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Every day, more than $3.5 billion worth of products and services pass through the border between Canada and the United States. This is more than simply a business partnership. It's important to preserve one of the most prosperous business alliances in the world.
What is a trade deficit?
In the international arena, countries export some goods and services while importing others. A trade deficit occurs when the dollar value of a country's imports is greater than its exports.
Every country has an overall trade balance, as well as various balances with other countries with which it buys and sells, for example, between the United States and Canada. More than $3.5 billion in goods and services cross the border every day, with the United States being Canada's closest trading partner. More than two-thirds of Canada's trade is with its southern neighbour, and Canada is also one of the United States' largest trading partners.
What are the main factors behind the United States' trade deficit with Canada?
It's mostly oil. Almost all of Canada's crude oil exports and most of its other energy products go south. According to the federal government, energy exports are worth more than $177 billion, or about 28% of Canada's merchandise exports to the United States.
"If you exclude oil, the United States really benefits from this trade relationship," said Salim Zanzana, an economist at the Royal Bank of Canada.
The idea that an imbalance necessarily hurts a country is wrong, said Stuart Trew, director of the trade and investment research project at the Canadian Centre for Policy Alternatives.
"This is not really a problem for the United States," he said.
"It actually creates jobs in the United States ... Most of the oil that we ship to the United States, at least from Alberta, is processed in American refineries that employ thousands of people. And that is then processed into products like plastics, chemicals, and fuels—even in the United States.
"The other thing is, they need that oil," he added.
This view is supported by Alberta Premier Danielle Smith, who made a similar argument in X in response to Trump.
"Canada (specifically Alberta) sends billions of dollars in raw materials (oil, gas, minerals, grains, livestock, lumber, etc.) to your American refineries and factories that your big American companies and workers recycle and sell around the world. Canada (we are your biggest customer)," he wrote.
"Millions of high-paying American jobs and businesses literally depend on these raw materials accessible from Canada to create trillions of dollars of wealth in your country."
Does a trade deficit mean a country's economy is weak? Trump has suggested that Canada's trade surplus with the United States is a source of pride for Canadians—"They "boasted and got caught!" he said in a 2018 tweet—and a cause for shame: "We're selling Canada out..."
But experts say a trade deficit or surplus is not inherently good or bad.
The focus should be on overall trade and investment between the countries, Trew said. If cross-border trade increases, as it has for decades, both countries could benefit. Each can leverage its comparative advantage in different areas—crude oil in Canada and machinery manufacturing in the United States, for example—while tightly integrating its supply chains in other areas like auto manufacturing.
"They export a lot more services to us," Trew said. "Turn on Netflix, turn on Amazon Prime. It's not a problem."
He said the massive imbalance in trade in goods with China is a problem "if your goal is to improve your manufacturing capacity" because cheaper Chinese consumer goods could put American suppliers in trouble.
Why isn't it as simple as who wins and who loses?
Observers suggest that Trump is using the trade deficit as a pretext to raise tariffs or gain leverage in negotiations over the Canada-U.S.-Mexico free trade agreement.
"Mr. Trump's method is well-known. 'You hit the other side in the head, force them to react and maybe make concessions, and then negotiate," former Quebec premier Jean Charest, now a partner at the law firm Therrien Couture Joli-Coeur, said in an interview. Wednesday.
Trump has threatened to impose 25% tariffs on all goods from Canada if the government doesn't stop the flow of immigrants and illegal drugs into the United States.
Charest highlighted the tightly interconnected supply chains in the auto and other manufacturing sectors.
"If you put a tariff on yourself, you're really putting a tariff on yourself," Charest said. "The components that go into car production can cross the border up to seven times before a car is finally produced."
What are the consequences of Trump's obsession with trade gaps and tariffs?
If the new president sees trade gaps as an imbalance that needs to be corrected—or compensated for—the knock-on effects will be significant. "This could extend to non-traded sectors," Zanzana said of the potential tariffs. "There is also the risk of retaliatory tariffs, as Canada did in response to previous tariffs on steel and aluminium."
He also cited weaker growth, higher inflation, lower business investment, and greater uncertainty as possible outcomes.
Zanzana presented a trade deficit as a form of borrowing. Since the value of imports is less than what can be purchased from export sales, "that deficit has to be filled by selling assets or borrowing abroad," he said.
"So balancing the trade deficit will essentially require a rebalancing of net lending in the economy, and the largest net lender in the economy is—surprise, surprise—the federal government. »
Achieving that target would be "very difficult" given that U.S. federal deficit levels are already near record levels, he said. Charest said Trump's social media post highlights the need to diversify trade rather than remain "captive to just one American customer."
"I don't think it's helpful for us to talk aggressively to Mr. Trump," he said.
"But it does shine a strong light on the fact that we, as a country, need to rise above the circumstances that we find ourselves in today and redefine our place in relation to the United States and in relation to the rest of the world."
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