In a post on Truth Social early Wednesday, Donald Trump claimed his country is financially supporting its northern neighbour.

The U.S. president-elect wrote that 鈥渨e subsidize Canada to the tune of $100,000,000 a year鈥� 鈥� an apparent reference to a previous claim about a $100-billion trade gap 鈥� and said the imbalance 鈥渕akes no sense.鈥�

鈥淢any Canadians want Canada to become the 51st State,鈥� he said in the post, made at 3:23 a.m. EST.

In fact, the U.S. trade deficit sat at US$41 billion in 2023, according to figures from the U.S. Bureau of Economic Analysis.

What is a trade deficit?

On the global stage, countries export some goods and services while importing others. A trade deficit occurs when the dollar value of a country鈥檚 imports is more than its exports.

Each country has an overall global trade balance, as well as various balances with other states they buy and sell with 鈥� for example, the one between the United States and Canada.

More than $3.5 billion in goods and services cross the border daily, with the U.S. comprising Canada鈥檚 closest largest trading partner. More than two-thirds of Canadian trade is with its southern neighbour, and Canada is among America鈥檚 top trading partners as well.

What are key factors behind the U.S. trade deficit with Canada?

It mainly boils down to oil. Virtually all of Canada鈥檚 crude oil exports and much of its other energy products flow south. Energy exports accounted for more than $177 billion or roughly 28 per cent of Canada鈥檚 goods exports to the U.S., according to the federal government.

鈥淚f we exclude oil 鈥� the U.S. is actually benefiting from this trade relationship,鈥� said Salim Zanzana, an economist at the Royal Bank of Canada.

The idea that an imbalance necessarily hurts a country is misplaced, said Stuart Trew, director of the trade and investment research project at the Canadian Centre for Policy Alternatives.

鈥淭his is actually not a problem for the United States,鈥� he said.

鈥淚t鈥檚 actually creating jobs in the United States 鈥� Most of the oil we send to the United States, at least from Alberta, is refined in U.S. refineries employing thousands of people. And that is then turned into products like plastics, like chemicals, like fuels 鈥� also in the United States.

鈥淭he other thing is that they need that oil,鈥� he added.

That sentiment enjoys support from Alberta Premier Danielle Smith, who posted a similar argument on X in response to Trump.

鈥淐anada (especially Alberta) sends billions of raw materials (oil, gas, minerals, grain, livestock, timber, etc) to your U.S. refineries and factories which your great American companies and workers upgrade and sell around the world, including back to Canada (we are your biggest customer by a mile),鈥� she wrote.

鈥淟iterally millions of good paying American jobs and companies rely on these affordable raw materials from Canada to make trillions of dollars of wealth in your country.鈥�

Does a trade deficit mean the country鈥檚 economy is weak?

Trump has both suggested that Canada鈥檚 trade surplus with the U.S. is a point of pride for Canadians 鈥� 鈥渢hey were bragging and got caught!鈥� he said in a Twitter post in 2018 鈥� and a point of shame: 鈥渨e subsidize Canada鈥︹��

But experts say a trade deficit or surplus is not in itself good or bad.

The focus should be on overall trade and investment between countries, Trew said. If cross-border trade goes up, as it has for decades, both nations can benefit. Each can leverage their comparative advantage in different areas 鈥� crude oil in Canada and machinery production in the U.S., for example 鈥� while closely integrating their supply chains in other fields such as automotive manufacturing.

鈥淭hey export way more services to us,鈥� Trew noted. 鈥淵ou turn on Netflix, you turn on Amazon Prime. It鈥檚 not problematic.鈥�

He qualified that the massive imbalance in goods trade with China is an issue 鈥渋f your goal is to enhance your manufacturing capacity,鈥� since cheaper Chinese-made consumer products can undercut American suppliers.

Why is this not as simple as winners and losers?

Observers suggest Trump is using the trade gap as a pretext to raise tariffs or gain leverage in negotiations around the Canada-U.S.-Mexico free-trade agreement.

鈥淢r. Trump鈥檚 method is pretty well known. You hit the other side over the head, force them to react and maybe make concessions, and then you negotiate,鈥� said former Quebec premier Jean Charest, now a partner at the Therrien Couture Joli-Coeur law firm, in an interview on Wednesday.

Trump has threatened to impose 25 per cent tariffs on all goods from Canada unless it stops the flow of migrants and illegal drugs into the U.S.

Charest stressed the tightly braided supply chains in auto and other manufacturing sectors.

鈥淚f you put a tariff on it, you鈥檙e really putting a tariff on yourself,鈥� Charest said. 鈥淐omponents that go into building cars may cross the border up to seven times until the final building of a car.鈥�

What are the ramifications of Trump鈥檚 fixation on trade gaps and tariffs?

If the incoming president sees trade gaps as an imbalance to be corrected 鈥� or compensated for 鈥� the ripple effects would be far-reaching.

鈥淚t could spread to non-trading industries,鈥� Zanzana said of potential tariffs. 鈥淭here鈥檚 also a risk of retaliatory tariffs, which Canada has done in response to previous tariffs on steel and aluminum.鈥�

He also cited lower growth, higher inflation, weaker business investment and greater uncertainty as likely outcomes.

Zanzana framed a trade deficit as a form of borrowing. Since the value of imports amounts to less than can be bought out of export sales, 鈥渢hat shortfall needs to be made up for by selling assets or borrowing abroad,鈥� he said.

鈥淏alancing the trade gap, therefore, would essentially require re-balancing economy-wide net borrowing, and the biggest net borrower in the economy is 鈥� surprise, surprise 鈥� the federal government.鈥�

Achieving that goal would be 鈥渧ery hard鈥� given U.S. federal deficit levels already stand near record highs, he said.

Charest said Trump鈥檚 social media post underscores the need to diversify trade rather than remain 鈥渃aptive to a single American client.鈥�

鈥淚 don鈥檛 think it鈥檚 useful for us to engage with Mr. Trump on the abrasiveness side,鈥� he said.

鈥淏ut he does shed light in a brutal way on the fact that we as a country have to rise above the circumstances in which we are now and redefine our place relative to the United States, relative to the rest of the world.鈥