Trade deficit balloons under Trump—but Canada hardly the villain

Canada’s economy went on a tear last year, but someone forgot to tell exporters.

Trade figures released Tuesday show the sector continues to be a drag on growth as it struggles to make gains outside of energy, even with a favourable exchange rate and growing demand in the U.S.

Meanwhile, the U.S. trade deficit ballooned to its highest level in a decade in Donald Trump’s first year in office. Figures released Tuesday show the U.S. deficit in goods and services was 12 per cent last year, driven mainly by imbalances with China, then India and to a lesser extent Mexico and Germany, with goods trade with Canada representing a small fraction.

Trump’s team keeps citing such imbalances as the reason to renegotiate NAFTA, threaten the U.S.Korea agreement, cancel American participation in the Trans-Pacific Partnership and increase trade actions against China.

One example came at the closing news conference of the last NAFTA round in Montreal, where U.S. trade czar Robert Lighthizer focused on the specific issue of the merchandise trade imbalance as the reason for renegotiating.

“Is it not fair for us to wonder whether this imbalance could in part be caused by the rules of NAFTA? Would Canada not ask this same question if the situation were reversed?” Lighthizer said, his Canadian counterpart Chrystia Freeland alongside, staring straight ahead. “So we need to modernize and we need to rebalance.”

His critics say Lighthizer is offbase on multiple fronts.

A survey of leading economists from the University of Chicago finds almost no support for the notion that politicians can help citizens with policies that attack trade imbalances. Explaining their answers, the economists said a variety of factors can cause deficits.

The Canadian government disputes there even is a deficit with the U.S. It says the goods imbalance is largely attributable to the U.S. need to import oil. And when trade in services is factored in, it says, the U.S. balance fares just fine.

The new U.S. Census figures show the deficit in goods with Canada grew to more than $17 billion last year from $11 billion the previous year. But Canadian figures show it’s not as if Canada is swamping the U.S. with its goods and services.