Trade with Canada – Surplus or Deficit?

Posted on June 14, 2018 by Gemmer Asset

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Canada has been in the press a lot recently.  The reason for all the attention is the country’s trading relationship with the United States.  In a recent tweet, the President claimed:

“…they (Canada) make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B.”

If you listen to other economists, the U.S. runs a trade surplus, not a deficit with Canada (meaning Canada imports more goods and services from the U.S. than we import from them).  So who’s right?  Where are these numbers coming from?

 

Well, according to this report by President Trump’s Council of Economic Advisers, “… the U.S. running a net bilateral surplus only with Canada and the United Kingdom.”  Specifically, the trade surplus the US ran with Canada in 2016 (from the same report) was $2.6 billion (see chart below).

 

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Other entities also point to a surplus.  The Commerce Department’s Bureau of Economic Analysis says in their analysis that the surplus in 2016 was $7.7 billion.  In 2017, the Office of the United States Trade Representative said that the goods and services trade surplus with Canada was $8.4 billion.

 

Ok, you get the point.  The President says the number is X, most economists (even his own administration’s) say its Y.  Who’s right?  As it is usually the case with economics, it depends.

 

What Trump is likely referring to is the goods only trade number.  The Washington Post summed it up nicely in this article

“He does not count trade in services, which include, among other things, telecommunications, accounting and legal services, and tourism. Services are increasingly a large part of U.S. trade and, in fact, it may be under-counted because economists have not figured out how to accurately measure digital trade, where the United States is the world leader.”

So the $17 billion number refers to a deficit in merchandise goods in 2017 between the two countries.  The $100 billion number comes from the administrations apparently flawed interpretation of statistics from Canada’s own government.  Here is the Post again:

“So where does the maximum of a $100 billion deficit come from? Apparently, this is a figure promoted by U.S. Trade Representative Robert E. Lighthizer, based on a misreading of statistics issued by the Canadian government on a website known as Statistics Canada. These statistics, indicating a $98 billion merchandise trade deficit, include re-exports of goods from third countries (such as a washing machine from China that passed through Vancouver’s port on the way to the United States), inflating the number.”

In a sense, you can make these numbers whatever you want them to be – include this, exclude that. But in this case the truth is that Canada buys more “stuff” (goods + services) from us than we do from them. That is the definition of a trade surplus…

 

 

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