Surplus or Deficit? Trump Quarrels With Canada Over Trade Numbers

The Trump administration is fighting a war of numbers with Canada, further escalating economic tensions with one of the biggest U.S. trading partners.

President Donald Trump insisted on Thursday that the U.S. is at a trade disadvantage, while Canada denies anything of the sort.

The trade balance is Mr. Trump’s preferred yardstick for measuring whether the U.S. is gaining or losing from economic relationships with its partners. That differs from the views of many economists, who say countries benefit from imports as well as exports and that a country’s overall trade balance is based on broad economic factors including investment and savings rates.

The complexity of the statistics measuring U.S.-Canadian trade flows allows each side the ability to support its claim by choosing from an array of data.

Trump administration officials typically focus on merchandise trade balances with other countries, which don’t account for trade in services such as insurance or tourism.

The U.S. Census Bureau’s basic tally of merchandise trade with Canada lists U.S. exports at $282.4 billion and imports from Canada at $300 billion, indicating a deficit of $17.6 billion.

Canadian officials prefer to include services trade as well as merchandise. That method, which gives highly competitive American services industries credit, gives the U.S. a small surplus of $2.8 billion in 2017, according to the U.S. Commerce Department.

The stakes in this dispute are high, as the Trump administration continues to push its northern neighbor and Mexico to renegotiate the 24-year-old North American Free Trade Agreement to address what the U.S. says are inequities in the trade flows between the two countries.

The Canadian assertion of a U.S. surplus with the country undercuts the Trump administration’s main trade argument in Nafta and other negotiations with Canada—that U.S. deficits represent unfair relationships that need to be overhauled.

The U.S. is asking Canada for a litany of changes in the Nafta talks, from big shifts in auto-industry rules to the elimination of dispute-settlement system, and Canada officials are responding with an argument tailored to Mr. Trump: Trade between the two countries is balanced, so no major changes are needed to existing Nafta provisions.

A spokesman for the Canadian embassy in Washington said, “Canada does not view trade surpluses or deficits as an appropriate measure of whether a given trade relationship is working, or is beneficial for the parties.”

President Trump raised eyebrows at a fundraiser when he reportedly told guests that he recently insisted to Canadian Prime Minister Justin Trudeau that the U.S. has a trade deficit with Canada, despite having “no idea” if that was in fact the case.

“Trudeau came to see me…He said, no, no, we have no trade deficit with you, we have none,” Mr. Trump said Wednesday, according to a transcript published by the Washington Post. “I said wrong, Justin, you do. I didn’t even know. Gosh, I had no idea. I just said, ‘You’re wrong.’”

Mr. Trump sought to clarify his position in a tweet Thursday, saying that the U.S. is indeed at a trade disadvantage with Canada. “We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive),” Mr. Trump wrote. “P.M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S. (negotiating), but they do.”

In recent days, Mr. Trump has challenged China to reduce Beijing’s $375 billion merchandise surplus with the U.S. by $100 billion, while U.S. trade officials develop a plan to impose tariffs on $30 billion in Chinese exports.

Further complicating the debate with Canada: The office of U.S. trade representative Robert Lighthizer is seeking new sets of trade data that can exclude the goods the U.S. imports from Asia and then “re-exports” to Canada or another country, arguing that those re-exports aren’t driven by U.S. manufacturing sector and the workers the Trump administration is trying to defend. The result: a bigger U.S. deficit.

Mr. Lighthizer quarreled with Canadian Foreign Minister Chrystia Freeland over the deficit issue at recent trade negotiations in Montreal, and people following the discussions said the disagreement reflected an undercurrent of tension in the talks and the overall economic relationship between the two countries.

Write to William Mauldin at william.mauldin@wsj.com

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