At a fundraising dinner last Wednesday, President Trump boasted to supporters that he told Prime Minister Justin Trudeau of Canada that the U.S. ran a trade deficit with his country without knowing whether the assertion was true.
It’s not. Though news coverage of the incident focused on the fabrication, the lie, which by now one expects from Trump, also shows that the president cherry picks the trade that he recognizes. And in the calculus of Trump, goods trump services.
As it happens, the U.S. runs a trade surplus with Canada. On the whole, Canadians buy more from us than we buy from them. Though Americans purchase more goods – think vehicles, machinery and plastics – from Canadians than they buy from us, they buy more services, including software, movies and travel, than Americans buy from them.
Our goods trade deficit with Canada was $12.1 billion in 2016, but our trade surplus with our neighbor to the north was $24.6 billion, according to the Office of the U.S. Trade Representative.
A similar dynamic holds for China, which Trump also likes to jawbone about trade. As I’ve noted previously, the U.S. imports more goods from China than it exports, but it exports more services to China than it imports. The difference was $37 billion in 2016, up 12.3% from year earlier.
To be sure, the deficits in goods are real. But for Trump, the hammering on trade deficits – regardless of facts – plays to a political base in the Rust Belt, where, apparently, the president has concluded he needs to shore up his base in the hope of reelection.
But the focus disregards the economic well-being of millions of Americans elsewhere. And it’s not just in the so-called blue states such as California or New York that house many of the software, entertainment and financial firms that trade in services.
Canada represents the largest export market for U.S. agriculture. Senator Pat Roberts, a Kansas Republican who chairs the Senate Agriculture Committee, says Trump’s proposed tariffs and threats to abrogate the North American Free Trade Agreement show a preference for the Rust Belt over the Farm Belt. “I think he’s looking at the Rust Belt primarily,” Roberts told Bloomberg.