U.S. President-elect Donald Trump has justified his threat of 25 per cent tariffs on Canada by pointing to the U.S. trade deficit. Top Canadian economists have a response to that: it’s all because your country wants cheap oil.

The U.S. is on track to end 2024 with the largest overall trade deficit in its history. Its imbalance with Canada is about US$60 billion over the past 12 months — about one-fifth of the size of U.S. trade deficit with China. Trump has repeatedly claimed the deficit is a subsidy to the Canadian economy, and said Tuesday the U.S. doesn’t need anything from Canada.

Import and export data, however, paint a different picture. Among the U.S.’s top partners, its trade with Canada is the most equally balanced — because Canada buys US$85 million from the U.S. for every US$100 million it exports. When stripping out oil and gas, the U.S. actually has a significant trade surplus with Canada — its biggest energy supplier and a key buyer of American products from food to machinery.

“The Americans have had the better side of the deal because for more than a decade, they’ve been running surpluses on the non-energy side,” Stéfane Marion, chief economist at National Bank of Canada, said in an interview. “So what are you complaining about? Your deficit is with Canada on energy, but Canada allows you to have access to energy at a discount that you refine or transform to sell at a higher price to the rest of the world.”

The U.S. has been a net total energy exporter since 2019 as increases in domestic production lowered the need for imports. Still, it imports crude oil, petroleum products, natural gas and electricity from Canada. In fact, the U.S. buys more than 4 million barrels a day of Canadian crude oil, and crude imports from Canada also hit a record high last week, partly driven by an expanded pipeline that feeds West Coast refiners.

“For the first time, the U.S. is actually a net beneficiary when energy prices increase because they’re a net exporter,” Marion said. “Americans need to know the reason you have that is partly because of Canada. And from a Canadian perspective, the way out for us is to claim that fantastic endowment that we have on energy.”

While Conservative Party Leader Pierre Poilievre pushed back against Trump’s call to make Canada a U.S. state, he said the country can support U.S. security and supply it with cheap energy. Polls suggest Poilievre is poised to become Canadian prime minister after the upcoming election.

Over the past 12 months to November, Canada made up about five per cent of the total U.S. goods trade deficit with the world of US$1.16 trillion.

“The U.S. runs a fairly substantial trade deficit globally, but trade with Canada is actually relatively well balanced,” Doug Porter, chief economist at Bank of Montreal, said by phone. “The only reason why Canada runs a trade surplus is because it exports a lot of oil and gas to the U.S. If I was an American citizen, I would see that as being a good thing that the U.S. is more dependent on Canada — an ally, a friend — for its energy import.”

Trump, who used tariffs as a tool to redirect trade flows during his first term, has threatened to impose broad tariffs on Canadian goods destined for the U.S., raising alarm among Canadian government officials and industry groups. Economists expect Trump’s levies to shave off two per cent to four per cent off Canada’s gross domestic product and potentially plunge the economy into a recession.

“Pointing to Canada-U.S. trade imbalance as a reason for tariffs is a red herring,” Porter said. “Even if Canada-U.S. trade were to miraculously balance in the next day, it would add one tenth of a percent to U.S. GDP. It just is not that meaningful.”

With assistance from Kevin Orland

Bloomberg.com