Trump vs Trudeau, who is right and does it matter?

Ever since the story broke from the Washington Post that Donald Trump boasted at a fundraiser that he bluffed Justin Trudeau on whether Canada had a trade surplus with the United States, the Canadian commentariat has been snickering at Trump, ignoring the facts and playing cheerleader for Canada.

Look, I’m not carrying water for either of these folks, I’m just interested in the facts.

So do we have a trade surplus or deficit with the United States and does it matter?

To the first question the answer is it depends. Which stats are you citing? The Canadian media and many Canadian politicians are now quickly turning to American stats that show a trade deficit for Canada but ignoring Stats Canada figures that show an overall surplus.

I’ll break those competing claims down in a minute but let’s tackle whether this matters. Friends of mine like Professor Ian Lee from the Sprott School of Business and plenty of reporters and columnists have been saying it doesn’t matter if there is a trade surplus or deficit.

Andrew Coyne of the National Post was yelling in ALL CAPS on Twitter like a crazy person he is so frustrated trying to explain that trade surpluses are irrelevant.

And it’s IRRELEVANT. Every story on this should carry an automatic rider: “Trade balances are neither a measure of economic success nor a proper object of economic policy. In particular, they tell us nothing about whether one country is trading ‘fairly’ or not.” https://t.co/oR8OX4ffBK

— Andrew Coyne (@acoyne) March 15, 2018

Well that is a nice theory, probably even true, but the views of Prof. Lee and Coyne are actually irrelevant here. The simple reason is that Canada is trying to negotiate a trade with the United States currently led by Donald Trump who is obsessed with trade surpluses and deficits.

If he thinks they are important we better treat the issue seriously.

Consider it this way, if your significant other said that eating dinner together on a regular basis was important to them for the health of the relationship and you responded by saying it didn’t matter, that it was irrelevant, that would harm your relationship. Canada is in a relationship with the United States and regardless of what you think of Donald Trump, he is the man Canada is ultimately negotiation with.

If it matters to him, it better matter to us.

As to which side has the surplus and which side has the deficit, that again depends. In my piece last night I cited Bloomberg’s report which in turn cited Statistics Canada claiming that Canada had a $14.6 billion USD trade surplus when accounting for goods and services. Yet for some reason, most Canadian reporters only want to cite the Office of the United States Trade Representative which claims Canada had a $12.5 billion USD trade deficit with the United States.

According to the USTR Canada had a surplus with goods shipped to the US but the Americans sold us vastly more services meaning Canada had the trade deficit with the US.

Those numbers are countered by other stats from the United States claiming Canada has a surplus, take a look at these stats from the Census Bureau in Washington claiming Canada has a $17 billion US surplus trading goods, but not servcies, with the Americans last year.

But what about Statistics Canada?

Statistics Canada says that in the trade of goods, Canada had a $24 billion USD surplus with the United States in 2016 using their data collection and reporting methods. When they used the American methods the surplus fell to $16 billion USD, an $8 billion USD difference. The main reason for the difference is how each country collects data and how the account and report for trade transactions.

The example Stats Can gives is a shipment of laptops worth $50 million coming to Canada from China. Those laptops arrive here and then are sold to someone in the United States. Canada counts that as an export to the US but the Americans log the shipment as an import from China, the country of origin, while we count them as a Canadian export to the United States.

So again, those are goods and not services, isn’t there a huge imbalance there?

Not quite.

Again, let’s cite Stats Canada data here, the trade deficit we had with the Americans last year in services was $13.5 billion Canadian or $10.3 billion USD.

That leaves us, according to Stats Canada with a trade surplus of about $6 billion USD. That may not amount to a whole hell of a lot in a trading relationship as vast as ours but facts do matter.

Another point worth remembering is that trade is goods, manufactured goods, is what really drives Donald Trump not services. He won by promising blue collar workers that he would protect their jobs. And on the manufactured goods side our surplus is much larger than most Canadian politicians would like to admit while negotiating with Team Trump.