What’s Trump’s problem with Canada?

Summary

Summary of "More or Less: Behind the Stats" Episode – "What’s Trump’s Problem with Canada?"

Release Date: March 29, 2025
Host: Tim Harford
Podcast: More or Less: Behind the Stats, BBC Radio 4

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Introduction to Liberation Day and Trump's Tariff Announcement

In the episode titled "What’s Trump’s Problem with Canada?", Tim Harford delves into President Donald Trump’s recent declaration concerning his administration's new trade policies targeting Canada. The discussion begins with the announcement made by Trump on April 2nd, Liberation Day.

Donald Trump [01:58]:
"Liberation Day in America. And what we're going to be doing is a 25% tariff on all cars that are not made in the United States."

Tim Harford highlights the surprising nature of this move, emphasizing that implementing a 25% tariff on a close ally like Canada is highly unusual and warrants a deeper examination of Trump’s motives.

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Trump's Justifications: Immigration and Fentanyl Concerns

Trump's rationale for the tariffs extends beyond economic factors, intertwining immigration issues with concerns over drug trafficking.

Donald Trump [02:58]:
"They've allowed millions and millions of people to come into our country that shouldn't be here. They could have stopped them and they didn't. And they've killed 300,000 people last year. My opinion have been destroyed by drugs by fentanyl. The fentanyl coming through Canada is massive."

Tim challenges these claims by presenting data that only 0.2% of the fentanyl seized by U.S. Customs originates from Canada, suggesting that the issue may not be as extensive as portrayed.

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Debunking the $200 Billion Subsidy Claim

Trump asserts that the United States is effectively subsidizing Canada through a massive trade deficit.

Donald Trump [03:42]:
"We subsidize them $200 billion a year. It costs us $200 billion a year in subsidy to keep Canada afloat."

Tim Harford counters this by explaining that what Trump refers to as a subsidy is, in reality, a trade deficit—where the U.S. spends more on Canadian imports than it earns from exports to Canada.

Brad Setser [04:25]:
"President Trump says that whenever you run a trade deficit, you're basically giving countries money. So he treats the trade deficit as like a subsidy for Canada."

Setser clarifies that the actual goods trade deficit between the U.S. and Canada is approximately $70 billion, significantly lower than Trump's claim.

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Understanding the Trade Deficit: Goods vs. Services

The conversation shifts to the nature of the trade deficit, distinguishing between goods and services.

Brad Setser [05:01]:
"The goods deficit is about $70 billion now, not $200 billion."

Tim adds that when considering services—such as banking, air transport, and digital streaming—the U.S. actually enjoys a trade surplus in this sector.

Brad Setser [06:36]:
"If you add in services trade, that deficit falls to 30 to 40 billion."

This adjustment significantly reduces the perceived economic imbalance presented by the Trump administration.

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The Role of Canadian Resources in U.S. Manufacturing

Economist Armin Yelnizian emphasizes the critical role Canadian resources play in U.S. manufacturing.

Armin Yelnizian [07:24]:
"More than a third of all wood products and over a third of all raw materials that the US imports come from Canada. We have the critical minerals that they need from everywhere in the world."

Tim questions the necessity of Canadian imports amidst Trump's claim of American self-sufficiency.

Donald Trump [07:54]:
"We don't need their lumber."

Yelnizian explains the complexities of modern manufacturing, where components cross borders multiple times during production. Instituting a 25% tariff on each crossing would cumulatively increase costs exponentially.

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Economic Implications of Tariffs: Costs and Investments

The experts discuss the broader economic consequences of Trump's tariff policies.

Armin Yelnizian [08:29]:
"Somewhere between three and ten thousand dollars per car, Americans will be buying less and they will be paying more... that's going to take years."

Brad Setser [09:03]:
"If you want to re-industrialize the US... you don't want to cut off trade with Canada."

Yelnizian further points out that industries reliant on affordable Canadian inputs, such as aluminum—which benefits from Canada's hydroelectric energy—would face increased production costs.

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The Flawed Premise Behind the Tariffs

The episode highlights that Trump's justification for tariffs is not supported by accurate economic data or conventional trade practices.

Brad Setser [10:00]:
"Is that Trump argues that Canada really doesn't, quote, work as a country, that it really should reconsider its sovereignty and it should consider joining the US as a 51st state. That is not in any way a conventional use of tariffs."

Tim Harford underscores the illogical nature of using tariffs to pressure a neighboring ally, noting that such actions could isolate the U.S. economically and politically.

