Thursday, January 25, 2007

Lou Dobbs, and the U.S. trade deficit with Canada

I was watching Lou Dobbs on CNN tonight. Alana was getting hot under the collar. Not for what Dobbs was saying, but because there's a group that wants to grant amnesty to illegal aliens, and to give them preferential treatment in any guest worker program. They were featured on Dobbs' show. Alana gets mad when she hears this stuff, probably because of the cost and time it's taken to keep me down here.

Dobbs then started in on a group who are looking at the possibility of a North American union. I assume that they mean to form a North American version of the European Union. Of course Dobbs focused on the security and sovereignty implications, and how he was against it, and how the majority of Americans were against it. He hasn't spoken to many Canadians (he admits this) so he couldn't say how Canadians feel about it. Actually, due to Bush there is enough anti-American sentiment that few Canadians would agree to such a union.

That's not the point of this post. At the end of the segment he said that it wouldn't be in the U.S.' best interest given the U.S. already has a $79 billion trade deficit with Canada.

This is something Dobbs has mentioned before. He's an American patriot, and he dislikes trade deficits. The problem is that he equates one trade deficit with another. That's not fair.

Much of what the U.S. buys from Canada is raw resources. The U.S. isn't losing gobs of jobs to Canada (though there has been job loss to Canada, Canadians have lost jobs to the U.S.; this is a natural result of free trade). The U.S. is buying manufactured materials from Canada, to be sure, but Canadians buy manufactured products from the U.S. The biggest part of the trade deficit with Canada is the purchase of natural resources.

In other words, the U.S. is buying a whole lot of stuff from Canada that it doesn't have itself.

Let's analyze the trade deficit. I found figures from 2005, which is where Dobbs got the $79 billion figure from (it was actually $78.485 billion, so it should have been rounded down to $78 billion). Last year the deficit was lower, probably due to the U.S. dollar plunging compared to the Canadian dollar. As of November it was around $67 billion.

Regardless, these deficits are on trade valued $500 billion. The U.S. bought $290 billion of Canadian goods, while Canada bought $211 billion in U.S. goods.

This is important because Canada has 1/8 the population of the U.S. If every Canadian spent as much money on American goods as Americans spend on Canadian goods, Canadians would have only purchased about $26.4 billion worth of stuff from the U.S. On a per capita basis Canadians buy way more American goods than the other way around. It works out to every American buying $967 worth of Canadian goods, and every Canadian buying about $6600 worth of American goods. You don't hear Lou Dobbs talking about that! If every person in China spent the same amount of money as the average Canadian on American goods, the U.S. trade surplus would be astronomical.

As I mentioned, the bulk of what the U.S. buys from Canada is natural resources. For the most part these are items that the U.S. needs that it can't produce locally. Some of it is lumber, which Canada has more of and sells it for less, but much of it is stuff like nickel and potash.

Complaining about the U.S. trade deficit with Canada is a little like me complaining about my trade deficit with Target.

Even if you compared Gross Domestic Product (GDP) and divided trade between the two countries based on that, the United States still sells more to Canada as a function of its GDP than the U.S. buys from Canada.

So while Lou Dobbs should be lauded for defending the United States' interests, he should also be taken to task for giving Americans an unfair portrait of trade with their northern neighbour.


Michael Skeet said...

I disagree with one thing you said about Lou Dobbs. He may or may not be a U.S. patriot, but for the purposes of this discussion what's important is that he's a U.S. protectionist. He's opposed to any sort of free trade, if that free trade would result in any sort of economic disadvantage to the U.S. Since by its nature free trade involves tradeoffs (as you point out), the only conclusion to draw is that Dobbs is some sort of statist anti-capitalist.

Allan Goodall said...

Okay, I can agree with that. It would be interesting to ask him how he'd feel if the U.S. trade balance was zero, but there were some countries where the U.S. had a trade surplus and some where the U.S. had a deficit. It would be interesting to ask him if he'd want to wipe out the deficits. I suspect he would, though that would be essentially impossible.