U.S. benefits from Canadian trade at least as much as Canada: report

President-elect Donald Trump speaks during a meeting with Republican governors at Mar-a-Lago, Thursday, Jan. 9, 2025, in Palm Beach, Fla. (THE CANADIAN PRESS/AP/Evan Vucci)

The U.S. benefits just as much as Canada does from the current bilateral trade relationship, argues a new report by economist Jim Stanford.

Among the reasons for the equal benefits include Canada being the largest market for U.S. exports, the large surplus of services that the U.S. exports to Canada, Canada’s exports of raw goods and energy that the U.S. manufactures into products, and Canadian buying of U.S. debt, he said.

Canadian trade officials should keep the wider trade balance in mind as they push back against the potential 25 per cent tariff on Canadian goods that incoming U.S. president-elect Donald Trump has pledged to impose, said Stanford.

“Mutual understanding of how a trade war would genuinely hurt both sides is crucial in leveraging the power of deterrence,” he said.

While both sides would be hit by a similar amount of economic pain in a trade war, Canada would feel it much more because its overall economy is much smaller, creating what Stanford called an “existential threat.”

He worries that sound reasoning won’t be enough to stop the tariffs from coming, especially considering the larger size of the U.S. economy.

“Of course, superior economic logic can’t stop a bully from exercising their power.”

But were Trump to look closer at the numbers, he would see that the trade deficit is much smaller than the US$200 billion number he cited in a press conference last week, said Stanford.

When goods and services are combined, the U.S. trade deficit was US$40.6 billion in 2023, according to the U.S. Bureau of Economic Analysis.

That’s because Canada imported about US$32 billion more in services from the U.S. than it exported there, a number Stanford said was likely highly under-representing the actual total given the difficulty in measuring the category.

When looking at goods alone, the U.S. deficit does widen to about US$64 billion for 2023 according to the U.S. Census Bureau, and widens further still as measured by Statistics Canada, which uses somewhat different methodology, but is still nowhere near Trump’s number.

Even Trump’s US$200 billion is still much smaller than countries such as Japan, Germany, Mexico and especially China, where the U.S. goods deficit stood at US$250 billion in 2023, said Stanford.

Canada’s exports to the U.S. are also heavily dominated by energy and “unfinished products,” which are used as input to make goods in the U.S. and benefits both sides, he said.

The report notes that 76 per cent of Canadian exports to the U.S. are used as inputs by U.S. businesses in their own production – more than with other trading partners.

The commodity-heavy trade profile helps explain how the U.S. merchandise trade deficit widened so much during the pandemic, when prices for oil and gas, minerals, lumber and agricultural products swelled.

Canada has also helped make the U.S. able to afford all those goods and trade deficits through the buying of U.S. debt, which overall stands at over US$23 trillion, said Stanford.

Holdings of U.S. debt instruments such as treasury bills and bonds by Canadians have more than quintupled since late 2013 to reach almost $700 billion, he said.

“Canadians have certainly done their part to facilitate the financial inflows that allow the U.S. to continue incurring annual trade deficits.”

The combined trade picture shows one of mutual benefit, not one where Canada is unfairly benefitting from a surplus, said Stanford.

“In no way does the U.S. subsidize Canada through this deficit.”

This report by The Canadian Press was first published Jan. 13, 2025.