Is Canada ‘Ripping Us Off’? Or Is It the Best US Trade Partner?

Tuesday, September 18, 2018

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The $4 trillion in goods exchanged last year between the two nations was about evenly divided between imports and exports.

With President Trump’s repeated vows to punish Canada with auto tariffs, you might think that the border was a southbound one-way street, running wholly against the U.S. auto industry.

On a recent campaign trip, Trump said Canada was "ripping us off" and threatened a tariff on cars from Canada that "would be the ruination of the country." It would be a massive escalation of the trade hostilities that began this year with U.S. tariffs on washers, solar cells, aluminum and steel.

But the auto trade with Canada doesn't look one-sided, if you take into account where the parts to make the cars came from.

Yes, car imports from Canada far exceed cars shipped the other way. But those cars assembled in Canada are often made up of engines, bodies and parts imported from the United States. Add up the trade in all automotive goods with Canada, and it comes out about even. The United States exports 99 cents’ worth of automotive goods to Canada for every dollar of imports.

Overall, Canada could even be called the United States’ best major trade partner. It's the largest export market for U.S. goods, and the $4 trillion trade is by far the most balanced. The United States exports 94 cents’ worth of goods to Canada for each dollar of imports. In trade with the rest of the world, it’s only 62 cents.

Within that trade, there are many differences across U.S. imports and exports, and the flow of goods often differs depending on direction. Here's a breakdown:

For every $1 of imports, the U.S. exports to Canada goods worth 94 cents.

In foods, like autos, trade is about balanced overall, at $1.01 in U.S. exports per dollar imports. The United States imports more seafood and baked goods and exports more fruit juice, vegetables and dairy.

The largest tilt in Canada’s favor is in raw materials and supplies, the ingredients such as lumber and metals that go into final products. The United States exports only 55 cents for each dollar of imports.

But it’s the opposite when you look at production equipment and machines, such as computers, robots and forklifts, the tools that make final products. U.S. exports are double imports, $2.05.

Trade in consumer goods also tilts far in favor of the United States. The value of U.S. exports of clothes, furniture, cellphones and other final products is more than double imports, $2.26.

In contrast with Canada, China's trade is the most unbalanced. U.S. exports are 26 cents per dollar of imports, and in consumer goods alone, only 3 cents. China accounted for almost half of last year's U.S. world trade deficit.

U.S. exports are 77 cents per dollar of imports for Mexico, and 65 cents for the European Union.

Compare U.S. trade relationship with:

The pattern within U.S.-Canada trade in part reflects differences between the two countries. Although both have about the same area of land, Canada has only one-ninth the U.S. population, less than California’s. So while rich in natural resources to export as raw material exports, Canada doesn’t necessarily make the vast array of consumer goods, or the specialized machinery and equipment used to make many finished products, and those are more often imported.

The Ambassador Bridge, linking Detroit and Windsor, Ontario, is the busiest connection between the United States and Canada. (Paul Sancya/AP)

The pattern of imports and exports also suggests vulnerabilities and targets for trade retaliation. Canada is the world’s third-largest producer of aluminum, thanks to its supplies of hydroelectric power, and so the country is that much more exposed to the new U.S. 10 percent tariff on aluminum.

Canada’s retaliation against tariffs so far has been aimed not only at U.S. steel and aluminum but also at hundreds of U.S. consumer products, including some from key areas of support for Trump. Targets include dairy products from Wisconsin, whiskey from Kentucky, chocolate from Pennsylvania and orange juice from Florida.

The trade dispute also has fanned public opinion in Canada, especially since the Trump administration used “national security” as a basis for its steel and aluminum tariffs and began threatening the same justification for a 25 percent tariff on Canadian autos. Trump also insulted Canadian Prime Minister Justin Trudeau after a summit in Quebec.

It all prompted 17-year-old Tyler Campbell of Ontario to start a website listing domestic products to buy instead of imports. Since July, he’s done dozens of radio interviews and appeared on TV five times, and his Made in Canada list is up to more than 500 companies and 750,000 views. It aims to steer Canadian coffee drinkers away from Tim Horton’s and into Second Cup, and diners to the ketchup brand Primo instead of Heinz, and shoppers to packages flagged with the red maple leaf from Canada’s flag.

“My perspective on it is more towards pro-Canadian than anti-Trump," Campbell said.

Tyler Campbell’s site lists many products, such as maple syrup, that are made and sold in Canada. (Brent Lewin/Bloomberg News)

But it's the U.S. workers making machines, not consumer goods, who could suffer the most in the blowback from an auto tariff. The United States last year exported to Canada $79 billion worth of production equipment, including machines for farming, mining and manufacturing, as well as computer and telecom equipment. The trade surplus: $36 billion.

Consider the forklift and other material-moving equipment that is central to modern just-in-time delivery. That category alone last year generated a $1.6 billion trade surplus with Canada. “It’s a very important market for us,” said Brian Freehan, president of the Industrial Truck Association, which represents forklift manufacturers and their suppliers. He said that without the North American Free Trade Agreement, U.S. manufacturers would lose business, probably permanently, to countries outside North America.

That could affect workers across the country. Forklifts are sold in Canada, for example, with wheels from Wisconsin, forks from Ohio, a frame from Kentucky, transmission from Indiana, oil pump from Illinois, seats from Michigan, lift cylinders from North Carolina, a counterweight from Texas and a tilt cylinder from West Virginia.

David Closs, a professor in Michigan State University’s Department of Supply Chain Management, said more of the tools for making cars and other products are made in the United States because that equipment, and the engineering and technology that goes into it, often is highly specialized. Canada, on the other hand, fares well with clustered mass production, such as the auto assembly plants in Ontario. There, thousands of cars rolling off the lines each day bear nameplates of Fiat Chrysler, Ford, GeneralMotors, Honda and Toyota.

In Cambridge, Ontario, at the first Lexus manufacturing plant outside Japan, Toyota workers build a Lexus RX with an engine made in the United States. The engine was built at a Toyota plant in West Virginia at a bend in the Kanawha River. The core of the engine, its block, was cast in western Tennessee at Toyota’s Bodine Aluminum in Jackson. Most of the completed cars go back into the United States for sale.

Such border crisscrossing is often cited to show how North American borders are almost transparent to the auto industry and how an auto tariff would cost jobs, as well as add thousands to car prices, in both countries.

study from leading Canadian think tank C.D. Howe Institute found that under a 25 percent auto tariff, Canada could lose 60,000 jobs, a blow that could cause a regional recession centered in Ontario. But the study also found that the United States would lose twice as many jobs, more than 120,000. Although U.S. jobs directly related to autos would get a boost, those gains would be more than offset by job losses in sectors such as machinery, electronic and transport equipment, and other manufacturing. In other studies potential job losses in both the U.S. and Canada have ranged higher.

For Trump to impose the 25 percent auto tariff, the U.S. Commerce Department must find that auto and parts imports threaten national security. It's widely viewed as a negotiating tactic, a U.S. threat to Canada to get NAFTA concessions by the end of September. Auto and parts manufacturers and a wide variety of other interests told the Commerce Department that they opposed the tariff. “A car put together with American-made parts is not a national security threat,” Toyota spokesman Ed Lewis said.

Source: Washington Post

Category: International Trade

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