Looking at the Canada - US Trade Flow Picture
A deeper dive on the tos and fros of trade between our countries.
I cannot help myself. At my heart, I am a self professed nerd when it comes to data. With all of the headlines in Canada regarding the potential of 25% tariffs being levied on Canadian exports starting on February 1st, I wanted to understand for myself what the data actually looks like. Note that I only looked at 2023 as the information was readily available, it is reasonably clean (i.e. no significant COVID hangover) and the 2024 data won’t likely be available for a while.
Canada and the United States are significant trade partners. In 2023 Canada exported US$438 billion to the United States while the United States exported US$353 billion to Canada, resulting in Canada having a trade surplus with the United States of US$85 Billion and thus the (uninformed) consternation when it comes to current talk south of the border.
Looking at the top exports from Canada, I drew an arbitrary line at the top 20 exports. This was not to say that businesses that do less than this are any less important, rather I just wanted to make a chart that was actually readable. As one would expect, energy and auto lead the way, accounting for 43% of all of our exports to the United States in 2023.
However, as with all countries, we also import a tremendous amount as well. Why? Because in simplified terms it is good to focus on that which you do best, and have in abundance, and leave other aspects to other countries that are good at other things. As such, automotive as well as machinery, nuclear reactors and boilers account for 31% of the trade flow going north into Canada in 2023.
When dealing with the border, it is important to remember that goods flow both ways, and the curious part as it pertains to oil is that despite Canada being awash in black gold, eastern Canadian refineries cannot access crude from the west, so Canada needs to export it to the US and re-import it to Canada. Weird. If only we had a pipeline that could do this…
I think it is also useful to look at the net balances, by category, to better understand the tos and fros of trade. Similar to previous charts, I made an arbitrary cut off line, this time at net exports exceeding US$1 billion in 2023. No real surprises here as energy dominates the landscape as Canada is a significant producer of oil and gas, and produces far more than it can consume internally and accounts for 76% of Canadian net exports to the United States.
In terms of net imports, the picture is more balanced, with the top two categories being machinery, nuclear, boilers and electrical, electronic equipment accounting for a significant portion of Canadian net imports (37%) from the United States.
Moreover, if you look at the breakdown of many of the components, and yes I am generalizing a bit, you will see that a lot of what we export are raw materials / base inputs, while what we import are value added finished products. As I have said many times, Canada is the proverbial resource bread basket that the rest of the world would crave to call its own.
If you exclude energy (mineral fuels, oils, distillation products) from the above analysis, you actually return to a more balanced trade picture between the two countries, and Canada actually is a small ($15 billion) net importer from the United States. Why do I think that is a fair way to look at things? The United States is a significant consumer of Canadian energy, and heavy oil in particular is something that Canada producers a lot of and is consumed by the complex refineries located in Minnesota, Indiana and in the U.S. Gulf Coast. If you want to learn more about this, I strongly encourage you to follow
as he does some brilliant deep dive analysis on this sort of topic and others.At the end of the day, if the Trump administration really is about “fairness” in trade we need calmer minds to prevail on this topic, as the data shows that the trade relationship is fair, and Canada is a valued (and economical) trade partner. I have my own suspicions that this issue extends beyond trade deficits and even beyond the issues he has also cited of illegal immigration and flows of fentanyl, and could even be as simple as “I am doing this, because I can, and I will do whatever I can to benefit my country.” Is this rational and fair? No.
The biggest lesson from all this is that Canada must find a way to diversify its trade, especially when it comes to energy. We need to build more pipelines, we need to diversify our customer base, and we need to start acting like a country that is looking out for us all, not just our own self interest.
Excellent data analysis. I really think this is personal. And I say this not because I am a Trudeau hater, although I cannot stand the man, but also because we were told to get our NATO spending up and we did nothing. The arctic is completely wide open, we do nothing. People mention NORAD. Really? With our military?
Thank you Will. Always a treat to read pieces based on constructive exploration of analytical thought as opposed to biased emotional reaction.