JUANA SUMMERS, HOST:
President-elect Donald Trump doubled down today on his threat to impose steep tariffs on Canada. His warning comes a day after Canadian Prime Minister Justin Trudeau announced his plans to step down. Trump had previously belittled Trudeau and Canada, saying the country should give up its sovereign status and join the U.S. as another state.
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DONALD TRUMP: In trade deficits, we're losing massive - we don't need their cars. You know, they make 20% of our cars. We don't need that. I'd rather make them in Detroit. We don't need the cars. We don't need their lumber.
SUMMERS: So what does this mean for the future of trade relations between the U.S. and Canada? To answer that, we're joined now by NPR's Scott Horsley. He's here to help us to dig a little bit deeper into the trade relationship between these two countries. Hey there.
SCOTT HORSLEY, BYLINE: Hi, Juana.
SUMMERS: So Scott, tell us just how important are the commercial ties between the U.S. and its northern neighbor?
HORSLEY: They're pretty darn important. In fact, we just got some numbers from the Commerce Department this morning showing that in the first 11 months of last year, some $700 billion worth of stuff went back and forth between the U.S. and Canada. That is significantly more than we bought and sold with China. Gary Hufbauer, who's at the Peterson Institute for International Economics, says for all the attention that trade with China gets, the strongest commercial ties are the ones closest to home.
GARY HUFBAUER: The U.S. largest trading partner is now Mexico, but the second largest is Canada, and China is well below those two. So Canada's really important.
SUMMERS: Scott, what are some of the biggest products moving back and forth across that border?
HORSLEY: Well, the No. 1 import to the U.S. from Canada is crude oil, which might surprise some people since the U.S. is also producing a record amount of crude oil itself right now. But, you know, the U.S. refines more oil than it produces, and Canada pumps more oil than it can refine. So Kevin Birn, who's an energy analyst at S&P Global Commodity Insight, says this is a win-win relationship that's been good for both countries.
KEVIN BIRN: Canada is the U.S.' largest source of foreign oil. It's north of 20% of U.S. refining runs. It's a material share of what the U.S. requires to meet consumer demand every single day.
HORSLEY: And some of those refined products are then sent back to Canada. There are similar close and reciprocal ties in the auto industry, where parts go back and forth between Michigan and Ontario. This is a very integrated partnership that has grown up in the three decades since NAFTA, and imposing 25% tariffs like Trump has threatened to do would really throw a wrench into that.
SUMMERS: But Scott, there are some trade frictions between the countries, right?
HORSLEY: Oh, sure. Always. I mean, U.S. dairy farmers complain that protectionist measures in Canada make it hard to sell milk and ice cream north of the border. U.S. saw mills complain about unfair subsidies on Canadian lumber. No drinking game about U.S.-Canada trade ties would be complete without a reference to softwood lumber. But economists say those are pretty small slices of what is actually a large and lucrative trading pie.
SUMMERS: Now Scott, we've heard some suggest that Trump's tariff talk, that it's just all a negotiating tactic. How likely is that?
HORSLEY: Well, it could be. You know, we certainly saw examples of that during Trump's first term in office, when he threatened more tariffs than he actually imposed. But this is a sensitive time, especially with the leadership vacuum in Ottawa that follows Justin Trudeau's announcement yesterday. Matthew Martin, who's at Oxford Economics, says if Trump were to make good on his tariff threats, there would not be any winners in the resulting all-out trade war.
MATTHEW MARTIN: The relative downside to Canada would be larger, just because of how large a source of exports the U.S. is for them. But by no means would the U.S. go unscathed.
HORSLEY: Not only would Americans have to pay more for Canadian imports, but Canada would almost certainly retaliate with taxes of its own on U.S. exports.
SUMMERS: NPR's Scott Horsley, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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