Trump claims the trade deficit with Canada is a $200B subsidy. Experts disagree
Economist argues U.S. could be worse off if it had a surplus with Canada
U.S. President Donald Trump's claim that his country subsidizes Canada with hundreds of billions of dollars every year has become a key plank in his argument for annexing the country. But do his numbers add up?
His argument hinges on a belief that the deficit in trade between the two countries has left the U.S. footing the bill for Canada's economic growth.
The amount of "subsidy" Trump claims the U.S. provides Canada has varied over time. In December, he said it was $100 billion US. And he claimed it was $200 billion as recently as Thursday.
"We can't do that anymore," he told an audience at the World Economic Forum last month as he put the deficit at $250 billion. "You can always become a state, and if you are a state we won't have a deficit. We won't have to tariff you."
Experts say that while the U.S. has a trade deficit with Canada — i.e. we export more to them than they export to us — that relationship serves the U.S. economy well and should not be viewed as a subsidy.
"I think that in Trump's mind, he sees trade as a zero-sum game," Moshe Lander, an economics professor at Concordia University, told CBC News. "He's just hearing the word deficit. And that's the end of his math calculation."
Is it really a subsidy?
Lander says that if Canada hypothetically "sold its oil for $100 but the U.S. paid $125, that would be a subsidy."
That price difference would then be recorded as a gift in Canada's record of financial transactions "without any goods and services provided in return," which Lander says it isn't.
University of Toronto economist Joseph Steinberg explains that when a country has a trade deficit, it has more capital flowing in than it does flowing out — which can strengthen its economy.
"The U.S.'s aggregate trade deficit is really not a function of trade policy," Steinberg said. "It's mostly a function of [a] relatively low desire to save within the United States, but perhaps more importantly, a relatively strong desire throughout the world to invest in the United States."
He said the U.S. is the top destination for foreign direct investment, which is a net benefit to that country.
"The general principle is that a trade imbalance is not a form of subsidy," he said.
Steinberg says the U.S. imports more aluminum from Canada than Canada imports from the U.S. because milling aluminum is cheaper here, largely because of the abundance of inexpensive electricity north of the border, particularly in Quebec.
"It's better for us to produce it because we're better at it," Steinberg said. "And it's great for them, too, because they get to consume it more cheaply than they otherwise would."
He says that lets U.S. manufacturers focus on using Canada's cheaper aluminum in products the country then consumes or exports for a lower price than if it had to make the aluminum itself.
How big is the trade deficit?
According to the U.S. Census Bureau, the trading relationship between Canada and the U.S. amounts to more than $760 billion US a year, with Canada buying more American exports than any other country in the world.
In 2024, the U.S. exports to its top three trading partners were worth about $349.4 billion US (Canada), $334 billion US (Mexico) and $143.5 billion US (China).
While Canada is their largest export market, we only rank third when it comes to imports, after Mexico and China.
That gap between imports and exports left the U.S. with a $63-billion US trade deficit with Canada last year, down from just over $64 billion US in 2023. That's much less than Trump's purported $200 billion.
That number may still seem high, but it's just over five per cent of the U.S.'s global trade deficit with all countries, which stood at $1.2 trillion US last year.
Lander says that when the U.S. trade deficit is measured against the U.S.'s annual GDP of almost $30 trillion US, the trade deficit with Canada is barely more than a rounding error.
He says one way the U.S. could eliminate its trade deficit would be to stop trading internationally. But that, Lander said, is not even something the isolated nation of North Korea does.
"Self-sufficiency is an alluring concept, but nobody is self-sufficient unless they are growing all their own food, producing their own clothes, manufacturing their own cars, etc.," he said.
A question of energy
According to Statistics Canada, energy exports such as oil, natural gas and electricity make up about a third of goods Canada sent south last year.
Remove energy, and it's Canada that has the trade deficit.
"The size of that deficit is largely a function of oil prices. Oil prices go down, that deficit shrinks a ton. Oil prices go up, it grows," Steinberg said.
And he says it's in the U.S.'s economic interest to maintain those imports.
"The reality is that the energy that we're selling to the United States is cheaper than the energy that they can buy from pretty much anywhere else around the world," he said.
In the 1980s and '90s, there were widespread fears that oil was running out and U.S. production was falling. In response, the U.S. refining industry redesigned its facilities to process heavy crude from Latin America and Canada.
With U.S. refiners still set up to process heavy crude, the country exports the lighter shale oil it now extracts from Texas to refineries overseas.
Canada supplies the U.S. with about four million barrels a day.
The U.S. could refit its refineries to process the light sweet crude oil it gets from fracking in Texas, but the supply is not expected to last long enough to merit the investment. And in addition to political complications from importing heavy crude from countries like Russia and Iraq, Steinberg said there would be "massive" transportation costs involved.
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With files from Evan Dyer