Ottawa has been breathing a little more easily since U.S. President Donald Trump promised earlier this month he would seek “tweaks” to Canada’s terms under NAFTA, rather than demand major changes.
But new reports from the U.S. might well cause the Trudeau government to again lose sleep over Canada’s trade relationship with the U.S.
According to a Wall Street Journal article published Sunday, the White House is mulling a change in the way it tracks imports and exports that would make the U.S.’s trade deficit with various countries appear bigger. The move is likely meant to strengthen the administration’s political case for renegotiating trade deals.
The idea is to exclude “re-exports” when calculating U.S. international trade balances. Re-exports are goods that were first imported into a country, usually for assembly or processing, and then exported again. It is standard practice to calculate re-exports as parts of a country’s exports, and that is how Statistics Canada tracks Canada’s trade flows.
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U.S. reports noted that, if the U.S. were to adopt the new method of computation, the country’s trade deficit with Mexico would nearly double.
But the optics would deteriorate considerably for Canada as well, Global News calculations shows.
For 2016, the U.S. trade deficit with Canada would grow fivefold, from US$11.2 billion (C$14.8 billion) to US$56.8 billion (C$75.2 billion), according data from the U.S. Census Bureau.
Mexico would see its deficit swell from just over US$63 billion (C$83.4 billion) to nearly US$117 billion (C$155 billion).
While the size of the U.S. trade imbalance with Canada would still look far smaller than Mexico’s, the deficit-magnifying effect of ignoring re-exports is far greater for Canada.
It’s unclear whether the proposed change, which has reportedly met resistance from career government officials at the U.S. Trade Representative’s office, would affect Canada.
Trump told Prime Minister Justin Trudeau during his visit to Washington earlier this month that Mexico, not Canada, is the focus of the administration’s efforts to amend NAFTA. Such assurances were widely seen as a major political win for the Trudeau government.
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“I was encouraged from the comment from President Trump when he referred to tweaks to NAFTA,” Canada’s Trade Minister Francois-Philippe Champagne told Bloomberg in a recent interview.
“There’s an acknowledgment that we just don’t sell to each other, we make things together, and for me this was very encouraging because this is an agreement that has been good for the middle class,” continued Champagne.
But bilateral tensions remain on a number of NAFTA-related questions, such as Canada’s regime for dairy and lumber.
U.S. dairies are already eyeing Trump as a potential ally in the fight against Canada’s dairy quotas and import tariffs.
New, skewed trade statistics could give political fodder to U.S. domestic lobbies with longstanding grudges against Canada’s NAFTA terms.