Trade War with Canada Could Hurt U.S. Firms, Consumers

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--President Donald Trump's oft-expressed commitment to scrap or significantly renegotiate the North American Free Trade Agreement (NAFTA), and the administration's recent trade conflicts with Canada over softwood lumber, steel and aluminum, aircraft sales and dairy products, have caused alarm in Canada because they could upend complex commercial relationships with America's second-largest trade partner, an Alberta official told an energy conference in Denver last week.

The U.S. imported about $39.4 billion of energy products from Alberta last year, while the province imported about $3.8 billion of energy products from the U.S. in 2016, according to data from the province of Alberta.

Economists generally agree that broader trade with lower tariffs creates more macroeconomic benefits than losses, though those benefits and losses are not equally distributed across industries and regions. While consumers overall benefit from free trade, workers in some industries, and some regions, will be harmed while others are helped.

"Canadians are concerned about calls in the U.S. to end NAFTA," Liam Stone, executive director for policy for the provincial government of Alberta, told about 50 attendees June 13 at a conference organized by the Ports-to-Plains Alliance (Lubbock, Texas), an infrastructure advocacy organization. "NAFTA is a 25-year-old agreement, and the economies of Canada, the U.S. and Mexico all have evolved since that agreement was signed. We are open to modernizing NAFTA to create more prosperity" for all three countries, Stone said.

Stone, based at Canada's embassy in Washington, D.C., recounted conversations with members of Congress who said that when they were drafting the "buy American" legislation, they were thinking of China and Korea. They had not, he said, thought about how those bills, if made into law, could affect American-Canadian trade relations.

"NAFTA facilitates trade relationships that fuel prosperity and economic growth across the continent," Stone told the attendees at the Ports-to-Plains Alliance's Energy & Ag Summit June 13. "North Americans not only sell more--U.S. exports to Canada have increased 165% since 1993--but North Americans make more things together. In 1993, trade between the U.S., Canada and Mexico was $289 billion. In 2015, two-way trilateral trade reached $1 trillion--a fourfold increase."

Stone said that the Canadian national government and the Alberta provincial government want to work with their counterparts in the U.S. to sustain and expand the U.S.-Canadian economic partnership. "Protectionist measures are detrimental to job creation and economic benefits found in trade between Canada and the U.S.," he said. "Open and unimpeded trade maximizes the benefits of trade. Supporting border and transport infrastructure, such as roads, rails, and pipes, that facilitate trade increases efficiency and reduces costs."

About nine million jobs in the U.S. depend on trade and investment with Canada, he estimated. But supply chains are complex, Stone added, and unilateral moves to favor one industry or region could have unforeseen consequences in other areas. "We know we trade on a fair and balanced basis," Stone commented.

He said Canada and Alberta "share a strong bilateral economic, historical and cultural connection with the United States." Canada and the U.S. engaged in $507.7 billion of two-way trade in goods last year. Two-way trade in services was about $83.7 billion. U.S. exports to Canada rose 165% since NAFTA was enacted in 1993. While the U.S. goods trade deficit with Canada was $12.1 billion in 2016, the U.S. trade in services had a surplus of about $25 billion, netting an overall $12.9 billion trade surplus for the U.S. last year, he noted.

Turning specifically to Alberta's trade relations with the U.S., Stone said that Alberta's two-way trade with the U.S. totaled approximately $64 billion in 2016. Nearly 90% of Alberta's exports are sold to the U.S. and roughly 65% of Alberta's total international imports come from the U.S. "Alberta has strong linkages with the U.S. across a variety of sectors including energy, agriculture, forestry and manufacturing," he told conference attendees.

Approximately 1,500 firms located in 49 U.S. states sell equipment, parts and services to Alberta's oil sands companies, Stone commented, adding the energy exports from the province "contribute to continental energy security. The energy industries of Canada and the U.S. are increasingly interconnected." Last year, Alberta supplied approximately 34% of U.S. oil imports, including nearly 100% of the crude oil imported into the PADD 2 area, which supplies refined petroleum products to the Midwest. Alberta also is the largest exporter of natural gas to the U.S., accounting for nearly all of this country's natural gas imports.

But trade is a two-way street, Stone pointed out: Alberta imported about $3.4 billion of refined petroleum products from the U.S. last year, Stone said June 13.

In an email to Industrial Info, Gregory Jack, a spokesperson in the Alberta provincial government, said that U.S.-Alberta trade was estimated to have created nearly one million U.S. jobs: merchandise exports to Alberta created 764,228 U.S. jobs while exports of services created an additional 202,599 U.S. jobs.

Excluding the value of services, Jack said that last year, the five largest categories of U.S. equipment and merchandise exports to Alberta totaled about $12.4 billion. The largest U.S. merchandise export categories to Alberta and their respective values were:

• Energy/Oil: $3.8 billion
• Machinery: $1.6 billion
• Aircraft: $685 million
• Motor Vehicles & Trailers: $546 million
• Electric Machinery and Equipment: $539 billion

Going the other way, Jack continued, the five largest categories of Alberta equipment and merchandise exported to the U.S. last year, excluding the value of services, totaled about $52 billion. The categories and values were:

• Energy/Oil: $39.4 billion
• Plastics:$2.9 billion
• Organic Chemicals: $1 billion
• Meat: $1 billion
• Machinery: $949 million

Though neither Stone nor Jack said so, it seemed clear that any trade war the Trump administration might initiate could have far-reaching and unknown consequences for both sides. If the U.S. were to continue picking fights over softwood lumber or dairy products, U.S. motorists could end up paying more for gasoline or diesel.

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