By Raoul Lowery Contreras
President Donald Trump was still angry at Canada days after the contentious G7 meeting, telling a press conference in Singapore that the trade deficit with our northern neighbor is at least $17 billion and maybe as high as $100 billion.
The president’s own Office of the United States Trade Representative offers a different picture, writing in the official 2017 report:
“The U.S. goods trade deficit with Canada was $17.5 billion in 2017…The U.S. services trade surplus with Canada was $25.9 billion in 2017.”
So we have a goods deficit with Canada but a surplus in services. Overall, we have a trade surplus with Canada.
That is not important, however, in the trade big picture. Deficits, when they occur as with Germany, Mexico and China, and almost every other country we trade with, are not important and are certainly not a theft of American wealth.
Before one understands why deficits are not important one has to understand trade to begin with.
In the most simple sense, Country A sells airplanes to Country B which in turn sells cars to Country A. Suppose Country A is the wealthiest country in the world and Country B is not so wealthy. Country A can buy more stuff from Country B than Country B can buy from Country A. The difference between what Country A buys from and sells to Country B is, in this case, a deficit.
As almost every country the United States trades with is not as rich, we run trade deficits with them. Those people simply don’t have as much money to buy American goods as Americans have to buy goods from them.
Next-door neighbor Canada is our best customer because it is relatively wealthier than most countries. They can and do buy more from us than we from them.
Next-door neighbor Mexico buys more from us than Europe or China do. But because Mexico is not as wealthy and only a third the size of the United States, we buy more from them and have a trade deficit in goods and a surplus in services.
President Trump suggests Mexico is ripping us off. He is wrong. Just as he is wrong about a deficit with Canada. Again, quoting from the U.S. Trade Representative:
“U.S. goods and services trade with Mexico totaled an estimated $616.6 billion in 2017. Exports were $276.2 billion; imports were $340.3 billion. The U.S. goods and services trade deficit with Mexico was $64.1 billion in 2017.”
The top manufactured imports from Mexico in 2017 were: “vehicles ($84 billion), electrical machinery ($62 billion), machinery ($54 billion), optical and medical instruments ($14 billion) and mineral fuels ($11 billion). Agricultural imports from Mexico totaled $25 billion in 2017, and it was our largest supplier. Leading categories included: fresh fruit ($6.0 billion), fresh vegetables ($5.5 billion), wine and beer ($3.3 billion), snack foods ($2.1 billion) and processed fruit & vegetables ($1.5 billion).
The deficit with Mexico is clearly in cars. Most of those cars Mexico sends north are manufactured by European or Asian companies under trade agreements between Mexico, the U.S. and Canada. Mercedes Benz, BMW, Toyota and Volkswagen all have plants in the U.S. and Mexico. The BMW plant in South Carolina makes so many cars (450,000) that they export to the world from there, and BMW is building a new plant in Mexico.
Korean car companies are building plants in both countries. The Chinese are moving into Mexico. Every car manufactured or assembled in Mexico has 40 percent of its parts manufactured in the United States while every American-made car has parts from Mexico.
Confusing all this, even for experts, is the transshipment of goods into the three North American Free Trade Agreement countries. If a truckload of car parts destined for Canada from Mexico crosses the border at Laredo, Texas, it is counted as an export into the U.S. from Mexico, then counted as a U.S. export into Canada and an import from the U.S. and Mexico, the original countries of production.
No wonder President Trump is confused.
But when he attacks Canada with faulty information here is what is at stake — over a million American jobs. According to the Department of Commerce, U.S. exports of goods and services to Canada supported an estimated 1.6 million jobs in 2015 (the latest data available), with goods accounting for 1.2 million jobs and services for 360,000.
Why can’t President Trump listen to the professionals on his own trade team?
Raoul Lowery Contreras is a political consultant and the author of “The Armenian Lobby & American Foreign Policy” and “The Mexican Border: Immigration, War and a Trillion Dollars in Trade.” His work has appeared in the New American News Service of the New York Times Syndicate.
