Trade Deficit With Canada Irritates Few : Flow Lopsided, but Barriers and Wages Aren’t Seen as Unfair

To alarmed businessmen and aroused lawmakers, America’s trade deficit most often means Japanese videocassette recorders, German autos and Taiwanese suits piled on U.S. docks in heaps that rise to obscure the sun.

Less often, it means the cars and vans, two-by-fours and foodstuffs that rumble quietly into this country through its chilly back door.

Yet, as government figures continue to show, the lopsided flow of trade from Canada remains a big part of a U.S. trade imbalance that remains at record levels.

Though it is little-mentioned in public discussion, the U.S. merchandise trade deficit with Canada is second in size only to that with Japan and represents more than 16% of the total deficit.

Deficit Swelled

In 1984, when the U.S. deficit with Japan reached $36.8 billion, the deficit with Canada swelled to $20.4 billion--both figures about three times their 1980 levels.

Economists expect that a final tallying of 1985 figures will show the deficit with Canada to have edged up further last year, to about $21 billion.

That figure represents the difference between the $47.7 billion worth of goods that the United States exported to Canada and the $68.8 billion in Canadian merchandise that flowed into the United States.

Two-way trade between the United States and Canada, at about $116 billion, is the largest bilateral flow in the world.

“People don’t talk about the deficit with Canada partly because Canadian goods aren’t easily identifiable,” said David Rolley, an economist with Chase Econometrics, an economic forecasting firm. “It may be partly, as some people say, that everybody gets excited about Japanese goods for racist reasons.”

But there are other reasons, he added, that the Canadian deficit gives less cause for alarm than the U.S. imbalance with Japan and some other countries.

While American manufacturers complain about non-tariff barriers that hinder the success of their goods in Japan and other nations, only a handful of U.S. industries accuse the Canadians of unfair play.

The two governments’ plans for talks early this year on a further elimination of trade barriers are a sign of the harmony that generally prevails between the neighboring nations.

Wages in some Canadian industries, such as the auto business, have fallen below those of their U.S. counterparts. Yet Canada is still far from becoming an area of low-cost production, such as some Pacific basin countries that threaten the markets of U.S. manufacturers.

Private and government economists believe that the recent growth in the U.S. trade deficit with Canada has done little long-term damage to U.S. industries and displaced few U.S. workers.

Both Nations Benefit

The two nations’ economies are so intertwined that growth often benefits both, they note, citing, for example, the way U.S. auto makers’ Canadian plants benefit both countries.

Economists say the bulge in the Canadian exports is largely a consequence of the faster growth of the U.S. economy since 1983, and the strength of U.S. dollar versus the Canadian dollar.

The U.S. dollar, worth $1.20 Canadian in 1980, is worth $1.40 Canadian today. Despite the efforts of the major Western nations to devalue the U.S. dollar since September, it has gained about 1% in value compared to the Canadian dollar in that period.

That increase in value, partly due to more rapid inflation in Canada, has made Canadian goods cheaper and thus more attractive in competition with U.S.-made products.

Economists say the United States naturally absorbed more Canadian goods between 1983 and 1984 as its economic growth--stimulated by Reagan Administration spending--accelerated.

In 1983, the Canadian gross national product grew 3.3%, compared to 3.7% for the United States; in 1984, the U.S. growth quickened to 6.8%, compared to Canada’s 5%.

Last year, stimulated in part by its export trade, Canada’s growth outstripped that of its southern neighbor, 4.4% to 2.5%--giving one hint that the two nations’ trade imbalance may even out before long.

Shouldn’t Be Penalized

Canadians are quick to assert that if the deficit is a product of stimulative federal spending in the United States, the U.S. government should not penalize Canada for its adverse consequences.

“The strong dollar is the most significant cause of all this, and it’s Washington that has most control over that,” said Jim Adair, New York trade representative of Ontario, the province that produces about half of Canada’s exports to the United States.

Canadians also note that if the trade balance is calculated to include services as well as goods, the U.S. deficit totaled only $6.6 billion in 1984.

When stated in these terms, it was only the second time in two decades that the United States had run a trade deficit.

Leo de Bever, chief economist with Chase Econometrics’ Toronto office, said Canada had a $14-billion services deficit in 1984, most of it in the form of dividends paid by Canadian firms to their U.S. shareholders and interest paid to U.S. lenders.

Historically, U.S. investors have sent capital to Canada “and Canada has exported part of what it produces to the United States to help pay for the capital,” he said.

In 1984 about $5.9 billion, or nearly one-third of the Canadian merchandise surplus, was from automotive manufacturing, which in the 1980s has grown faster in Canada than in the United States.

Reasons for Surge

Several reasons account for the surge in Canadian automotive exports.

- U.S. auto makers opened long-planned new plants, such as Ford and General Motors factories in Windsor, Ontario.

- Canadian factories have long built the U.S. auto makers’ larger models, and thus they benefited in 1983 when declining oil prices helped renew Americans’ taste for larger cars.

- For the last three years, the only plant manufacturing Chrysler’s best-selling minivan has been in Windsor.

As a result, Canadian plants assembled 1.8 million cars and trucks in 1984 and exported about 1.5 million, almost all of them to the United States.

In 1980, the factories built 1.3 million and exported 927,000, noted Norman Clark, president of the Motor Vehicle Manufacturers’ Assn. of Canada.

“You can imagine, it’s given quite a boost to the region,” Clark said.

The second-largest contributor to the trade imbalance has been imports of lumber, an area of some friction between the United States and Canada.

Both U.S. and Canadian industries have been shrinking but the lower-priced Canadian exports of construction lumber grew to $2.67 billion in 1984 from $1.7 billion in 1980.

U.S. lumber companies, which sell almost no lumber to Canada, contend that government subsidies explain much of the Canadians’ price advantage.

But the effects of the strong dollar have also played a part, said R. K. Morris, director of international trade for the National Assn. of Manufacturers in Washington.

“You can’t tell me that with that big a surge in imports since 1980, that the stronger dollar hasn’t played an important role in this,” he said.

Employment in the U.S. lumber industry fell to 89,000 persons from 110,000 between 1980 and 1984, the International Trade Commission found in a recent study of the problem.

Economist De Bever said imports of Canadian food products account for another $1 billion of the Canadian surplus, while the remainder is almost proportionally divided among product categories.