U.S. View: The truth about Canadian trade and Trump

From The Baltimore Sun

Based on the parting shots offered by President Donald J. Trump and some of his top economic advisers after the G7 summit in Quebec, Americans might have cause to believe that Justin Trudeau was a backstabber and that Canada is the worst trading partner this country has.

Chief economic adviser Larry Kudlow said the Canadian prime minister had “stabbed us in the back” while trade adviser Peter Navarro told a TV interviewer that there was a “special place in hell” for him and his ilk.

What awful thing had Prime Minister Trudeau done that justified not only the American president’s ire but his bizarre choice to walk away from the usually hohum Group of 7 joint communique? Had Mr. Trudeau sabotaged the North Korea summit? Had he personally attacked Mr. Trump? Had he breached diplomatic decorum?

None of the above. He had simply announced after the summit that he was still going to pursue promised retaliatory measures against President Trump’s decision to raise tariffs against Canadian steel and aluminum. In other words, he pledged the kind of my-country-first behaviour that President Trump has been promising for the last two years (and continued to merrily tweet about while in Singapore).

This kind of in-your-face attitude toward the country that is arguably the closest ally to the United States received a lot of attention over the weekend — as it should. Trump’s disdain for Trudeau and for European leaders is obvious and counterproductive.

Even now, it’s difficult to believe that a Republican president not only lashed out so angrily at this country’s most reliable overseas friends but that he also spent part of the trip as Vladimir Putin’s apologist, suggesting Russia be returned to the G7 from which the country was expelled after its annexation of Crimea in 2014. But what gets too easily overlooked amid the Trump hysterics is a more basic problem: the severe overstatement (and misrepresentation) of the U.S. trade deficit.

For example, how large do you think the U.S. trade “deficit” is with Canada? A billion dollars? Ten billion dollars? One hundred billion? More? Here’s the reality: The U.S. runs a trade surplus with Canada. That’s right, the U.S. sells billions of dollars more goods and services to our neighbour to the north each year than we buy from them. The only way to describe the U.S. trade relationship with Canada as running a deficit would be to ignore services (like finance, engineering or higher education), which would be foolish given the increasing role they play in the global economy. Even Navarro admits to that.

But wait, it gets worse. In some cases, trade deficits with foreign partners are not necessarily a bad thing. Or at least they are misleading. When foreign companies find success in the U.S. market, they often end up investing in the U.S. automakers, for example — open plants in places like Berkeley County, S.C., where Volvo assembles vehicles. President Trump bragged about that investment just last fall.

Typically, vehicle parts are made all over the world. Cars.com once estimated that the most made-in-the-U. S. car of all was not a Ford or a Chevy but the Toyota Camry. Runner-up was the Honda Accord.

That’s why most economists don’t get that worked up about trade deficits but worry more about protectionism. Some of the U.S. trade deficit is simply because the dollar is the global currency, which keeps it “strong,” an advantage for U.S. consumers but a disadvantage for trade. Another is that U.S consumers tend to buy more and save less than their foreign counterparts. Yet another is the impact of Trump’s own tax cut that is driving up deficit spending and thus lowers the savings rate. Indeed, it’s notable that the trade deficit has increased since Trump took office. His withdrawal from the Trans-Pacific Partnership last year made it that more difficult to deal with China, the country against whom the U.S. operates its largest trade deficit. Lost with it was the geopolitical check in the Pacific the TPP provided against an increasingly dominant China.

And perhaps the greatest fiction of all is that past presidents weren’t motivated by an “America First” attitude toward trade and that previous administrations were just being generous to other countries. What a bunch of hooey. The difference is not that Trump is the first president who wanted U.S. businesses to succeed, it’s that he’s the first in modern history to not recognize how greater prosperity, and the political stability that comes with it, makes the world a better place for all.