In the global trade race, February was a winning month for the United States. Its trade deficit with Canada and the rest of the world shrunk nearly 10 per cent to $43.6-billion (U.S.).
But it wasn't good enough for U.S. Commerce Secretary Wilbur Ross, who says he won't be satisfied until the score is reversed.
"We continue to be very focused on eliminating our nation's trade imbalance," Mr. Ross said Tuesday.
For President Donald Trump and his administration, the trade deficit that the United States has been running for most of the past 40 years is like a chronic money-losing business deal. And he's tired of losing.
"Everything's a deficit," Mr. Trump lamented last week as he announced a comprehensive review of U.S. trade deficits with 16 of its major trading partners – Canada included. "It's just losses with everybody, and we're going to turn that around."
In Mr. Trump's world, the trade balance is the ultimate measure of economic success. A trade deficit is a loss for the United States – of jobs, economic growth and competitiveness.
History suggests otherwise. The United States is a testament to the fact that a thriving economy can run deficits for decades, as long as the rest of the world is willing to finance its growth.
Trade deficits have little to do with losing, or winning. While it's true that a trade deficit subtracts from overall economic growth, it is a byproduct of larger and more powerful macroeconomic forces. Trade balances are driven by savings and investment flows, differences in growth rates between countries as well as currency and commodity-price movements.
The United States is a serial net importer of capital. And when capital flows one way, goods and services typically flow in the other direction. Canadians, Chinese, Germans and Mexicans must do something with the U.S. dollars they earn selling stuff to Americans. They can either use dollars to buy American products, or acquire U.S. assets, such as Treasury bills, condos and companies. All of that makes Americans wealthier.
Growing economies often run trade deficits as they pull in energy, commodities and technology from the rest of the world. The opposite is also true. The United States has run its smallest trade deficits during recessions, when those capital flows are reversed.
Beyond bullying, most of the tactics the Trump administration might use to get the deficit to zero would have serious side-effects. Higher tariffs, a border tax, or devaluing the currency could trigger inflation by making imported wines, TVs and everything else more expensive. Protectionism would also disrupt global supply chains. It would punish countries that sell to the United States and deprive foreigners of U.S. dollars. That, in turn, would reduce the supply of dollars in international currency markets, push up the value of the greenback and hurt U.S. exporters.
And there would be inevitable retaliation from trading partners, inflating the cost of global trade.
The downside of the various policy options no doubt explains why a growing rift has developed inside the Trump administration and the White House between protectionists and free traders.
In one camp, there is Mr. Ross, National Trade Council director Peter Navarro, U.S. Trade Representative designate Robert Lighthizer and White House strategist Stephen Bannon, all of whom support a much tougher trade stance.
They are getting push-back from former Goldman Sachs president Gary Cohn, Mr. Trump's top economic adviser, and several of his more globally minded colleagues, according to a recent report in the Los Angeles Times.
The challenge for the Trump administration will be to find policies that match Mr. Trump's fiery rhetoric about repatriating jobs and manufacturing to America, without driving its economy into the ditch.
For its part, Canada should be wary of tacitly accepting the Trump narrative – that a perfect balance of exports and imports is a worthy target. Foreign Affairs Minister Chrystia Freeland appeared to do just that last week when she responded to Canada's inclusion in Mr. Trump's trade naughty list by pointing out that Canada-U.S trade is now roughly in balance if both goods and services are included in the calculation. Add a few dollars to the price of crude or iron ore, and Canada could just as easily be back in a surplus within a few months.
Taken in isolation, a trade deficit is not inherently good or bad. It is merely the byproduct of a complex array of conscious choices by consumers, companies and investors.