COMMENTARY: Trump Goes Oh-For-Three on Trade Knowledge – Fraser Institute

By: Jason Clemens and Milagros Palacios

U.S. tariffs on Canadian goods and services, their potential economic impact on both countries and the historic fracturing of Canada-U.S. relations will likely dominate this federal election campaign. At the heart of this issue is President Trump’s view of both international trade and tariffs. Unfortunately for everyone, Trump’s understanding and knowledge of both have some fundamental problems.

Problem one pertains to President Trump’s lack of basic knowledge of the trade data. He is correct that the U.S. imports more from Canada than it exports to Canada. But that’s about where his accuracy ends.

There are different ways to measure trade. According to Statistics Canada data, on a “customs basis” the U.S. trade deficit (again, more imports from Canada than exports to Canada) was C$221.2 billion last year. That’s counting all goods but excluding services. But natural resources (oil, gas, metals, minerals, forest products, etc.) comprised 85.2 per cent (or C$188.5 billion) of that deficit. The idea that the United States can ramp up domestic production of these resources in the short term, and maybe even in the long term, is naïve at best.

President Trump seems to view trade as always having a winner and loser when the reality is it’s based on mutual gain. Canada possesses a wealth of natural resources that we’re good at extracting, processing and transporting to markets. And the U.S. needs these materials to fuel much of its own production and manufacturing. Trade is a win for people in both countries.

President Trump also seems unaware that for industrial equipment, electronics, chemical and plastic products, and motor vehicles — the kinds of things he wants to see done more in America — the U.S. already exports more to Canada than it buys from us. Its trade surplus in such goods was C$15.5 billion last year.

It’s also important for the president to understand that goods aren’t the only things our two countries trade. The U.S. exports more services to Canada than we export to the U.S. In 2023, the most recent year of available service trade data, the U.S. exported $13.8 billion more in services—including the largest category, travel services—to Canada than it imported from Canada. News organizations are now reporting record declines in Canadians travelling to the U.S. for spring break. And, according to Statistics Canada, vehicle crossings between the two countries in February were down 23 per cent compared to last year. Ironically for the Trump administration, if this decline in Canadians travelling to the U.S. persists, it will actually increase the overall U.S. trade deficit with Canada.

Problem two relates to a basic contradiction in President Trump’s vision of tariffs. He’s told the American people the U.S. can both raise huge revenues by imposing tariffs on foreign goods and services entering the U.S. and at the same time bring home companies and jobs from foreign countries. But tariffs only generate income when Americans do import goods and services from other countries. If President Trump’s economic plan is successful, and companies close or downsize foreign operations and replace them with U.S.-based operations, there will be little to no revenue from tariffs. Or alternatively, for the U.S. to raise large amounts of revenue from tariffs (which is a questionable assertion), foreign countries must continue to produce and export goods and services to the U.S. As a matter of basic economic logic, a country cannot simultaneously raise revenues from tariffs and produce many more of its goods and services domestically.

The third problem relates to Trump’s assertion that tariffs will make the U.S. economy stronger and more prosperous. As fellow Republican president Ronald Reagan so often and eloquently explained, tariffs shield companies from competition so that they eventually become dependent on that protection. With companies no longer having to compete as hard, innovation and technological change suffer. As Reagan also warned, trading partners will retaliate with their own tariffs, as we are doing, reducing economic activity for everyone. Reagan’s advice, as relevant now as it was in the 1980s, is that the history of economic development going all the way back to Adam Smith shows clearly that trade is the best path to prosperity for all nations.

Unfortunately, due to the U.S. system of government and the acquiescence by Congress to the president, citizens in Canada, the U.S. and many other countries will continue to suffer the economic costs from President Trump’s ill-advised attacks on open trade and his more protectionist view of economic development. Trump flunks out on trade knowledge and everyone loses.

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