Trump-Trudeau trade tiff

There are dead-end conversations. Then there's the image of Justin Trudeau quibbling about the Canada-U.S. trade deficit with U.S. President Donald Trump, who recently revealed some backroom bickering between the two about which country buys more imports from the other.

So who won the debate?

Critics say it doesn't matter, for two reasons: First, a number of economists, frustrated by the way some politicians talk about trade deficits, say it's a pointless academic exercise. Second, there's scant evidence a disputed fact on trade will dissuade Trump.

A different president might by now have noticed and heeded the overwhelming consensus of opinion among elite economists that it's utterly futile to try fixing a trade deficit as a means to foster greater national well-being.

A survey of world-leading economists run by the University of Chicago Initiative on Global Markets examined this question three years ago and asked several dozen economists whether a country can improve the welfare of its people by changing trade surpluses or deficits.

The percentage who strongly agreed: zero.

Five per cent agreed slightly, while 42 per cent disagreed or strongly disagreed. The economists responding to the survey cited a variety of reasons — such as the idea that trade balances are a symptom of an economic reality, not the cause.

Here's the way Anil Kashyap of the University of Chicago ridiculed the idea, which has since become the intellectual underpinning the Trump administration's trade policy, and its prime justification for fixing NAFTA.

"Crazy assertion but plenty of people seem to believe this," Kashyap wrote. "To see the fallacy, note that banning imports would do it and would crush (economic) welfare."

Trump repeatedly raises trade deficits as proof America is being ripped off, buying more than it sells to the world. Trump came back to it at a rally last Friday — and revealed he and Trudeau haggled over whose trade imbalance was bigger.

An abbreviated version of the conversation went like this, according to Trump: "(Trudeau) said, 'No, no, you have a trade surplus.' I said, 'No we don't.' He said, 'No, no, you have a trade surplus.'"

In truth, Trudeau appears correct — for 2016. The Trump administration's own stats prove the U.S. sold Canada more than it bought last year. But a greater truth is the situation fluctuates, and it's often the opposite, since the U.S. imports natural resources — and when oil and other commodity prices spike, it runs a trade deficit with Canada.

But the fundamental truth here, according to the mainstream economic view, is trade policy can't really fix it.

A new report by Goldman Sachs points to one reason: currencies adjust to trade realities. If Trump began the NAFTA withdrawal process, the loonie would drop six per cent, negating tariffs and eliminating the desired effect, Goldman says.

Economists cite other ways to reduce trade deficits. Weakening the currency, increasing domestic savings, and finding more foreign customers are all on that list — protectionism isn't.