DEMYSTIFYING TRUMP’S US-CANADIAN ‘SUBSIDY’ CLAIMS

If you are a proud Canadian like me, then you would certainly question some of the recent rhetoric and bold statements directed at Canada and our sovereignty from US President Elect - Donald Trump.?

One of these statements relates to his position of how the USA ‘subsidizes’ Canada to the tune of $100 billion annually. ?A figure he has yet to breakdown, and tends to fluctuate depending on the day of the week as he recently inflated his original number to $200 billion in another press conference.

Being naturally curious, I wanted to do some of my own research and better understand or validate the truth behind our trade with the United States, and Mr. Trump’s recent position to uncover the facts, so I took it upon myself to put together this brief read in hopes I can shine some light into the reality of America’s long-standing trade deficit with Canada.?

Let’s start with the historical trade deficit between Canada and United States…

While it is true that the US has had a long standing trade deficit with Canada, there have been consistent double digit increases to the exports to Canada over the past years. With the gap not being as prevalent and pitched by Mr. Trump.

According to the US Census Bureau, US Bureau of Economic Analysis, in 2023, exported goods from Canada to the US totalled $427 billion USD, and $355 billion from the US into Canada - leaving a $72 billion trade deficit.

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At first glance, we can see the USD could approximate a $100 billion CAD deficit in that year, but this is nothing new. ??The fact that Americans are buying Canadian goods is not necessarily a bad thing and is should not be classified as a ‘subsidy’. ??For example, if someone goes to buy a piece of lumber for home renovations from Home Depot, this is a purchase made for purpose and likely value to the consumer.? Let us not take this ‘purchased good’ and label as ‘subsidizing’ Canada. ?This contributes to both economies and provides value for trade.

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Again, one may perceive this as an interesting positioning strategy as Mr. Trump sees things like timber, dairy, manufacturing automobiles, etc. as unnecessary to import, and could be ideal areas to want to bring jobs back into to the United States and one could come to understand this as a valid point of argument. Nonetheless, the reason why many of these exports and agreements continue to exist are not out of the kindness of heart, but rather aligned to business reasons as it may be more cost-effective to import manufactured goods in Canada because of certain economic conditions, fx rate benefits, etc., than manufacture these in the United States.

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However, when we start looking only at the goods component of trade and related deficit, that would be only seeing one part of the equation.? In the last decades, the services component of trade calculation, has grown surprisingly large with the evolving way people do business. ??As such, this should definitely factor into any trade deficit calculations. ??As an example, flying on American airlines, hotel stays, Netflix subscriptions, financial services, etc., are significant spend areas and growing year over year.

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When we factor services into the mix, Canada is in a deficit to the tune of $40 billion USD – which reduces the overall trade deficit to $40 billion USD.? So in fact, the US still has a trade deficit, but are not paying a ‘subsidy’ to Canada as Mr. Trump indicates is heavily the result of a trade deficit.

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Now people may like Mr. Trump is on to something, with a more business oriented, political view; however, two critical factors examined below would dispel any argument of unfair trade situations and associated cost impacts to the US:

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1. The US purchases more goods and services than most people, per capita, or even from their own businesses because they have more disposed income and money in the economy as one of the wealthiest nations in the world.?

So, there’s no surprise that the US would buy more than Canada (~41M people), in aggregated spend per year, when Canada is a fraction of the United States’ population (~340M people).? So logically, if one were to do the math and divide the numbers per capita or add other metrics like per business, that would look astronomically different than an aggregated simplified metric statement.

In fact, the US has significantly larger trade business and deficits with global trade partners.? For example, China gains a favourable trade surplus from the United States of over $250 billion USD per year, and Canada really only accounts for ~5% of the US global trade deficit.? The reality is we are about half of the deficit the US has with Vietnam, and 25% of what their deficit with Mexico.

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2. When we look at what is included in the breakdown of traded goods, the most significant portion is certainly related to energy, with Canada being the largest exporter of crude oil as ~60% of their imported crude oil.?

The US domestically produces about 13 million barrels of crude oil per day yet consumes 20 million barrels per day within there own country. ?The need for a steady supply of crude oil s critical to their economy and even their lucrative energy sector, where they buy crude oil to refine at a relatively lower cost from Canada, which is delivered thru a pipeline, therefore lowering shipping cost, accessibility issues or added costs manufacture.

The process to refine and produce energy sector products is mostly done within the United States, which then magnifies value of this lucratively beneficial trade agreement with Canada, creating tens of thousands of jobs which should nullify any type of trade deficit or ‘subsidy’ argument and should be applauded, not challenged.? Canada is actually doing the United States a huge favour and providing a great opportunity for the US.? Canada always has the option of refining oil then shipping to other countries at a higher price, tariff revenues, jobs in energy being created, and not having to buy gas for our vehicles from the US at a higher rate with associated taxes.

Now here’s the kicker, of the 13 million barrels of crude oil produced by the US daily, is not aligned to the thicker crude oil that the refineries have been set up to produce and manufacture.? Canadian crude oil is of the best density to what most of these refineries are set up to manufacture.? If the US did not have this consistent, optimal level of product from Canada, there would require a complete overhaul of current refineries ranging from new equipment, technologies, etc. to refine different levels of crude oil, which many other global trade partners or the type more drilled from within the United States.

So while Mr. Trump‘s argument of a trade deficit may seem interesting as a business position at first glance to his audience. ??Once you peel the layers of the onion back, there aren’t really too many bad things to say with the current state of trade with Canada.

In fact, if Canada was to halt crude oil trade, the biggest component of the trade deficit for the United States, Mr. Trump and America would need to invest significant efforts, funding, negotiations, to have regular supplies of crude oil delivered into the United States regularly.? The most troubling situation, would be the simple understanding that many such oil producing countries do not have the high level of diplomatic relationships as Canada.

Of course, the investment required to overhaul the majority of the refining centres in the United States to handle lower quality crude oil, and the potential supply chain risks crude oil importation, could lead to significant and costly impacts to the US economy and a significantly direct impact to their energy sector contributions to GDP.? The trickle effect across industries, for example, supply chain impacts to manufacturing and shipping of other goods or delivery of services, and so on … would likely garner the attention of US policy makers to intervene and bring us back to where we are today.

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At the end of the day, Mr. Trump is a respected businessman with a history of negotiating business deals to his favour using such typical tactics, which contribute to his storied reputation and execution of his game plan.

So, let’s take what Mr. Trump says with a grain of salt, stand by the facts, and our country.? It is a great value to us as Canadians to have great neighbours and continue to negotiate fair trade in a peaceful and respectable manner that benefits both sides of the border.

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*Stats and Figures produced from the U.S. Bureau of Economic Analysis (BEA)

*Picture of Trump credited to this post ?