By Randy Thanthong-Knight,
Bloomberg News
(Bloomberg) -- President-elect Donald Trump has justified his threat of 25% tariffs on Canada by pointing to the US trade deficit. Top Canadian economists have a response to that: it’s all because your country wants cheap oil.
The US is on track to end 2024 with the largest overall trade deficit in its history. Its imbalance with Canada is about $60 billion over the past 12 months — about one-fifth of the size of US trade deficit with China. Trump has repeatedly claimed the deficit is a subsidy to the Canadian economy, and said Tuesday the US doesn’t need anything from Canada.
Import and export data, however, paint a different picture. Among the US’s top partners, its trade with Canada is the most equally balanced — because Canada buys $85 million from the US for every $100 million it exports. When stripping out oil and gas, the US actually has a significant trade surplus with Canada — its biggest energy supplier and a key buyer of American products from food to machinery.
“The Americans have had the better side of the deal because for more than a decade, they’ve been running surpluses on the non-energy side,” Stéfane Marion, chief economist at National Bank of Canada, said in an interview. “So what are you complaining about? Your deficit is with Canada on energy, but Canada allows you to have access to energy at a discount that you refine or transform to sell at a higher price to the rest of the world.”
The US has been a net total energy exporter since 2019 as increases in domestic production lowered the need for imports. Still, it imports crude oil, petroleum products, natural gas and electricity from Canada. In fact, the US buys more than 4 million barrels a day of Canadian crude oil, and crude imports from Canada also hit a record high last week, partly driven by an expanded pipeline that feeds West Coast refiners.
“For the first time, the US is actually a net beneficiary when energy prices increase because they’re a net exporter,” Marion said. “Americans need to know the reason you have that is partly because of Canada. And from a Canadian perspective, the way out for us is to claim that fantastic endowment that we have on energy.”
While Conservative Party Leader Pierre Poilievre pushed back against Trump’s call to make Canada a US state, he said the country can support US security and supply it with cheap energy. Polls suggest Poilievre is poised to become Canadian prime minister after the upcoming election.
Canada missed opportunities over the past decade to diversify its customer base for oil, despite the expanded pipeline to the Pacific that has opened new markets in Asia, said Lisa Raitt, who served as natural resources minister under former Conservative Prime Minister Stephen Harper from 2008 to 2010.
“We have had the luxury of the past 50 years of having America as our best customer and client, as well as our protector. And we also took the point of view that they would always be there for us,” said Raitt, now vice-chair of global investment banking at Canadian Imperial Bank of Commerce. “That’s why this is so shocking, because it fundamentally is something we weren’t prepared for.”
The government must focus now on fast-tracking projects that would expand buyers for its goods, she said. “If that means giving more approvals on pipelines, if it means getting shovels in the ground, if it means accelerating critical mineral projects, there is no greater sign that we need to do something.”
Over the past 12 months to November, Canada made up about 5% of the total US goods trade deficit with the world of $1.16 trillion.
“The US runs a fairly substantial trade deficit globally, but trade with Canada is actually relatively well balanced,” Doug Porter, chief economist at Bank of Montreal, said by phone. “The only reason why Canada runs a trade surplus is because it exports a lot of oil and gas to the US. If I was an American citizen, I would see that as being a good thing that the US is more dependent on Canada — an ally, a friend — for its energy import.”
Trump, who used tariffs as a tool to redirect trade flows during his first term, has threatened to impose broad tariffs on Canadian goods destined for the US, raising alarm among Canadian government officials and industry groups. Economists expect Trump’s levies to shave off 2% to 4% off Canada’s gross domestic product and potentially plunge the economy into a recession.
“Pointing to Canada-US trade imbalance as a reason for tariffs is a red herring,” Porter said. “Even if Canada-US trade were to miraculously balance in the next day, it would add one tenth of a percent to US GDP. It just is not that meaningful.”
--Wth assistance from Laura Dhillon Kane and Kevin Orland.