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Conclusion: The Potential Downfall of Trump's Trade Strategy

Tim Harford concludes by reiterating that Trump's tariff strategy against Canada is based on misleading statistics and flawed economic reasoning. The move risks alienating a key ally, increasing costs for American consumers and industries, and undermining the intricate web of North American trade relations that have been established over decades.

Tim Harford [10:17]:
"The world is watching."

He calls attention to the broader implications of such unilateral trade actions, suggesting that they may not yield the intended economic benefits but rather lead to increased tensions and economic inefficiencies.

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Key Takeaways

• Misrepresentation of Trade Deficit: Trump inaccurately portrays the U.S.-Canada trade deficit as a $200 billion subsidy, whereas actual figures are significantly lower when accounting for services.

• Economic Interdependence: The U.S. and Canada share a deeply integrated economic relationship, relying on each other for critical raw materials and intermediate goods essential for manufacturing.

• Flawed Tariff Strategy: Imposing high tariffs on Canadian imports could lead to increased costs, reduced consumer choice, and strained diplomatic relations without addressing the purported issues effectively.

• Long-Term Consequences: The unilateral imposition of tariffs may hinder U.S. manufacturing competitiveness and disrupt the established trade ecosystem between the two nations.

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For further insights and detailed discussions, listeners are encouraged to tune into the "More or Less: Behind the Stats" podcast series on BBC Radio 4.

Transcript

[Tim Harford]

This BBC podcast is supported by ads outside the uk.

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[Tim Harford]

Thanks for downloading the more or less podcast with a program that provides a numerical oasis in the desert of data disinformation. So come and relax under the statistical shade with me, Tim Harford. The 2nd of April is Liberation Day. Excellent. What's Liberation Day?

[Donald Trump]

Liberation Day in America. And what we're going to be doing is a 25% tariff on all cars that are not made in the United States.

[Tim Harford]

Oh, so not as fun as it sounds. Liberation Day, a day which, by the way, has already changed date at least once, also includes tariffs on imports from.

[Donald Trump]

Countries, including one of the nastiest countries to deal with.

[Tim Harford]

Ooh, I wonder which country this could be. North Korea? Russia? Mordor?

[Donald Trump]

Canada?

[Tim Harford]

Canada, eh? That's President Trump talking to Fox News about His decision to implement 25% tariffs on many goods crossing the U.S. canada border, a 25% tariff is a highly unusual move, especially on one of your closest neighbours and allies. So what are his motives? Well, according to Trump, it is definitely not about pressuring Mexico and Canada to make amendments to the USMCA Free Trade Agreement with the us, which, by the way, Trump negotiated in his first term.

[Donald Trump]

It has nothing to do with that. They've allowed both of them, Canada, very much so. They've allowed millions and millions of people to come into our country that shouldn't be here. They could have stopped them and they didn't. And they've killed 300,000 people last year. My opinion have been destroyed by drugs by fentanyl. The fentanyl coming through Canada is massive.

[Tim Harford]

Now, fentanyl, which is a powerful synthetic opioid, is a big problem for the US, although only 0.2% of the total amount of fentanyl seized by US Customs was from Canada, which is not such a massive number. So, Mr. President, tell us how you really feel.

[Donald Trump]

We subsidize them $200 billion a year. It costs us $200 billion a year in subsidy to keep Canada afloat.

[Tim Harford]

Right.

[Donald Trump]

Why are we supporting a country 200 billion plus a year?

[Tim Harford]

Why indeed? But does the US actually subsidize Canada to the tune of $200 billion? No, they do not. What President Trump is referring to is a trade deficit. And a deficit is what happens when you spend more on imported goods than other people spend on the goods you export. Now, to economists like me, trade deficits aren't such a big deal. But the big man in the White House sees it differently.

[Brad Setser]

President Trump says that whenever you run a trade deficit, you're basically giving countries money. So he treats the trade deficit as like a subsidy for Canada. I'm Brad Setser. I'm a senior fellow at the Council on Foreign Relations.

[Tim Harford]

Brad was also a staff economist at the United States Department of the Treasury. So he has long been witness to the US trade deals. Not only is the $200 billion not a subsidy, it's also not the right number, at least not according to the most recent data from the U.S. census Bureau and Statistics Canada.

[Brad Setser]

The goods deficit is about $70 billion now, not $200 billion.

[Tim Harford]

These are just traded goods, things such as lumber, maple syrup and energy. Energy actually makes up the largest part of this trade deficit, specifically crude oil.

