The incoming U.S. President is simply incorrect regarding the U.S. trade deficit with Canada and Mexico.
Trade is not zero-sum.
In fact, in any relatively free economy, trade is mutually beneficial; otherwise, it would not take place.
Look at it this way:
If you’re a fan of hamburgers, you almost certainly have a ‘trade deficit’ with your local McDonalds. It’s highly unlikely that you will ever sell anything to McDonald’s, but you certainly will buy a lot from them. You give them money, they give you goods.
Does that mean you are getting “ripped off” by McDonalds?
Does that mean you are “losing” the trade?
Of course not.
You – as a free person – are choosing to part with your money in exchange for a burger because you value the burger more than you value the money you have to hand over to get the burger. If you didn’t value the burger more, you wouldn’t buy it, or you would buy a cheaper burger somewhere else.
You might eat the burger quickly and head back to work, freeing you up to make more money. If you decided to cease ‘trading’ with McDonalds and instead had to go through the entire process of creating a burger yourself, you might lose out on productive work time and end up poorer. McDonalds would also be poorer for not having traded a burger – something they specialize in making efficiently – for your money.
The same – on a much grander scale of course – is true of trade between Canada and the United States. American companies and American states purchase Canadian energy because they value the energy more than they value the money it takes to acquire it. They are not being forced to do this, they are choosing to do this.
And because purchasing Canadian energy is more efficient for those states and companies, they have more money left over, which increases the overall wealth of Americans. Canadians benefit as well because we would be poorer if our energy resources went unsold.
Unfortunately, incoming U.S. President Donald Trump doesn’t seem to understand this. As you can see below, he appears to believe that the U.S. is “subsidizing” Canada because we sell more goods to them than they sell to us:
This is simply false.
The U.S. is not subsidizing Canada by freely choosing to purchase our products.
We give them oil.
They give us money.
They want the oil, so they give us money to get it.
Nobody is worse off, everybody is better off.
“Trump is simply objectively wrong here. He’s talking about the US trade deficit, which isn’t a subsidy. He either doesn’t understand how it works, or he’s pretending not to understand. Canada could largely erase our trade surplus with the U.S. immediately by halting all energy exports to our southern neighbour. Would that make Canadians or Americans wealthier? No, we would all be worse off.”
Our political and economic debates need to be grounded in the truth.
A false statement doesn’t become true just because an incoming U.S. President says it.
Truth is truth.
Lies are lies.
And the truth is that the U.S. trade deficit with Canada is not a subsidy.
Spencer Fernando
Photo – Twitter
