Monday, October 8, 2007

Bilateral Trade Deficits

...are normal. As econbrowser has repeatedly done a much better job of pointing out than I will ever do, it doesn't matter what the trade deficit or surplus is in any one particular sector or with any one particular country, be that in footwear or with Japan. The very fact that bilateral trade deficits exist in a country with a positive current account balance (such as Canada) is effectively proof that there's something behind the notion of comparative advantage.

Yet, for reasons unknown to this student, half of the financial reporters in the country have disrupted their respective Thanksgivings to report on the fact that Canada imports more cars than we sell abroad. See, for example, here, here, here, and here.

Seriously. Does anyone care that I have a bilateral trade deficit with Hershey, Pennsylvania? Or that Newfoundland has a bilateral trade deficit with Saskatchewan in grains and cereals? I hope not. Similarly, nobody should care that Canada has a trade deficit in cars.
While Canada's automotive trade deficit with Japan is the largest, exceeding $6 billion, the most unbalanced relationship is with Korea. The report says Canada buys 183 times as much automotive value as it sells in Korea.
As a result, the CAW is calling on the federal government to stop trade negotiations with Korea."

Let's hope Ottawa has more sense than to listen.

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