US benefits from Canadian trade at least as much as Canada: report

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The US stands to gain as much as Canada does from the current bilateral trade relationship, says a new report by economist Jim Stanford.

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Among the reasons for the relative benefits are Canada being the largest export market for US goods, the large surplus of services that the US exports to Canada, Canada’s exports of raw materials and energy that the US produces into products, and Canada’s purchases of credit. of the US, he said.

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

“A common understanding of how a trade war will hurt both sides is essential to the use of deterrence,” he said.

Although both sides would suffer the same amount of economic pain in a trade war, Canada would feel it more because its overall economy is so small, making it what Stanford calls an “existential threat.”

He worries that rationalization won’t be enough to keep tariffs from coming, especially given the size of the US economy.

“Yes, good economic thinking cannot stop a bully from using its power.”

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

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

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That’s because Canada imported about $32 billion more in services from the US than was exported there, a figure Stanford said was likely a significant underestimate given the difficulty of measuring the category.

If you look at goods alone, the US deficit expands to US $64 billion by 2023 according to the US Census Bureau, and expands even further as estimated by Statistics Canada, which uses a different method, but is still not close to Trump’s number.

Even Trump’s US$200 billion is still much smaller than countries like Japan, Germany, Mexico and especially China, where the deficit of US goods is US$250 billion in 2023, Stanford said.

Canada’s exports to the US are also dominated by energy and “unfinished products,” which are used as inputs to make goods in the US and benefit both sides, he said.

The report notes that 76 percent of Canada’s exports to the US are used by US businesses in their production – more than any other trading partner.

The commodity-heavy trade profile helps explain how the US commodity trade deficit widened during the crisis, when prices for oil and gas, minerals, timber and agricultural products rose.

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Canada also helped make the US able to cover all those goods and trade deficits by buying up US debt, which is more than US$23 trillion, Stanford said.

Holdings of U.S. debt instruments such as treasury bills and Canadian bonds have more than doubled since late 2013 to nearly $700 billion, he said.

“Canadians have certainly done their part to help fund the inflows that allow the US to run annual trade deficits.”

The combined trade picture shows mutual benefits, not one where Canada unfairly benefits from more money, Stanford said.

“There is no way the US is subsidizing Canada with this deficit.”

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

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