Canada-US trade factcheck

With NAFTA talks seemingly at an impasse and an embryonic trade war under way, it often seems that Canadian and US trade officials are talking past each other.  Canada claims it runs a deficit in its dealings with the US; the US claims the exact opposite.  Who's right? In a sense, they both are.

Statistics Canada today released Canada's merchandise trade data for April.  The overall report was healthy enough, thanks to a surge in export volumes and a small decline in imports.  But let's look specifically at Canada-US trade.  What do we see?  Canada's trade surplus with its southern neighbour (and by far its biggest trading partner) rose to C$ 3.6 billion in the month.  That's almost double the surplus seen in March, but is actually lower than the surplus of $4.4 billion recorded in April 2017.  The fact is that Canada almost always runs a surplus in goods trade with the US, mainly as a result of shipments of commodities, including energy.

So Trump's right then?  Well, no.  These numbers relate only to merchandise trade. Trade in services (insurance, banking, entertainment, travel and everything else) is a different matter.  In services the US consistently runs a surplus in its trade with Canada (and, for that matter, with most other countries). Canada's deficit in services swamps the surplus it achieves in goods trade, with the result that the overall current account (goods and services), is routinely in deficit, particularly with the United States.

As I have suggested here before, it's no surprise that Trump and his team focus on the merchandise trade data, which support their narrative, rather than the more comprehensive current account data.  Trump's base of support is overwhelmingly located in what are sometimes dismissed as the "flyover states", basically everything between New York and California.

The bankers and insurance agents and entertainers on the two coasts may be racking up huge surpluses with the rest of the world, but they're not going to vote for Trump anyway.  The rest of the country -- the rust belt, the agricultural heartland, the coal producers of Appalachia and so on -- is easy to convince that its livelihood is being stolen by Canada and Mexico.  The Trump voters are not seeing the whole picture, but in their own terms they're not entirely wrong.