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The Progressive Economics Forum

Canada’s Trade Deficit with the EU Doubles

On last night’s Lang & O’Leary Exchange, I debunked the claim that the trade deal between Canada and the European Union (EU) will create 80,000 Canadian jobs. The conservative panelists did not even try to defend this figure (see this CBC video, starting at 15:45).

As Jim Stanford has previously explained on this blog, the government’s model assumes full employment and projects higher output based on improved productivity from free trade. It is disingenuous to then translate that additional output back into extra employment.

Another point I made is that, last week, Statistics Canada released merchandise-trade figures for August. In the first eight months of this year, Canada ran a trade deficit of $14 billion with the EU.

That already exceeds the total annual deficits of $11.9 billion in 2012 and $12.0 billion in 2011. In other words, our trade deficit with the EU has jumped from $1 billion per month to almost $2 billion per month this year.

If free trade amplifies existing export and import flows, the result will be an even larger Canada-EU trade deficit. And unless you assume full employment, a larger trade deficit with the EU would mean a loss of output and jobs in Canada.

UPDATE (October 19): My recent Lang & O’Leary discussion is now on YouTube:

I also spoke about the overall Canada-EU trade imbalance for a few seconds at the end of the beef and cheese story on Thursday’s CTV National News.

Enjoy and share:

Comments

Comment from rcp
Time: October 18, 2013, 8:31 am

Canadian GDP was ~$1.8 trillion in 2012. If Canadians want to buy from Europe, it is not a problem.

Comment from Erin Weir
Time: October 19, 2013, 5:07 pm

I agree that the deal’s possible benefits and costs are quite small relative to our total economy, given that trade barriers between Canada and the EU are already minimal. One might ask how much policy space we should give up for such minor economic effects.

Comment from Darwin O’Connor
Time: October 21, 2013, 1:32 pm

“If free trade amplifies existing export and import flows, the result will be an even larger Canada-EU trade deficit.”

Most of the increase in exports would benefit Canada, but many of the increased imports could displace imports from other countries, thus doing no harm to Canada and presumably benefit Canada from lower prices. For example an increase in luxury car imports would mostly displace American and Asian car imports.

Depending on the balance the result could be an higher trade deficit with the EU, but an overall lower trade deficit with the world, resulting in a net benefit for Canada.

Comment from Purple Library Guy
Time: October 21, 2013, 10:56 pm

Far as I’m concerned Mr. O’Connor’s point, while perhaps accurate, is largely moot given that I’d prefer to leave all these trade deals in order to regain the ability to conduct effective industrial policy, import substitution policies and so forth, whose fruits in the medium term would be considerably more useful than any arguable gains we may have made from various sorts of free trade.

Meanwhile–So, free trade boosters are using a model that assumes full employment to predict a gain in employment? OK, so it’s inaccurate, but does anyone else also find it kind of ludicrous? Where is this additional employments supposed to come from in this model? Will everyone be more-than-fully employed in a sort of supersaturated employment solution? Or does the model have 80,000 new people poof into existence to also be fully employed? But, since the model assumes they’d be fully employed anyway, wouldn’t there need to be another 80,000, and another and another . . . the employment gains in the model leading to armageddon as infinite population has to be assumed into existence to balance the equations!!!
OK, facetious, but it seems symptomatic of the sort of approach we see too often from free-trade economists, this idea that it’s OK to base serious policy prescriptions on these weird models that are so divorced from reality that visitation rights for the kids require interstellar travel.

Comment from Darwin O’Connor
Time: October 22, 2013, 1:04 pm

I am well aware the 80,000 number is nonsense. When the Toronto Star quoted that study I emailed the reporter pointing out the ridiculous assumptions. Later they published an article mentioning the study is “absurd”.

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