“Trade Deficit with Canada? No! With Mexico, So What?”
Trade Deficit with Canada?
President Donald J. Trump in Singapore: Trade deficit with Canada is between $17 billion and a $100 billion.
President Donald J. Trump’s Trade Representative’s 2017 report: “Canada is currently our 2nd largest goods trading partner…Goods exports totaled $282.5 billion; goods imports totaled $300.0 billion. The U.S. goods trade deficit with Canada was $17.5 billion in 2017…Trade in services with Canada (exports and imports) totaled an estimated $91.5 billion in 2017. Services exports were $58.7 billion; services imports were $32.8 billion. The U.S. services trade surplus with Canada was $25.9 billion in 2017.”
President Trump’s Trade Representative’s office says we don’t have a trade deficit with Canada. Who’s right, the professionals or President Trump? The professionals.
They rightly publish data that shows we have a “goods” deficit with Canada but have a surplus in services. Over all, 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 a most simple sense, trade between countries is country A sells widgets to Country B who in turn sells widgets 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 of what country A buys from and 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 with as Americans have to buy goods from them.
Next door Canada is our best customer and because it is relatively wealthier than most countries, they can and do buy more from us than we from them.
Next door Mexico buys more from us than Europe does, more than China. And, because Mexico is not as wealthy and only a third (almost a third) the size of the United States and as we buy more from it than it buys from jus, we have a trade deficit with it in goods and a surplus in services. President Trump suggests Mexico, the government of Mexico, is making a ripped-off profit. He is wrong. Just as he is wrong about a deficit with Canada.
“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 import categories 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 products from Mexico totaled $25 billion in 2017, our largest supplier of agricultural imports. Leading categories include: other 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 owned factories under trade agreements between Mexico, the U.S. and Canada. Mercedes Benz, BMW, Volkswagen, for example, 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. BMW is building a new plant in Mexico.
Mexico; Korean car companies are building 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 transshipment of goods into the three North American Free Trade Agreement countries, Canada, the U.S. and Mexico. 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 country of production.
No wonder President Trump is confused. When he attacks Canada with faulty information here is what is at stake – 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 (latest data available) (1.2 million supported by goods exports and 360 thousand supported by services exports).