‘We don’t get to pick and choose’: Economist says energy can’t be separate from Canada-US trade equation

Concordia University Economics Professor Moshe Lander discusses Canada-U.S. trade relations with Alberta Primetime host Michael Higgins.

This interview has been edited for clarity and length.

Michael Higgins: Donald Trump has, on more than one occasion, stated the U.S. is subsidizing Canada to the tune of $100 billion. What’s your read when it comes to who has a trade deficit and who has a trade surplus?

Moshe Lander: So first of all, the idea that somebody is subsidizing somebody is completely false. It misses the basic idea that we are an open economy.

We export, we import. If we export more than we import, that’s called a trade surplus. If we import more than we export, it’s called a trade deficit. Neither one of them is necessarily a good, nor a bad thing.

So it’s probably true that the U.S. does have a trade deficit with Canada, but so what? For the better part of the latter half of the 20th century, they would have had a trade surplus with us.

It comes and it goes, and part of the movement in the exchange rate is to adjust for these things.

What matters more is not where we are at this particular moment, but over the course of, say, a business cycle, or over the course of 50 to 100 years, do these things balance out? And in general, they do.

MH: So then does it matter if you remove energy from the equation as we heard Danielle Smith suggest?

ML: It’s just one of those products that we export, and so it’s part of the calculation.

So if we start saying, ‘well, let’s take that out’, should we also take out some of the things that we import from the U.S., like Apple products, and say, ‘well, let’s not count that as well’?

We don’t get to pick and choose. So for her to say, ‘let’s remove that from the story’, that’s a little bit disingenuous. It’s part of the story, it’s a major part of the story, and it’s one of the key things that we export.

Canada is really good at exporting natural resource-related goods because they’re all around us.

So I’m not exactly sure what she’s trying to get at, other than maybe trying to go to the people and say, ‘I know you don’t understand what a trade deficit or surplus means, you just hear the word deficit and assume it’s a bad thing. So let’s just rearrange the way that we do these calculations so that you feel better about yourselves.’

MH: How much access does the U.S. have to the Canadian services market and does that register at all where any of these trade deficits are concerned?

ML: In calculating trade surpluses and deficits, we take a look at the exports of goods and services, and we take a look at the imports of goods and services.

You can imagine that the services that we would provide, things like accounting services, medical services, legal services, are probably not in high demand by the U.S., in part because their standards are different than our standards, and they would recognize those things.

The services that we might import might also not be recognized, but then it becomes an issue of how many Canadian businesses are operating in the U.S. and do need accounting, legal advice, and how many U.S. businesses are operating in Canada and need accounting and legal advice.

You would tend to assume that we’re probably more of an importer of services than they are of our services, but we’re also probably more of an importer of their goods than they are of ours.

But again, it depends on the exchange rate, it depends on the time and place in the business cycle.

MH: Let’s come back to that point about energy. How likely is it to be the linchpin here? That energy security is the one element that will dictate the flow of talks once the Trump administration imposes that tariff?

ML: A lot of American refineries are geared towards Alberta oil, and so it’s not the type of thing that at the snap of the finger you can just change overnight.

So when the President Elect says that he doesn’t need Alberta Oil, or he doesn’t need Canadian goods and services for anything, that’s not true.

It’s not that there’s a gun to their head and we’re forcing them to take our stuff. We’re selling it to them at a market price like anything else, and if they don’t like it, they could go get it somewhere else.

But the fact is, they do buy a lot of our stuff. So I don’t know that energy is going to be any more important than anything else.

I understand why the premier is making it more important than anything else, because that’s the major thing that we export in Alberta to the U.S., but in the grander scheme of things, it’s Team Canada, not Team Alberta, that matters at this point in negotiating, and if the premier’s running off trying to just negotiate carve outs for Alberta, that’s not in the best interest of Canada. As a whole, it weakens our bargaining position and it just means that we hand a win to Trump.

MH: What do you expect the impact of a Trump-imposed 25 per cent tariff to be on this side of the border, and how quickly might it be felt?

ML: It’s not going to be good, of course. If we’re not already in a recession, we will be in a recession, and the longer that the tariffs last, the more damaging it’s going to be.

The issue becomes, what do Canadian businesses do in response to these tariffs? There are a few options, one of which is to scale back production, one is to shutter up production entirely. The other one is to continue production but to move on to the other side of the border to avoid the tariffs entirely. So the longer that the tariffs last, the more likely we are going to see businesses shutter up or just move entirely.

If we can keep this to a minimum, that it’s only here for a few months, or that it’s part of a grander bargain that we can strike, then we’ll manage. We’ve dealt with worse situations, including COVID, so it’s not that critical of a deal, but it’s important to understand the Americans do need us just as much as we need them, and so there is going to come a point where they’re going to realize that 25 per cent tariff is doing damage to them as well.

MH: Could we look at it from the impact of this tariff on provincial finances? How far would that impact reach, and thus, maybe trickle down to the average Albertan?

ML: I heard the premier say that this is likely going to lead to Alberta running a deficit. My response was of course we’re going to run a deficit. We run deficits in bad times in our personal lives – lose your job, you’re going to run a deficit, you’re a young child, you run a deficit and you borrow from the bank of mom and dad. If you want to take out a mortgage to buy a home, you’re running a deficit that year. That happens. So if Canada is heading for some rough times, I would expect that every province is going to run a deficit.

We shouldn’t criticize the premier or the government for running deficits during bad times. I would be more concerned if she’s coming in front of a camera saying, we ran a surplus during bad times. What are you doing with my tax dollars that you’re holding on to them when I need them the most?

So I don’t think that that’s maybe a serious consideration, other than just the province is going to tip from surplus to deficit because of the damage that is being done.

She’s not gaining any favours with the Alberta public by going and trying to negotiate with him one-on-one. She’s just showing disunity within Team Canada, which is handing him strength.