U.S. claims on trade deficit with Canada inflated by misleading numbers

U.S. Trade Representative Robert Lighthizer maintains his country has a $87 billion trade deficit in goods with Canada. But CBC News has learned Lighthizer's figures come from a misinterpretation of data on a Canadian government website.

U.S. trade representative's numbers count goods from other countries that merely pass through Canada

U.S. Trade Representative Robert Lighthizer attends the Ministerial Conference of the World Trade Organization in Buenos Aires, Argentina, Monday, Dec. 11, 2017. (Natacha Pisarenko/Associated Press)

Prime Minister Justin Trudeau is on a trip this week to the U.S. meant to drum up support on trade issues — the NAFTA negotiations in particular.

But he also may find himself countering misinformation about the U.S.-Canada trade relationship being spread by the Trump administration's own chief NAFTA negotiator.

U.S. Trade Representative Robert Lighthizer has been including goods that pass through Canada but don't originate here as Canadian exports in his export calculations, artificially inflating the United States' trade deficit in goods with Canada.

That explains why the trade deficit figure cited last week by Lighthizer is so out of line with reality, Canadian government sources say.

Basically, the USTR is counting the same goods twice. 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.

And while Lighthizer is counting that washing machine as part of Canada's surplus with the U.S., the product is already paying tariffs as a Chinese import.

The volume of pass-through goods being added to real Canadian exports in the USTR's math is about US$75 billion. That's roughly equal to the entire GDP of Kenya.

A ballooning surplus

The last round of NAFTA talks that ended last week in Montreal provided Canada with more evidence that Lighthizer and the Trump administration don't feel bound by the rules of good-faith negotiations.

Lighthizer couched his statement last week in words more diplomatic than those he used at his meeting with his U.S. and Canadian counterparts in October.

But once again, jaws dropped in the room when Lighthizer began to criticize what he claimed was Canada's enormous surplus in goods with the United States.

Is it wilful intent, or is it sloppiness? I think it can be both.- Susan Aaronson, Elliot School of International Affairs

"Using Canadian statistics," he said, "Canada has an over $87 billion U.S.-dollar surplus with the United States. To put this in perspective, that figure is equal to approximately 5.7 per cent of Canada's GDP.

"Now, I ask Canadians, because we're in Canada, is it not fair for us to wonder whether this imbalance could in part be caused by the rules of NAFTA? Would Canada not ask this same question if the situation were reversed?"

Lighthizer went on to argue that the solution should be to "rebalance" the trading relationship in the United States' favour.

U.S. Trade Representative Robert Lighthizer and Canada's Foreign Affairs Minister Chrystia Freeland use numbers showing that their country is on the wrong side of the trade surplus/deficit equation. 2:53

False numbers

Foreign Affairs Minister Chrystia Freeland was quick to correct him.

"Canada does not consider trade deficits and surpluses to be the ultimate arbiter of whether trade is good or bad," she said. "But it is worth noting than in overall trade in goods and services, Canada had a trade deficit with the United States of nearly US$8 billion.

"And let me say, these aren't Canadian numbers. They are from the U.S. Bureau of Economic Analysis in the Dept of Commerce."

Freeland cited the numbers for goods and services combined, which produce a relatively small U.S. surplus. For goods only, the U.S. Department of Commerce and the government of Canada both recorded a small Canadian surplus. Neither side's numbers come close to those cited by Lighthizer.

Lighthizer's numbers do come from a Canadian source: Statistics Canada's website. But they're selected and presented in a misleading way.

Unlike other figures published by the government of Canada — which count genuinely Canadian exports — Statistics Canada's spreadsheet counts re-exports of goods from third countries together with Canadian goods.

The website clearly explains, however, that this methodology differs from the one used by the U.S. itself: "For trade in goods, imports in the U.S. accounts would be affected because the United States attributes Canadian re-exports to the country of origin rather than to Canada, the last country of shipment."

Which explains why the USTR's own website contradicts Lighthizer:

"Canada is currently our 2nd largest goods trading partner with $544.0 billion in total (two-way) goods trade during 2016. Goods exports totalled $266.0 billion; goods imports totalled $278.1 billion. The U.S. goods trade deficit with Canada was $12.1 billion in 2016."

The figure for the goods trade deficit cited by Lighthizer in Montreal was more than seven times higher.

Foreign Affairs Minister Chrystia Freeland talks with USTR Robert Lighthizer, right, and Mexico's Secretary of Economy Ildefonso Guajardo Villarrea after the sixth round of NAFTA negotiations in Montreal. (Graham Hughes/Canadian Press)

No answers from USTR

CBC News spoke with a person in Lighthizer's office who said a spokesperson would call about the discrepancy. That hasn't happened; repeated calls to USTR spokesperson Emily K. Davis went unanswered.

Canadian officials said they don't believe Lighthizer is genuinely confused about the balance of trade and suggest that U.S. officials may be reacting in annoyance to having official U.S. statistics used against them in NAFTA talks.

Susan Aaronson, a research professor at the Elliot School of International Affairs at George Washington University, said she thinks political appointees may be behind the USTR's use of bogus numbers.

"The staff of USTR has remained and they are competent and many of them are deeply concerned by this sort of manipulation of statistics," she said.

"Is it wilful intent, or is it sloppiness? I think it can be both. While Ambassador Lighthizer is no amateur, many of his appointees are in over their heads and don't know what they're doing."