When U.S. President Donald Trump complains about Canada, he constantly brings up the imbalance in trade between the two countries.
It’s an issue — or non-issue, according to economists — that dates back decades: Canada typically sells more goods and services to the United States than it buys.
The reason is largely tied to the price of crude oil, which Canada exports in the amount of millions of barrels every day to its southern ally. But Trump has inaccurately equated the existing deficit as a “subsidy,” claiming the U.S. is economically propping up Canada, and has threatened to tariff those Canadian goods it sells in the name of “fairness.”
“They’ve taken advantage of us for years, and we’re not going to allow that to happen,” Trump told reporters aboard Air Force One over the weekend.
“Without our subsidy, Canada doesn’t exist, really. Canada is totally reliant on us. Therefore, it should be a state.”
Mahmood Nanji, an economist and Power Corporation of Canada fellow at Western University’s Ivey School of Business, called Trump’s talk of subsidizing Canada “a false equivalency.”
“He’s absolutely wrong about that,” he said.
How the trade deficit with Canada has evolved over the past 20 years
On Friday, Trump claimed “bad management” under the previous Biden administration was responsible for the high U.S. trade deficit with Canada over the past four years, which he put at US$250 billion.
That number is significantly overstated: the most recent data from the U.S. Census Bureau shows that purely on goods traded, the deficit with Canada was US$64.26 billion in 2023. The year before, it was US$78.19 billion.
But Trump is right that the deficit is higher than it’s been in decades.
The last time the goods deficit was at current levels was during former U.S. president George W. Bush’s second term, from 2005 to 2008.
Major drops in the deficit were recorded in 2009, in the wake of the global financial crisis, and 2020, the first year of the COVID-19 pandemic. In both of those years, cross-border trade was heavily impacted and energy prices plummeted.
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But the deficit hovered around US$35 billion during Barack Obama’s presidency and fell further in Trump’s first term between 2017 and 2019.
Rather than “management” of those administrations being responsible, the ebb and flow of the deficit through the years has largely mirrored the rate of energy exports to the U.S. and the price of crude oil.
The U.S. gets more than half of its crude oil from Canada, and many U.S. refineries are reliant on that product. Canadian crude oil exports to the U.S. reached a new record of 4.3 million barrels per day last summer.
An analysis from TD Economics last week, using U.S. Census Bureau data, showed the U.S.-Canada energy trade deficit largely mirrors how the overall trade deficit evolved since 2000.
In fact, when those oil exports are removed from the equation, the U.S. actually has a trade surplus with Canada, according to economic data. In 2023, that surplus was more than US$30 billion, the TD analysis showed.
As for the past four years, Gary Hufbauer, a non-resident senior fellow at the Peterson Institute for International Economics (PIIE), said in an email that the higher deficit was likely due to the U.S. turning to Canada to fill material and labour shortages after the COVID-19 pandemic.
The overall ups and downs in the trade deficit, he added, “don’t matter much and certainly … are not a reason for imposing U.S. tariffs on imports from Canada.”
Canada deficit lower than other major U.S. trading partners
Economists also point out that the Canadian trade deficit is smaller than that of many other major U.S. trading partners — most prominently China, the European Union and Mexico.
“The U.S. has had trade deficits with a number of countries going back all the way to the Second World War,” Nanji said. “So this is not a new concept.”
The U.S. trade deficit with China in 2023 — US$279.4 billion, according to the U.S. Bureau of Economic Analysis — was more than four times the deficit with Canada last year.
A draft report co-authored by Hufbauer and other PIIE fellows noted the trade deficit with Mexico, which was US$152.4 billion last year, is largely due to the North American Free Trade Agreement (NAFTA), now known as the Canada-United States-Mexico Agreement (CUSMA).
“Much of that deficit is centered in bilateral automotive trade,” the report says.
Trump has been vocal about Mexico undercutting the U.S. auto sector partly by allowing Chinese imports into North American trade corridors and has vowed to close those loopholes when CUSMA comes up for review in 2026.
The PIIE report noted that historical experience with tariffs, including during Trump’s first term, shows even steep tariffs like what Trump is now proposing “cannot reduce the aggregate U.S. trade deficit with all its partners.”
That’s because the U.S. will still need to import the goods and services it buys from Canada, China and other countries that tariffs would reduce or cut off — or find ways to source them domestically.
Although Trump insists the U.S. can supply its own energy, automobiles and other goods, economists say that shift can’t happen quickly.
“You can’t shut off the taps overnight,” Nanji said.
—with files from Global’s Craig Lord
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