©2025 Bloomberg L.P.
January 09, 2025
(Bloomberg) -- President-elect Donald Trump has justified his threat of 25% tariffs on Canada by pointing to the US trade deficit. Top Canadian economists have a response to that: it’s all because your country wants cheap oil.
The US is on track to end 2024 with the largest overall trade deficit in its history. Its imbalance with Canada is about $60 billion over the past 12 months — about one-fifth of the size of US trade deficit with China. Trump has repeatedly claimed the deficit is a subsidy to the Canadian economy, and said Tuesday the US doesn’t need anything from Canada.
Import and export data, however, paint a different picture. Among the US’s top partners, its trade with Canada is the most equally balanced — because Canada buys $85 million from the US for every $100 million it exports. When stripping out oil and gas, the US actually has a significant trade surplus with Canada — its biggest energy supplier and a key buyer of American products from food to machinery.
“The Americans have had the better side of the deal because for more than a decade, they’ve been running surpluses on the non-energy side,” Stéfane Marion, chief economist at National Bank of Canada, said in an interview. “So what are you complaining about? Your deficit is with Canada on energy, but Canada allows you to have access to energy at a discount that you refine or transform to sell at a higher price to the rest of the world.”
The US has been a net total energy exporter since 2019 as increases in domestic production lowered the need for imports. Still, it imports crude oil, petroleum products, natural gas and electricity from Canada. In fact, the US buys more than 4 million barrels a day of Canadian crude oil, and crude imports from Canada also hit a record high last week, partly driven by an expanded pipeline that feeds West Coast refiners.
“For the first time, the US is actually a net beneficiary when energy prices increase because they’re a net exporter,” Marion said. “Americans need to know the reason you have that is partly because of Canada. And from a Canadian perspective, the way out for us is to claim that fantastic endowment that we have on energy.”
While Conservative Party Leader Pierre Poilievre pushed back against Trump’s call to make Canada a US state, he said the country can support US security and supply it with cheap energy. Polls suggest Poilievre is poised to become Canadian prime minister after the upcoming election.
Canada missed opportunities over the past decade to diversify its customer base for oil, despite the expanded pipeline to the Pacific that has opened new markets in Asia, said Lisa Raitt, who served as natural resources minister under former Conservative Prime Minister Stephen Harper from 2008 to 2010.
“We have had the luxury of the past 50 years of having America as our best customer and client, as well as our protector. And we also took the point of view that they would always be there for us,” said Raitt, now vice-chair of global investment banking at Canadian Imperial Bank of Commerce. “That’s why this is so shocking, because it fundamentally is something we weren’t prepared for.”
The government must focus now on fast-tracking projects that would expand buyers for its goods, she said. “If that means giving more approvals on pipelines, if it means getting shovels in the ground, if it means accelerating critical mineral projects, there is no greater sign that we need to do something.”
Over the past 12 months to November, Canada made up about 5% of the total US goods trade deficit with the world of $1.16 trillion.
“The US runs a fairly substantial trade deficit globally, but trade with Canada is actually relatively well balanced,” Doug Porter, chief economist at Bank of Montreal, said by phone. “The only reason why Canada runs a trade surplus is because it exports a lot of oil and gas to the US. If I was an American citizen, I would see that as being a good thing that the US is more dependent on Canada — an ally, a friend — for its energy import.”
Trump, who used tariffs as a tool to redirect trade flows during his first term, has threatened to impose broad tariffs on Canadian goods destined for the US, raising alarm among Canadian government officials and industry groups. Economists expect Trump’s levies to shave off 2% to 4% off Canada’s gross domestic product and potentially plunge the economy into a recession.
“Pointing to Canada-US trade imbalance as a reason for tariffs is a red herring,” Porter said. “Even if Canada-US trade were to miraculously balance in the next day, it would add one tenth of a percent to US GDP. It just is not that meaningful.”
--Wth assistance from Laura Dhillon Kane and Kevin Orland.
©2025 Bloomberg L.P.
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