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Economic Insights

Recent data on trade deficits contain some nettlesome news for the United States and Canada.

Somewhat inconveniently from the standpoint of political economy, data released by the U.S. Census Bureau in August 2018 show that the U.S. merchandise trade deficit with the rest of the world is widening, as domestic demand growth accelerates.

Recent trade data regarding the relative positions of the three signatories to the beleaguered North American Free Trade Agreement (NAFTA) also may prove politically problematic. The United States has a small deficit in goods trade with Canada, which is offset by a larger surplus in services. Meanwhile, the U.S. trade deficit in goods and services with Mexico is almost as wide as it has ever been.

The trade deficit with Mexico may prove vexing to the United States. The White House would like to keep U.S. growth at a robust pace, even as it pursues changes to NAFTA, such as the recent bilateral trade negotiations with Mexico. But strong growth may well cause the deficit to expand further, calling into question the value of the recent treaty modifications.

The data also suggest that it will be more difficult for Canada to accept any modifications of NAFTA that would increase the U.S. trade surplus, as Ottawa digests the results of the U.S.-Mexico talks. This is an important point to consider given the contentious U.S.-Canada trade negotiations now underway.

 

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