In a post on Truth Social early Wednesday, Donald Trump claimed his country is financially supporting its northern neighbour.

The U.S. president-elect wrote that B次元官网网址渨e subsidize Canada to the tune of $100,000,000 a yearB次元官网网址� B次元官网网址� an apparent reference to a previous claim about a $100-billion trade gap B次元官网网址� and said the imbalance B次元官网网址渕akes no sense.B次元官网网址�

B次元官网网址淢any Canadians want Canada to become the 51st State,B次元官网网址� he said in the post, made at 3:23 a.m. EST.

In fact, the U.S. trade deficit sat at US$41 billion in 2023, according to figures from the U.S. Bureau of Economic Analysis.

What is a trade deficit?

On the global stage, countries export some goods and services while importing others. A trade deficit occurs when the dollar value of a countryB次元官网网址檚 imports is more than its exports.

Each country has an overall global trade balance, as well as various balances with other states they buy and sell with B次元官网网址� for example, the one between the United States and Canada.

More than $3.5 billion in goods and services cross the border daily, with the U.S. comprising CanadaB次元官网网址檚 closest largest trading partner. More than two-thirds of Canadian trade is with its southern neighbour, and Canada is among AmericaB次元官网网址檚 top trading partners as well.

What are key factors behind the U.S. trade deficit with Canada?

It mainly boils down to oil. Virtually all of CanadaB次元官网网址檚 crude oil exports and much of its other energy products flow south. Energy exports accounted for more than $177 billion or roughly 28 per cent of CanadaB次元官网网址檚 goods exports to the U.S., according to the federal government.

B次元官网网址淚f we exclude oil B次元官网网址� the U.S. is actually benefiting from this trade relationship,B次元官网网址� said Salim Zanzana, an economist at the Royal Bank of Canada.

The idea that an imbalance necessarily hurts a country is misplaced, said Stuart Trew, director of the trade and investment research project at the Canadian Centre for Policy Alternatives.

B次元官网网址淭his is actually not a problem for the United States,B次元官网网址� he said.

B次元官网网址淚tB次元官网网址檚 actually creating jobs in the United States B次元官网网址� Most of the oil we send to the United States, at least from Alberta, is refined in U.S. refineries employing thousands of people. And that is then turned into products like plastics, like chemicals, like fuels B次元官网网址� also in the United States.

B次元官网网址淭he other thing is that they need that oil,B次元官网网址� he added.

That sentiment enjoys support from Alberta Premier Danielle Smith, who posted a similar argument on X in response to Trump.

B次元官网网址淐anada (especially Alberta) sends billions of raw materials (oil, gas, minerals, grain, livestock, timber, etc) to your U.S. refineries and factories which your great American companies and workers upgrade and sell around the world, including back to Canada (we are your biggest customer by a mile),B次元官网网址� she wrote.

B次元官网网址淟iterally millions of good paying American jobs and companies rely on these affordable raw materials from Canada to make trillions of dollars of wealth in your country.B次元官网网址�

Does a trade deficit mean the countryB次元官网网址檚 economy is weak?

Trump has both suggested that CanadaB次元官网网址檚 trade surplus with the U.S. is a point of pride for Canadians B次元官网网址� B次元官网网址渢hey were bragging and got caught!B次元官网网址� he said in a Twitter post in 2018 B次元官网网址� and a point of shame: B次元官网网址渨e subsidize CanadaB次元官网网址�B次元官网网址�

But experts say a trade deficit or surplus is not in itself good or bad.

The focus should be on overall trade and investment between countries, Trew said. If cross-border trade goes up, as it has for decades, both nations can benefit. Each can leverage their comparative advantage in different areas B次元官网网址� crude oil in Canada and machinery production in the U.S., for example B次元官网网址� while closely integrating their supply chains in other fields such as automotive manufacturing.

B次元官网网址淭hey export way more services to us,B次元官网网址� Trew noted. B次元官网网址淵ou turn on Netflix, you turn on Amazon Prime. ItB次元官网网址檚 not problematic.B次元官网网址�

He qualified that the massive imbalance in goods trade with China is an issue B次元官网网址渋f your goal is to enhance your manufacturing capacity,B次元官网网址� since cheaper Chinese-made consumer products can undercut American suppliers.

Why is this not as simple as winners and losers?

Observers suggest Trump is using the trade gap as a pretext to raise tariffs or gain leverage in negotiations around the Canada-U.S.-Mexico free-trade agreement.

B次元官网网址淢r. TrumpB次元官网网址檚 method is pretty well known. You hit the other side over the head, force them to react and maybe make concessions, and then you negotiate,B次元官网网址� said former Quebec premier Jean Charest, now a partner at the Therrien Couture Joli-Coeur law firm, in an interview on Wednesday.

Trump has threatened to impose 25 per cent tariffs on all goods from Canada unless it stops the flow of migrants and illegal drugs into the U.S.

Charest stressed the tightly braided supply chains in auto and other manufacturing sectors.

B次元官网网址淚f you put a tariff on it, youB次元官网网址檙e really putting a tariff on yourself,B次元官网网址� Charest said. B次元官网网址淐omponents that go into building cars may cross the border up to seven times until the final building of a car.B次元官网网址�

What are the ramifications of TrumpB次元官网网址檚 fixation on trade gaps and tariffs?

If the incoming president sees trade gaps as an imbalance to be corrected B次元官网网址� or compensated for B次元官网网址� the ripple effects would be far-reaching.

B次元官网网址淚t could spread to non-trading industries,B次元官网网址� Zanzana said of potential tariffs. B次元官网网址淭hereB次元官网网址檚 also a risk of retaliatory tariffs, which Canada has done in response to previous tariffs on steel and aluminum.B次元官网网址�

He also cited lower growth, higher inflation, weaker business investment and greater uncertainty as likely outcomes.

Zanzana framed a trade deficit as a form of borrowing. Since the value of imports amounts to less than can be bought out of export sales, B次元官网网址渢hat shortfall needs to be made up for by selling assets or borrowing abroad,B次元官网网址� he said.

B次元官网网址淏alancing the trade gap, therefore, would essentially require re-balancing economy-wide net borrowing, and the biggest net borrower in the economy is B次元官网网址� surprise, surprise B次元官网网址� the federal government.B次元官网网址�

Achieving that goal would be B次元官网网址渧ery hardB次元官网网址� given U.S. federal deficit levels already stand near record highs, he said.

Charest said TrumpB次元官网网址檚 social media post underscores the need to diversify trade rather than remain B次元官网网址渃aptive to a single American client.B次元官网网址�

B次元官网网址淚 donB次元官网网址檛 think itB次元官网网址檚 useful for us to engage with Mr. Trump on the abrasiveness side,B次元官网网址� he said.

B次元官网网址淏ut he does shed light in a brutal way on the fact that we as a country have to rise above the circumstances in which we are now and redefine our place relative to the United States, relative to the rest of the world.B次元官网网址