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Canada’s Trade Deficit—Or Surplus—is a Hot Button Issue

As an uncertain world economy—and uncertain NAFTA prospects at home—shake up world industries and trade, Canada’s trade balance has been in deficit for over a year. While narrowing deficit margins were reported in January of 2018, they increased again in February, widening to 2.69 billion.

Exports are rising with higher automotive sales, but so are imports. Energy purchases beyond the border helped raise imports 1.9%, which isn’t anywhere near the levels exports are rising. While 2017 wasn’t, and so far 2018 isn’t, as dire as September of 2016—which was a record low in the balance of Canadian trade.

However, depending on who you ask, Canada might or might not be operating on a trade deficit with the United States.

The situation is complicated.

President Donald Trump claims that Canada is running at a trade surplus with America, while Prime Minister Trudeau reports that America is the one running at a surplus.

The confusion over trade deficits is due to the fact that the number of exports and imports between agencies tracking trade don’t always line up.

Differences in how the countries track exports has led to a fundamental disagreement on the situation. Robert Lighthizer, U.S. Trade Representative and Trump’s chief NAFTA negotiator, is counting some goods coming from Canada twice.

The issue comes from how America deals with imports from Canada that originated in a third country. The Canadian government does not agree with the fact that goods from China passing through a Canadian port are counted as a part of the trade deficit with China and Canada, even if all those goods do is sit at a port in Vancouver briefly while it waits to move on to America.

This means the United States is counting a trade deficit that includes exports that truly have nothing to do with Canadian business.

These pass-through goods are inflating the American trade deficit with Canada, and the Canadian government says it’s unfair and shouldn’t be counted toward the country’s true trade balance with the United States. Trump and his negotiator, however, are refusing to back down from their claims, even with evidence proving their statistics inflated.

As trade talks remain a hot button issue in Canada and America, the two countries are going to need to find a way to get on the same page about the numbers.