New Report Challenges Trump’s Claims on Canada-US Trade, Highlights Mutual Benefits
(Image courtesy @JustinTrudeau/X)
A new report from the Centre for Future Work disputes claims by US President-elect Donald Trump that the United States is "subsidizing" Canada through a $200-billion annual trade imbalance. The report, authored by economist Jim Stanford, argues that the US benefits at least as much as Canada from their trade relationship and warns that Trump’s proposed 25 percent tariffs on Canadian imports could harm industries on both sides of the border.
Key Findings
The report underscores Canada’s role as the US’s largest export market, purchasing $440 billion (USD) in American goods and services in 2023—more than any other country, including China and Mexico. The bilateral trade deficit with Canada accounted for just $40 billion (USD) in 2023, ranking tenth among US trading partners and constituting only five percent of America’s total trade deficit. Moreover, the US enjoys significant advantages in the trade of services and investment income, which partially offset its merchandise trade imbalance with Canada.
Canada is an essential partner for US businesses. The report notes that over 76 percent of Canadian exports to the US are inputs for American industries. It argues that disrupting these supply chains would raise costs for US producers and make their goods less competitive globally.
(Visual credit: Centre for Future Work, based on data from the US Census Bureau.)
Disputing Trump’s Narrative
Stanford notes that the US has a net surplus of $13 billion (CAD) in investment income from Canada, meaning American investors earn more from their Canadian holdings than the reverse. Additionally, the US enjoys a $31.7-billion (USD) annual trade surplus in services with Canada, including sectors like digital platforms, data services, and tourism.
The report argues that far from being subsidized by the US, Canada’s trade and investment practices provide unique benefits to America. For instance, Canadian investors hold nearly $700 billion (CAD) in US debt instruments, effectively financing America’s trade deficits. The report compares this to “a bank lending money to a borrower, and then paying that borrower interest.”
Energy and Supply Chain Integration
A critical component of the trade relationship is Canada’s energy exports. Canada is a major supplier of imported crude oil to the US, with total energy exports to the US valued at $170 billion (USD) in 2023. The report argues that this secure and cost-effective energy source is a major strategic advantage for the US, which relies heavily on Canadian oil for its energy needs.
The two nations’ economies are deeply intertwined, with the report noting that 17 percent of the value of Canadian exports to the US originates as American-made inputs. This integration is particularly evident in industries like automotive manufacturing, where parts often cross the border multiple times before reaching consumers.
(Visual credit: Centre for Future Work, based on data from Statistics Canada.)
Warnings of Economic Fallout
The report cautions that imposing 25 percent tariffs on Canadian imports, as Trump has threatened, would have far-reaching consequences. US border states and industries like automotive manufacturing and energy would face significant disruptions. The move could also raise costs for American consumers and businesses, exacerbating inflationary pressures.
The report also highlights the risks for Canada, whose economy depends heavily on US trade. Trump’s rhetoric, which includes veiled threats of using “economic force” to annex Canada, has alarmed Canadian policymakers.
The report comes amid heightened tensions between the two nations. Trump’s comments about Canada potentially becoming the 51st state of the US have drawn sharp rebukes from Canadian leaders, including outgoing Prime Minister Justin Trudeau.
In recent weeks, Canadian officials have debated potential countermeasures, including retaliatory tariffs on American goods and efforts to diversify trade partnerships.
The report argues that while Trump’s rhetoric may aim to create bargaining leverage, it is critical for Canadians to understand the mutual benefits of the trade relationship.
The report calls for Canada to strengthen its domestic economy while preparing for a worst-case scenario. Proposed measures include investing in alternative markets, reducing reliance on US exports, and building domestically-focused industries such as renewable energy and affordable housing.
