After more than 500 days in office, President Trump continues to demonstrate little understanding of the basics of trade and economics. He focuses on trade deficits, falsely claiming that the United States is “losing,” when virtually every mainstream economist would argue it is far more important to focus on overall trade and investment between nations. If overall trade increases between nations, people in each country generally gain, no matter the size of the trade deficit. (There are some exceptions.)
Trade deficits are also affected by macroeconomic factors, such as the relative strength of currencies, economic growth rates, and savings and investment rates. By passing a large deficit-financed tax cut, Trump has made it harder to reduce trade deficits, if that were even important.
On June 9, Trump upended the Group of Seven meeting of industrialized nations by refusing to support the final communique and lobbing insults at Canadian Prime Minister Justin Trudeau. Canada is one of the United States’ biggest trading partners, but Trudeau earned Trump’s ire by saying the nation has little choice but to retaliate against Trump’s tariffs on steel and aluminum.
Trudeau has been especially annoyed that Trump imposed the tariffs on “national security” grounds though the president, in one of his weekend tweets, appeared to suggest that was just a ruse. “Our Tariffs are in response to his of 270% on dairy!” he declared.
There was a new number that caught our eye in this tweet — “According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!).” Then Trump added: “minimum is 17B.”
What is he talking about, and does it bear any relation to reality?
First, we should note that, according to statistics issued by the U.S. government headed by Trump, the United States has a trade surplus with Canada.
And before you write off those numbers as something concocted by the denizens of the deep state, Trump’s Council of Economic Advisers, in the 2018 annual report signed by Trump, agreed that was the case: “In 2016, the United States ran a trade surplus of $2.6 billion with Canada on a balance-of-payments basis,” the report said.
Meanwhile, the office of the U.S. Trade Representative says the trade surplus with Canada was $8.4 billion in 2017, out of total trade between the two countries of nearly $674 billion. The Commerce Department’s Bureau of Economic Analysis says the surplus was $7.7 billion in 2016 and nearly $2.8 billion in 2017.
The estimates are all slightly different, depending on how the data is collected and analyzed, but the consensus is that the United States is running a surplus. So why does Trump claim a deficit?
He does not count trade in services, which include, among other things, telecommunications, accounting and legal services, and tourism. Services are increasingly a large part of U.S. trade and, in fact, it may be undercounted because economists have not figured out how to accurately measure digital trade, where the United States is the world leader.
As the 2018 CEA report put it, which as we noted, was signed by Trump: “Focusing only on the trade in goods alone ignores the United States’ comparative advantage in services.”
But that’s what the president does. When he said the minimum was $17 billion, he is referring to a deficit in merchandise goods in 2017 between the United States and Canada, primarily because the United States imported a lot of oil from Canada — more than one-quarter of all Canadian exports. There’s also a big gap in timber, since Canada has about 9,000 trees per person.
The president frequently suggests the United States is losing money with these deficits, but countries do not “lose” money on trade deficits. A trade deficit simply means that people in one country are buying more goods from another country than people in the second country are buying from the first. In this case, Canada has items that the United States wants, such as oil and lumber.
So where does the maximum of a $100 billion deficit come from? Apparently, this is a figure promoted by U.S. Trade Representative Robert E. Lighthizer, based on a misreading of statistics issued by the Canadian government on a website known as Statistics Canada. These statistics, indicating a $98 billion merchandise trade deficit, include re-exports of goods from third countries (such as a washing machine from China that passed through Vancouver’s port on the way to the United States), inflating the number.
Think of this way: Trump frequently complains about the trade deficit with China. That washing machine is recorded in that deficit. But now he’s counting the same washing machine as part of a trade deficit with Canada.
Statistics Canada includes a notice about why its data is different from how it is recorded in the United States, but now the Trump administration is exploiting those differences to make a rhetorical point. “When a government lies about its own statistics and another country’s statistics, then it is extraordinarily dangerous,” said Susan Aaronson, research professor at the Elliott School of International Affairs at George Washington University and author of several books on trade.
Complicating matters, Canada calculates trade differently than the United States, so its official records show a goods and services trade surplus with the United States of about $20 billion. But Canadian officials rely on the U.S. numbers in talks with the United States, saying if the United States is complaining about a trade deficit — which Canada believes is unimportant — then U.S. data should be a baseline.
“Trade statistics might suffer from lack of consistency between countries, as they do not necessarily mirror, creating discrepancies which can result in misinformed policymaking,” noted Marta Bengoa, chief of the economics and business department at the Colin Powell School for Civic and Global Leadership at the City College of New York. “This phenomenon is called bilateral trade asymmetries, and it is a source of concern for statisticians and economists.”
Emily K. Davis, a USTR spokeswoman, acknowledged that the $100 billion number came from Statistics Canada and pointed to language on USTR’s website also citing the Canadian figure and suggesting official U.S. statistics were not fully capturing trade flows. “It is likely that a measure of the U.S. trade deficit with Canada and Mexico excluding re-exports in all accounts would be somewhere in between the values calculated by the United States and by our country trading partners,” USTR says. That calculation does not appear to include trade in services, because this section only addresses trade in goods.
The Fact Checker was surprised to see this language, and checking the WayBack Machine it appears it was added on March 23. This is like having your cake and eating it, too: USTR says at the beginning the United States has a trade surplus with Canada and then later on claims the official figure is suspect. In any case, even if one accepted the trade deficit were “somewhere in between” U.S. and Canadian values, then USTR is acknowledging Trump is incorrect, as the number would be well below $100 billion — or even $17 billion.
Trump’s tweet included a reference to the relatively high tariffs that Canada imposes to protect its dairy industry — long a sore point in U.S.-Canada trade relations. The Trans Pacific Partnership agreement negotiated by the Obama administration would have reduced those tariffs — and potentially may have led to far-reaching changes in Canada’s milk supply management system. But Trump pulled out of the TPP shortly after becoming president. Meanwhile, Canadians complain that the United States supports its own dairy industry with massive subsidies that are all but ignored in the trade debate.
The Pinocchio Test
Trump says the Canadians say they “make 100 billion dollars” off trade with the United States, but Canada makes no such claim. The $100 billion number was not discovered because the Canadians were caught “bragging” but because his staff concocted a number by misleadingly citing the Canadian statistical website. The facts are not on Trump’s side when it comes to complaining about a trade deficit with Canada, because there is a trade surplus — as admitted in even a report he signed. The president earns Four Pinocchios.
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