Crude Mercantilism
The US exports roughly as much crude as it imports from Canada but at a higher average price, bolstering—not weakening—America’s overall trade position.
If you’re already subscribed and/or appreciate the free summary, sharing my research and hitting the LIKE button is one of the best ways to support my ongoing work.
President Donald Trump has made a wide-range of claims regarding the impetus for currently-threatened tariffs against Canada, including the bilateral trade deficit.
Excluding crude oil, the US actually boasts a notable trade surplus with Canada—and has so for decades—to the tune of just less than $30bn.
Even if physically possible (which it isn’t, at least not on a timescale that matters), to displace imported Canadian crude with US-produced barrels would increase, not reduce, the US’ trade deficit with the world at large.
US President Donald Trump is the “Tariff Man”. But what, exactly, is driving currently-threatened tariffs against Canada, in particular, remains up for debate. I won’t litigate border security or military spending here; but, we know that, through all the noise, one thing absolutely looms large in the president’s mind: the bilateral trade deficit. Trump has spoken about trade deficits vociferously and negatively for decades, frequently describing them as “subsides” to trading partners. He also routinely inflates the size—and, thus, importance—of those deficits. While yesterday Trump announced that he was pausing the implementation of tariffs against Canadian and Mexican imports for 30 days, the threat continues to stoke uncertainty across the North American oil industry.
Therefore, I want to provide some important context around two key aspects of the Canada-US trading relationship and the outsized role of Canadian crude. First, Canadian crude is the only real driver of the trade deficit; the US boasts a notable trade surplus with Canada excluding oil. Second, Canadian crude is a facilitator of higher-value exports: the current crude trade balance allows the US to import lower-value heavy sour Canadian crude and export the same volume of higher-value light sweet crude for more money to global markets.
Let’s dig in.