I'm writing this mainly to push myself to understand the topic of trade balances, and in a plea for help. If you have any comments at all, good or bad, please let me know.
DT has described international trade in one phrase, "They're ripping us off". And he's applied it to many countries, not just Canada. Of course this infuriates me, so I've been trying to understand it. DT goes beyond that and says Canada wouldn't survive as a country without the big subsidy the U.S. provides, so we might as well become the 51st state! This infuriates me even more!! Unfortunately I'm not an economist, so understanding this is an uphill battle for me!
The most recent figures I could find are for the first 3/4 of 2024. In that period the U.S. imported about $420 billion from Canada and Canada imported about $350 billion worth of products from the U.S. The difference in that trade balance is widely referred to in negative and positive terms.
If Canada exports more than it imports from the U.S. (as we do) that means we have a trade surplus with the U.S. and they have a trade deficit with us. "Ripping us off" in Trump's terms, seems to mean that we're selling more to you than we're buying from you. Trump would like every country in the world to buy more from the U.S. than it sells to the U.S. A negative trade balance = 'ripping us off'.
The simplest answer to this is for the U.S. to simply stop buying our stuff! Trump himself has said that the U.S. doesn't need our oil, gas or hydro power, our lumber or our autos. So why don't you just stop buying them? For oil, the answer is that it would take a long time to change the U.S. refining capacity, even if that was the economically sensible thing to do, which it isn't.
Canadian crude oil, which is really a bitumen product, requires a different refining process, and many of the refineries in the Midwest have been built to process that 'heavy' crude. You can't just switch overnight! Reducing Canadian imports would require re-tooling the U.S. refining capacity, especially in the Midwest, an enormous financial investment.
In spite of that, if we just remove oil and gas from the trade balance, as noted above, the situation would be reversed, and the U.S. would have a trade surplus with Canada, keeping DT happy. Last year the U.S. imported $170 billion worth of Canadian oil and gas. If that is set aside for a moment, the U.S. has a large trade surplus with Canada, of about $100 billion.
So as DT has suggested, why doesn't the U.S. just stop buying our oil and gas, though all the Midwest drivers might be a little frustrated, not being able to buy gas for their pickups!
The same can be said about autos, where the trade is actually fairly well balanced at the moment. But if DT wants to stop Canadian imports, which account for about 8 or 9% of American consumption, it would require construction of about 6 entire new assembly plants, a task which would take more than a few years. DT can rant and rave, but industrial-level change unfolds slowly.
And in what sense is the U.S. trade surplus a 'subsidy'? It simply reflects your purchase of our products. That's not the U.S. subsidizing Canada! Canada is not 'ripping off' the United States simply by selling you things.
Another accusation DT has made is that Canada is one of the "worst tariffing" nations on the planet. In fact, the most recent data I've seen shows that Canada ranks below the U.S., and both are quite near the bottom of the scale. DT seems to have a talent for exaggerations intending to stir up trouble rather than any interest in facts!
But I've got a further question. Why aren't trade balances expressed in per-capita terms, that is, why don't they take into account different populations. The simplest statement of this problem is that we don't buy enough from you to offset the products you need from us. But how can a country with about 1/8 the population ever expect to buy an equal amount to balance your imports? It makes no sense.
I look forward to your comments.
Reference: I've relied heavily on a report by TD Economics entitled 'Setting the Record Straight on Canada-U.S. Trade'
Seems your economics are spot on....
ReplyDeleteBack when I was still working, our population was 1/10th that of the US., but with an increase of Immigration to Canada, the numbers have changed. That same immigrant cannot afford the high costs of new vehicles.
ReplyDeleteSay Safe and Enjoy the changing weather.
It's about time.
I understand the issues the way you have described them, FG. DT lies about everything, constantly and there is no sense in what he says about Canada ripping off the U.S. The trade agreement we were living with was negotiated by DT his last time as president. The problem was fentanyl, or illegal immigrants, or trade imbalance…it changed so there was no fixing it. . He has fixated on tariffs now. I cannot see how a settlement will ever be negotiated with him in charge.
