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U.S. President Donald Trump tells many lies about Canada-U.S. trade to justify his threatened 25-per-cent tariff. He claims the bilateral trade deficit is $200 billion — five times larger than the true number (according to official U.S. data). He claims a trade deficit is a “subsidy” to Canada, in contravention of basic economic principles. He claims America doesn’t need anything we sell — not even the more than four million barrels per day of oil that made up 55 per cent of all U.S. oil imports in 2024.
Amidst all this bluster, it is telling that Trump never talks about trade in services. This kind of trade, including commercial and business services, transportation, tourism, and even cross-border purchases of education and health care, is increasingly important in global commerce.
Services trade is growing rapidly for numerous reasons. There’s a general shift toward services in the overall economy. Technological change has facilitated cross-border commerce in many services (from call centres to digital streaming). And trade policies have reduced former restrictions on international investment and business in services.
One challenge in understanding the service trade is a lack of accurate data. It is harder to count cross-border transactions in services (many of which occur digitally) than to measure cross-border flows of physical merchandise (which is regulated and logged at border crossings).
Another problem is the ambiguity of intra-corporate accounting for transactions between non-arms-length subsidiaries of international corporations. Intra-firm accounting for administration costs, intellectual property charges and profits can be easily manipulated. Corporations do this to artificially shift bottom-line profits to subsidiaries in lower-tax jurisdictions.
For all these reasons, economists agree the official data understates true cross-border service transactions by a considerable margin. Some even argue that, properly measured, service trade is now larger than global merchandise trade. Cross-border data flows are typically not counted at all.
This massive under-the-radar trade explains why Trump never mentions service trade, as he berates Canada. It also explains the desire of U.S. negotiators to preserve the unregulated, largely untaxed treatment of global trade in digital services.
For example, they really hate Canada’s incoming Digital Services Tax: a small step toward making global tech giants pay something toward public infrastructure in the countries where they do business. There is no doubt that axing this tax (to borrow a phrase!) will top the U.S. agenda whenever they sit down to actually negotiate with Canada.
U.S.-based companies dominate global services trade, especially in technology and finance. Globally, the U.S. enjoyed a surplus in services trade of over $275 billion in 2023. This success offsets a significant proportion (one quarter or more) of the long-standing U.S. deficit in merchandise.
Canada needs to push back hard against Trump’s false characterization of the bilateral relationship. The U.S. doesn’t subsidize Canada. To the contrary, U.S. corporations exploit Canada, writes Jim Stanford
The official statistics undercount both the scale of service trade, and the U.S. advantage. But even those numbers confirm service trade is very important in the Canada-U.S. bilateral relationship, and that the U.S. enjoys a significant surplus. Canada is the second-largest export market for U.S. services in the world, taking in $86 billion (U.S.) in American-made services in 2023.
And the U.S. services surplus with Canada ($32 billion U.S. in 2023) is also the second-largest of any country, behind only Ireland. Keep in mind, most U.S. “exports” to Ireland are an accounting trick to shift profits of U.S. tech giants like Microsoft and Apple to a lower-tax European jurisdiction. Excluding this case, Canada is the most important market for net exports of U.S. services.
The U.S. statistics show their bilateral service surplus with Canada offsets almost half its bilateral deficit in merchandise. And this almost certainly underestimates the true surplus — given their dominance in new, hard-to-measure activities like data, streaming, e-commerce and digital platforms.
A trade deficit is not a subsidy, but there are other reasons why our bilateral service trade with the U.S. constitutes an unusually sweet deal for Americans. Indeed, the poor regulation and taxation of these services (in contrast to other, more traditional businesses) does constitute an effective subsidy by Canadians to these hugely profitable U.S. firms. Other businesses must pay taxes for the infrastructure and other public costs of running the society where they make money. But these companies are given a free pass.
Canada needs to push back hard against Trump’s false characterization of the bilateral relationship. The U.S. doesn’t subsidize Canada. To the contrary, U.S. corporations exploit Canada. And the massive profits collected from Canadians by U.S. tech giants —largely unregulated, untaxed, and even uncounted —are among the worst examples.
Economic facts and logic won’t cause a bully like Trump to back down. But knowing that a breakdown in this lucrative two-way trade would hurt American companies, at least as much as Canadian ones, helps buttress our bargaining power to negotiate a more cooperative way out of looming trade chaos.
Jim Stanford is Economist and Director of the Centre for Future Work in Vancouver, and author of the recent report, Who’s Subsidizing Whom? Myth and Reality about the Canada-U.S. Trade Balance.