There is a basic assumption that countries act in an economically rational way in a trade fight, based on a few mutually agreed facts.
Forget that. The barrage of insults and misinformation hurled at Canada by the Trump administration this week suggests we are now in the Twilight Zone. As sci-fi writer Rod Serling famously warned viewers at the opening of each episode of the classic TV show: “You are about to enter another dimension … A journey into a wondrous land of imagination.”
Unfortunately, this trip is bound to be more terrifying than wondrous as U.S. President Donald Trump tries to bully Canada and other countries into making big trade concessions.
In Singapore this week, Mr. Trump pivoted from his thoughts on Kim Jong-un, the brutal North Korean dictator, to his new No. 1 villain, Canadian Prime Minister Justin Trudeau. Mr. Trudeau, he warned, is “going to cost a lot of money for the people of Canada” after the Prime Minister had the temerity to talk about retaliating against U.S. tariffs on steel an aluminum.
In this fifth dimension inhabited by Mr. Trump and his cabal of apologist advisers, Canada must be punished for abusing “the people of our country, the workers, the farmers, the companies” with its unfair trade practices and massive trade surplus.
“We have to catch you a little bit,” he warned. “We have to have a little balance.”
The trouble is that Canada’s supposed trade surplus with the United States does not exist. Mr. Trump isn’t just embellishing facts; he’s making them up.
In the course of his diatribe, Mr. Trump suggested that Canada is running an annual trade surplus of as much as US$100-billion with the United States. He also claimed that we recently raised our tariff on dairy products to 295 per cent from 270 per cent.
Neither claim is true.
U.S. Trade Representative Robert Lighthizer’s own website says the United States had an US$8.4-billion goods and services trade surplus with Canada in 2017. Again, based on U.S. figures, Canada did run a small goods-only surplus of US$17.5-billion with the United States last year – near perfect balance in a US$673-billion trade relationship. But the broader goods and services balance is the most reasonable way to measure the relationship given the rapid growth of trade in services, such as video streaming, tourism and professional services.
The fiction that Canada is running a US$100-billion surplus is based on a bizarre interpretation of Canadian and U.S. trade data being peddled by Mr. Lighthizer. U.S. and Canadian statistics treat goods shipped through Canada from third countries, such as China, differently.
Imagine a $50-million shipment of car parts from China through the port of Vancouver destined for an auto-assembly plant in Mississippi. Canada records this as a $50-million export to the United States, while the U.S. rings up a $50-million import from China, the country of origin. Looking at the resulting balance, Canada reports a $50-million surplus with the United States. But the U.S. shows a zero balance with Canada.
Mr. Lighthizer and Mr. Trump, who constantly harp about China’s massive trade surplus with the United States, would like to count these kinds of shipments twice to embellish their case that the United States is being ripped off by everyone.
And by imposing punitive tariffs, Mr. Trump wants to make Canada pay for a trade deficit that does not exist.
Also untrue is Mr. Trump’s claim that Canada has raised it tariffs on dairy products. Canada established its current tariff regime to protect dairy and poultry in 1995, including a 300-per-cent tariff on butter and 270 per cent on dairy. The system was approved by all countries that signed the General Agreement on Tariffs and Trade (now the World Trade Organization) after years of negotiations. The United States similarly protected many of its own agricultural products, including peanuts, sugar and cheese, under the same deal at the same time.
The Canadian tariffs seem ridiculously high, and they are. But no one ever pays them because are designed to be prohibitive. Under the GATT deal, Canada allocated small quotas to different countries, allowing them to sell fixed quantities of dairy and poultry products duty-free. Canada has widened these quotas in recent trade agreements, including with the European Union.
But facts don’t matter anymore because we have entered the Twilight Zone – a very scary place to be renegotiating a vital trade pact.