ReplyDeleteI hate this reference to Canada as the 51st state. Such a huge insult to this country which has stood by the U.S. through the worst of times. I would never, ever want to be an American!
We stopped travel to the U.S. years ago after we observed a scary encounter at a stop light. We fully expected an episode of road rage to end with gun fire. So scary. That did it for us. Meanwhile we are not buying anything from the U.S. and the same is true for so many others here.
Elbows up!
It's a rather simple black and white situation told y the numbers.
ReplyDeleteAs far as I know, you are right in that the discrepancy is all in oil. We actually purchase more manufactured products from them that they do from us. So yeah. Just stop buying our oil if it bothers DT so much. BTW, it is also my understanding that we sell the oil at discounted prices. I've heard that form more than one source.
ReplyDeleteDown here, I am being very careful about not buying from the US. But some quilty or sewing items are made just there.But maybe the time has come for me to go without!!! However, everything you write makes sense, if only the DT could see it and accept it.A bit like the school saga down here.If only one Minister in our government would admit there have been huge mistakes, inedible food, late arriving, some had plastic in, some so hot a student had burns that made a hospital visit necessary.Always better to admit to a fault or two or MORE.
ReplyDeleteI think you have to be an Economist to understand it all. Tariffs should boost The USA's domestic economy...buying more from USA based Companies. I know there are some countries that have huge tariffs. I do not understand it all either. DT talks without thinking ...I am sorry for that, here in Minnesota we appreciate our Canadian neighbors.
ReplyDeleteI don't believe that the tariffs are about the trade surplus/deficit, fentanyl, open borders, whatever idea IQ45 has spewed. Rather, I believe it is about our resources, water, lumber, oil, etc. and the fact that US does need those resources as they are in short supply in their country. To do so, he needs to tank our economy and force Canada into a position where we need to sell off our resources and/or become part of the US. (Over my dead body!)
ReplyDeleteThere are other factors as well, with the stock markets dropping like stones, there are opportunities for the mega rich to buy at low prices as others attempt to get what they can before the market falls even further.
Meanwhile, we can support our country by purchasing items produced or manufactured in Canada and other countries other than the US. That trade deficit is just going to grow. And as for the tariffs themselves, we all know that the consumer pays those, as the corporations and businesses pass on the additional costs. Sadly, that means the people of the US will ultimately pay the price.
I have a hunch the whole Canada - Greenland thing has to do with the Artic Circle. Only countries with land within the circle have any mineral rights. That would be Canada, Greenland & Russia. Hmmm......
ReplyDeleteUSA citizen here and so embarrassed by DT and Musk, and so angry at them. I think your thoughts are spot on FG. Believe me, it's DT and Musk and their supporters, not the rest of us. I think Canada's reaction is perfect and understandable, even tho it will hurt USA citizens. But the DumpTruck in the USA is hurting Canadian citizens ... and that DumpTruck is and will be causing deaths all around the world. I've attended a number of protests here, and will continue, as will more and more of us here. Canada government did the right thing. The USA government is shit. If there are any Canadians who are stuck down here in Washington State and can't get home, please share my email address with them. I'll help. Yes, USA citizens will pay the price of those tariffs, but so will many other countries. Europe is imposing tariffs on the USA too, good for them! This just hurts all of us, financially and emotionally. It simply puts more money into the pockets of the already embarrassingly rich dudes. But let's continue to talk with each other and trust each other, the real people in this world. Thank you FG for speaking honestly.
ReplyDeleteIt appears to me that trump is interested in nothing but money and has no values beyond money.. And the "great businessman" has been bankrupt how many times in spite of reportedly not paying many of the contractors that worked on his projects. I can't count how many times I've been ashamed to be a citizen of the U.S. in the last few months; let me assure you folks in Canada that you DO NOT want to become the 51st state.
ReplyDelete