Will cutting off trade with Canada net the US $40 billion?

Although cutting off trade theoretically eliminates the U.S.’s $40 billion trade deficit with Canada, those imports must now be purchased elsewhere.

Goods and services are imported because they offer higher quality or lower prices. Some imports have no domestic substitutes – for example, potash.  Canada is the largest supplier of this important fertilizer to the U.S. (and it exports 92% of its potash).

Halting trade with Canada forces businesses and the government to find more expensive substitutes for Canadian imports at home or abroad. This would be particularly damaging for the U.S. auto industry because of the extensive North American supply chains.

Moreover, bilateral trade figures can be misleading, since goods are often recorded as trade with the first country that receives them rather than their final destination, a distortion that grows as supply chains become more globally integrated. Trade disruptions carry economic costs.