[Armin Yelnizian]

We deliver about 25% of all the crude that gets refined in their refineries. My name is Armin Yelnizian. I'm an economist and the Atkinson Fellow on the Future of Workers here in Canada.

[Tim Harford]

Now, I know what you're thinking. What about Texas? Yes, the US does produce a lot of its own crude oil, around 13 million barrels a day, but it consumes around 20 million barrels a day.

[Brad Setser]

Canadian oil is actually connected by a pipeline to the industrial parts of the Midwest. And it's easier to get oil in from Canada than to bring oil up from the U.S. from Texas and the U.S. gulf Coast.

[Donald Trump]

So we don't need their oil and gas. We have our. We have more than anybody.

[Tim Harford]

Sure. The Trump administration revised their 25% tariffs on Canadian crude oil to 10%, which suggests that maybe they do need it a bit. So back to the $70 billion, $200.

[Donald Trump]

Billion or $250 billion deficit.

[Tim Harford]

No, the $70 billion deficit also doesn't take services into account. Services are an increasing part of trade. They include things such as banking, air transport, streaming channels like Netflix. And the US Actually has a surplus in in service trade.

[Brad Setser]

If you add in services trade, that deficit falls to 30 to 40 billion.

[Tim Harford]

That is $160 billion lower than the figure Trump most commonly states. The reason the US Has a trade deficit isn't a particularly bad thing either.

[Armin Yelnizian]

The fact that they are spending more than US means simply that they have more purchasing power. At this moment, US$1 now buys $1.43 in assets denominated. In Canadian terms, they can afford to buy more.

[Brad Setser]

The dollar's strength has made it cheaper for Americans to buy foreign goods.

[Tim Harford]

It's part of the reason why we.

[Brad Setser]

Run a trade deficit.

[Tim Harford]

This higher purchasing power often means that it's cheaper to import goods from countries than to make them in your own country. And that's been the story with US Trading since the end of the Second World War.

[Armin Yelnizian]

The US Is the trading partner for about two thirds of everything Canada trades. We were effectively developed as a branch plant economy to the manufacturing capacity of the United States and as a source for raw material and inputs for their production. More than a third of all wood products and over a third of all raw materials that the US Imports comes from Canada. We have the critical minerals he says, that he needs from everywhere in the world.

[Tim Harford]

Now, Trump also says he doesn't need their lumber.

[Donald Trump]

We don't need their lumber.

[Tim Harford]

That's what I just said.

[Donald Trump]

We don't need their cars.

[Tim Harford]

Ah, yes. The most recent announcement. The main reason for implementing this tariff is that Trump wants to bring American owned companies operating in Canada back to the US as part of His America.

[Armin Yelnizian]

First policy, free trade has pushed production of American cars to go to where the cheapest labor is or where the most efficient labor is. And that means different things at different times for different inputs. A car might go over the border seven or eight times as it becomes closer to being assembled and put on a car lot.

[Tim Harford]

If you have to add a 25% tariff every time one of those parts or cars crosses the border, it is all going to add up. But not just for Canadians.

[Armin Yelnizian]

Somewhere between three and ten thousand dollars per car, Americans will be buying less and they will be paying more. So if they want to make everything in the United States, they have to actually increase production by about 75% and something like $50 billion of new investments. That's going to take years.

[Tim Harford]

Even if they do make the investment, Brad says the US Will still need to trade with Canada.

[Brad Setser]

If you want to re industrialize the US if you care about manufacturing, you don't want to cut off trade with Canada. Part of the reason why our general manufacturing industry is competitive in some sectors is because it has access to resources from Canada.

[Tim Harford]

One such resource is the metal aluminium. Due to Canada's use of hydroelectric energy, they can produce aluminium at a price three times lower than smelters in the United States, which makes it a lot cheaper for US Companies to import Canadian aluminium.

[Brad Setser]

So if you take away the cheap aluminum, you're hindering all the other products that are made with aluminum. And I think in general, U.S. trade with Canada is characterized by bringing in inputs, often industrial supplies like aluminum, and then transforming them and exporting them out.

[Tim Harford]

So if there isn't actually a $200 billion deficit, why is Trump raising tariffs?

[Brad Setser]

Is that Trump argues that Canada really doesn't, quote, unquote, work as a country, that it really should reconsider its sovereignty and it should consider joining the US as a 51st state. That is not in any way a conventional use of tariffs.

[Tim Harford]

The world is watching. And that is all we have time for this week. Thanks to Brad Setzer and to Amin Yal Nizian. If you have any questions or comments, please email more or lessbc.co.uk. we will be back next week and until then, goodbye.

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