To justify the unilateral imposition of new tariffs on Canada, America’s second-largest trading partner, and traditionally closest ally, President Trump told a group of manufacturers today that tariffs placed on the importing of U.S. goods are so high that it has created an imbalance of trade that is not fair, which is why he’s opted to launch a trade war.
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To prove his point, Trump shared an anecdote that he said he read in a “major newspaper” recently.
Trump said the article talked about “people living in Canada coming to the United States and smuggling things back into Canada because the tariffs are so massive.”
“The tariffs to get common items back into Canada are so high they have to smuggle them in. They buy shoes and wear them. They scuff them up. They make them sound old or look old.”
“We can no longer be the stupid country,” declared Trump. “We want to be the smart country.”
Trump did not say what article he was referring to or where it appeared, but it sounds a lot like a story that appeared in the New York Post on June 16 with the headline, “Why Canadians will never give up American products.”
TRUMP: "Canada? They like to talk."
Accuses Canadians of "smuggling" American goods into Canada because "the tariffs are so massive."
"We can no longer be the stupid country. We want to be the smart country." pic.twitter.com/URbJ8jNV4e
— Aaron Rupar (@atrupar) June 19, 2018
The New York Post, like Fox News, is a media outlet that slants to the right politically because both are owned by a company controlled by Rupert Murdoch, the conservative media mogul who is known to have Trump’s ear.
The Post is a paper that Trump knows well because he lived most of his life in New York City.
The article was written by a woman who says she is a Canadian now living in New York, where she often plays the role of a “cross-border mule” for family and friends who want to escape the tariffs imposed by Canada.
She is not talking about smuggling drugs but rather everyday items like cameras and bicycle parts, and even designer shoes.
She says a Toronto-based designer friend bought a pair of Italian made shoes for $800 which she arranged for a mutual friend to smuggle back to Canada saving “$159.59 in combined federal and provincial taxes, and $187.26 in estimated customs charges.”
The article mentions others who make things look old to get them past Canadian customs but not the shoes, so it differs from Trump’s account, although in the telling the president has been known to embellish things.
“Canadians are allowed $540 in exemptions if they have been out of the country for more than 48 hours,” adds The NY Post story. “The exemption for Americans traveling abroad is $800.”
What is odd is that this anecdote is about Canadians cheating their own government while spending money in the U.S. that will never be accounted for in the trade surplus that Trump says favors Canada to such a degree that Trump says, “We are treated horribly.”
So how bad is the trade deficit? Well, that depends on how you account for the flow of goods and services, and who does the counting.
CBC, the Canadian Broadcast Company, reported in February that the U.S. claims of a trade deficit are “inflated by misleading numbers.”
Canada’s Foreign Affairs Minister Chrystia Freeland told the CBC that “overall trade in goods and services, Canada had a trade deficit with the United States of nearly US$8 billion,” she said citing statistics from the U.S. Bureau of Economic Analysis in the Dept of Commerce.
The same article quotes U.S. Trade Representative Robert Lighthizer, the lead negotiator for the U.S. in the stalled NAFTA talks, claiming it is Canada that has a trade surplus.
“Using Canadian statistics,” said Lighthizer, “Canada has an over $87 billion U.S.-dollar surplus with the United States.”
That is quite a difference considering both claim to be using the others official numbers.
The CBC article says it is because they count things quite differently.
The U.S numbers, they say, include goods that pass through Canada but do not originate there or stay there, “artificially inflating the United States’ trade deficit in goods with Canada.”
“Basically, the USTR is counting the same goods twice,” reported the CBC. “For example, a Chinese washing machine that passes through the port of Vancouver on its way to the United States is being counted in both the U.S. trade deficit with China and in the U.S. goods deficit with Canada.”
“The volume of pass-through goods being added to real Canadian exports in the USTR’s math is about US$75 billion.,” added the CBC.
And it isn’t just Canadians saying that. Time Magazine reported on March 15: “Data from both countries say that the U.S. imports more goods from Canada than it exports – the U.S. says the good trade deficit was $12.1 billion.”
Time also supports the complaint about the U.S. counting wrong: ‘Canada has complained that the U.S. Trade Representative is falsely inflating that number by counting goods that merely pass through Canada from other countries.”
One more thing that is important to understand because Trump’s most frequently repeated remark is how unfairly American dairy farmers are treated because Canada imposes “275 percent tariffs.”
On June 13, the Brookings Institute, an American think tank, analyzed Trump’s claim and described it in a headline as a “Trumped Up Charge.”
Start with this fact from Brookings: “In 2017, Americans sold $792 million in dairy products to Canada, while Canadians sold $149 million in dairy products to the U.S., creating a tidy trade surplus for the U.S. of nearly $650 million.”
The U.S. has already negotiated a quota for daily exports which are not taxed at all, or at a very low rate unless they rise above a certain amount.
“As a practical matter,” added Brookings, “no dairy products are sold to Canada outside the quota, so no U.S. exports really pay a high tariff.”
So Trump has picked a fight with America’s closest neighbor and ally over a deficit that may or may not exist disrupting a trade that is very healthy for the U.S.
Aside from the fact that Canada and the U.S. stand together on security issues and need each other in many ways, what Trump is doing is the wrong thing for the wrong reasons based on questionable data.
At least it must give Trump’s hero Vladimir Putin a reason to smile.