President-elect Donald Trump is firing off warning shots as he prepares to enact a protectionist trade agenda ahead of his second term in office. On Wednesday, one of those shots whizzed by Canada’s ear. “No one can answer why we subsidize Canada to the tune of over $100,000,000 a year? Makes no sense!” Trump posted on Truth Social.
He continued, “Many Canadians want Canada to become the 51st State. They would save massively on taxes and military protection. I think it is a great idea. 51st State!!!”
The post perfectly distills Trump’s psyche when it comes to trade — and how backward and damaging his views are.
Trump thinks of every interaction as a zero-sum game and believes that you’re either ripping someone off, or you’re the one getting ripped off.
Trump’s attack on the so-called Canada subsidy appears to be a reference to the U.S. trade deficit with its northern neighbor. A trade deficit means that the U.S. has purchased more goods and services from Canada than Canada has purchased from the U.S.; the U.S.-Canadian deficit was over $50 billion in 2022.
There is nothing innately wrong with having a trade deficit with a trading partner. But Trump thinks of every interaction as a zero-sum game and believes that you’re either ripping someone off, or you’re the one getting ripped off. His view is at odds with the perspective of most economists that trade is mutually beneficial and mostly a positive-sum game. That isn’t to say that massive international trade flows don’t have costs for society — they can disrupt labor markets — but to look at differences in exports and imports with one country as a sign of “winning” or “losing” is simply the wrong way to look at the entire enterprise of trade.
Contra Trump’s simplistic worldview, the U.S. benefits economically from what it imports from Canada. In response to Trump’s post, the premier of Canada’s oil-rich province of Alberta, Danielle Smith, explained on X that the reason for the trade deficit is “because Canada (especially Alberta) sends billions of raw materials (oil, gas, minerals, grain, livestock, timber, etc) to your U.S. refineries and factories which your great American companies and workers upgrade and sell around the world, including back to Canada (we are your biggest customer by a mile).”
Trump seems to think that the lack of tariffs on Canadian goods is somehow a gift to Canada, as if U.S. businesses, consumers and exporters don’t benefit from the absence of tariffs. Imposing 25% tariffs on Canada, as he has threatened to do, would likely involve violating U.S. free trade commitments under the USMCA (although Trump may try to seek a security exception). Yes, that’s the same USMCA that Trump negotiated during his first term to replace NAFTA. Moreover, it’s unclear how slapping tariffs on Canadian goods would prevent U.S. purchasers from simply looking to another country to buy them, which would likely entail running up the trade deficit elsewhere.
Trump’s tariff threats and mockery of Canada may also be functioning as an attempt to establish a negotiating position on potential amendments to the USMCA or other regional issues such as demanding new border security policies with Canada. But even as a bluff, it underscores how Trump is inclined to mislead the public about how trade works and benefits the country — and to degrade allies — to try to bolster the America First brand.