A recent report by economist Jim Stanford reveals that the United States benefits as much as Canada from their current trade relationship, challenging claims that the trade balance heavily favors Canada.
The report highlights several key factors contributing to the mutual gains from trade. Canada is the largest market for U.S. exports, and the U.S. enjoys a significant surplus in services traded with its northern neighbor. Additionally, Canadian raw materials and energy exports fuel U.S. manufacturing, while Canadian investors hold substantial amounts of U.S. debt.
Stanford emphasizes the importance of understanding this balanced trade relationship as Canadian officials prepare to counter potential tariffs from the incoming U.S. administration. President-elect Donald Trump has proposed a 25% tariff on Canadian goods, raising concerns of a looming trade conflict.
“Recognizing the shared economic benefits is essential to avoiding a damaging trade war,” Stanford stated. “Both sides would experience economic pain from such a conflict, but Canada’s smaller economy would make it more vulnerable, posing a significant threat to its stability.”
Stanford cautioned that rational arguments might not deter the U.S. from imposing tariffs due to its larger economic power. However, he urged U.S. leaders to reconsider their stance, noting that the trade deficit numbers often cited by Trump are exaggerated.
According to the U.S. Bureau of Economic Analysis, the combined trade deficit for goods and services between the two countries was US$40.6 billion in 2023—far lower than the US$200 billion figure mentioned by Trump. The U.S. Census Bureau reported a goods-only deficit of US$64 billion for 2023, which still falls short of Trump’s claims.
Stanford pointed out that the U.S. faces larger trade deficits with other countries, including China, where the goods deficit reached US$250 billion in 2023. “Canada’s trade profile is unique, as most of its exports to the U.S. are essential inputs used in American industries,” he said.
The report found that 76% of Canadian exports to the U.S. consist of inputs for American production processes, more than from any other trading partner. This reliance on Canadian resources explains why the U.S. trade deficit surged during the pandemic, when commodity prices for oil, gas, minerals, and lumber rose significantly.
Stanford also highlighted Canada’s role in supporting U.S. debt. Canadian holdings of U.S. treasury bills and bonds have increased fivefold since 2013, reaching nearly $700 billion. These investments have helped the U.S. finance its trade deficits.
“Canada has played a critical role in maintaining U.S. economic stability by facilitating financial inflows,” said Stanford. “It’s a mutually beneficial relationship, not one where Canada is unfairly taking advantage of the U.S.”
The report underscores the importance of a balanced perspective on U.S.-Canada trade, particularly as trade policies come under scrutiny in the new U.S. administration. Stanford’s analysis suggests that a cooperative approach would yield better outcomes for both nations, rather than escalating tensions through tariffs and protectionist measures.
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