I said, ‘Check, because I can’t believe it.’
The Washington Post got audio of these remarks and wrote them up with the headline “In fundraising speech, Trump says he made up trade claim in meeting with Justin Trudeau.”
This seems to have angered Trump because the argument he made in the remarks was that even though he was talking out of his ass, later analysis of the data vindicated his position:
“Well, sir, you’re actually right. We have no deficit, but that doesn’t include energy and timber. … And when you do, we lose $17 billion a year.” It’s incredible.
The problem for Trump is that while he’s been repeating this $17 billion deficit figure for a long time now, it’s just not true.
It’s also, to be clear, genuinely not clear why it matters. One of America’s largest imports from Canada is crude oil. If we made it illegal to import Canadian crude oil, our bilateral deficit would definitely fall in the short term.
But gasoline would also become more expensive. And with Americans spending more at the pump, their purchase of other goods and services would decline, leading to falling living standards and lost jobs.
At the same time, the value of the Canadian dollar would fall — which would lead to falling living standards north of the border but ultimately also give Canadian manufacturers an edge over their US competitors.
On net, almost everyone would end up worse off.
