The first casualties in trade wars are often the facts. And with the U.S. president in full-blown Art of the Deal negotiating mode on tariffs and the North American Free Trade Agreement, there are trade statistics to prove just about any point. Many of them are actually true.
Earlier this week, an audio recording emerged from a speech to donors in which Donald Trump boasted about making up facts to mislead Prime Minister Justin Trudeau that Canada was running a large trade surplus with the U.S.:
“Nice guy, good-looking guy, comes in — ‘Donald, we have no trade deficit.’ He’s very proud because everybody else, you know, we’re getting killed.”
“… So, he’s proud. I said, ‘Wrong, Justin, you do.’ I didn’t even know … I had no idea. I just said, ‘You’re wrong.’ You know why? Because we’re so stupid … And I thought they were smart. I said, ‘You’re wrong, Justin.’ He said, ‘Nope, we have no trade deficit.’ I said, ‘Well, in that case, I feel differently,’ I said, ‘but I don’t believe it.’ I sent one of our guys out, his guy, my guy, they went out, I said, ‘Check, because I can’t believe it.'”
A day later, the president doubled down on his assertion in a tweet that kept trade officials shaking their heads.
We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive). P.M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S.(negotiating), but they do…they almost all do…and that’s how I know!
— Donald J. Trump (@realDonaldTrump) March 15, 2018
There are a lot of ways to do trade math. Some of them support Trump and others expose a truth deficit and a surplus of spin. Time for a reality check, with nine facts that should help clear up the confusion and, unfortunately, muddy the waters at the same time. (Note that unless otherwise noted, the numbers come from Statistics Canada and are for full year 2016 because a full reconciliation of some figures for 2017 are not yet published.)
1. Yes, Canada has a trade surplus with the U.S. in goods, which includes autos, oil, minerals, agriculture and manufacturing. Canada exported $392.4 billion in goods to the U.S., while the latter sent $360 billion to Canada. Score a $32.3 billion surplus for Canada.
2. What about services? That includes travel and transportation and other things which are less valuable but still growing fast. Here, it’s the U.S. with a $13.6 billion surplus.
3. Adding up the score so far gives Canada a trade surplus with the U.S. of $18.8 billion. So Trump is right? Well, not so fast.
4. Let’s talk the current account. That’s a measure that includes both trade in goods and services, plus investment flows and other financial measures. Once you throw these added figures into the soup, it all adds up to a total Canadian current account deficit with the U.S. of $3.4 billion. Twitter has gone to 280 character tweets, but you would need more than that to capture the nuance of which surplus you’re talking about.
5. Here’s a new way to play: try using American figures. Chrystia Freeland, Canada’s foreign affairs minister, recently shot back at U.S. Trade Representative Robert Lighthizer’s loose use of trade stats with a 2016 stat that was completely at odds with Statistics Canada: “But it is worth noting,” she said, “that in overall trade in goods and services, Canada had a trade deficit with the United States of nearly $8 billion.” Her trick? Use numbers from the USTR office.
6. Now let’s look at the big picture painted by the USTR. It’s not clear which time period Freeland’s number comes from but here is the USTR score for 2016: The U.S. ran a US$12.1 billion deficit with Canada on goods, and a US$25 billion surplus with Canada on services. That adds up to a US$12.9 billion surplus for the U.S. Using these numbers does not support Trump’s tactics so we don’t hear them come up.
7. It’s not clear where Freeland’s $8 billion number came from, because it doesn’t match the number in point six, above. But it’s even harder to see where Lighthizer’s proclamation of an US$87 billion Canadian surplus originated. (But while you puzzle on that one, people are still trying to understand what Trump was on about in comments from the same speech to donors where he described unfair Japanese trading “tests” that involved dropping bowling balls on the hoods of cars. He did not provide a trade stat on that one.)
The president also made up a story about Japan dropping bowling balls on its cars for reasons that are not entirely clear https://t.co/DoskNqroRn
— VANITY FAIR (@VanityFair) March 15, 2018
8. At one point in the recorded comments of Trump—the ones where he admitted to making stuff up—he asked some number crunchers to go out into the parking lot and come back with some clarity. They did, returning to inform him that Canada-U.S. trade was about even until you added “timber” and “energy” into the mix, which pushed the U.S. into a deficit of about US$17 billion. It’s hard to reconcile that with either Canadian or U.S. official stats, both of which include energy and all things wood and pulp.
9. Oops, have you forgotten your pass-through stats? Pass-through what’s? These are stats that include the value of exports from a country, say Canada, that were first imported from another country, say China, before being re-exported to another, like the U.S. In a sense, Canada is double counting the Chinese trade as an import and an export, while the U.S. counts it only once as an import, from China not Canada.
Canadian stats include some pass-through numbers, which at least partially explains the difference between its trade stats and those in the U.S., where they are not. It also explains why it’s easier for Freeland and Canadian NAFTA negotiators to rely on U.S. stats in making any points about surpluses and deficits. So, go back to point one and start all over again, if you can figure out how to subtract the pass-throughs to figure out who has the deficit and who the surplus.