Travel services are where the U.S. enjoys the biggest advantage, thanks to the larger number of people travelling south to places like Disney World. The Cinderella Castle is seen at the Magic Kingdom at Walt Disney World in Lake Buena Vista, Fla., on July 14, 2023.John Raoux/The Associated Press
For all the talk of Canada withholding oil and potash to retaliate against U.S. tariffs, there’s another way Canadians could strike a blow at the U.S. economy: cancelling that trip to Disney World.
This week, B.C. Premier David Eby joined a growing chorus suggesting it may be unpatriotic to “spend money in a country that wants to do economic harm to Canadians.”
Such a boycott would target a large but overlooked dynamic of the Canada-U.S. trade relationship. U.S. President Donald Trump obsesses over America’s trade deficit with Canada, but that imbalance only involves the movement of stuff between the two countries, with imports of Canadian oil tipping the U.S. into a deficit.
However, the U.S. enjoyed a nearly $14-billion trade surplus with Canada in services in 2023, the last year for which country-specific data are available from Statistics Canada. And travel services are where the U.S. enjoys the biggest advantage, thanks to the larger number of people travelling south than north.
In the months since Mr. Trump was elected on a pro-tariff platform, many economists have highlighted America’s services surplus as a counter to his assertion that Canada has “taken advantage of our country for many years” on trade.
However, the argument has had difficulty gaining traction, in part because “you can’t see or touch services in the same way you can auto parts crossing the border,” said Danielle Goldfarb, senior fellow with the University of Toronto’s Munk School of Global Affairs and Public Policy. “As our economies have digitized, a lot of it has become even harder to see.”
Nor does the services surplus do much for Mr. Trump’s populist efforts to court blue-collar workers with talk of a manufacturing rebound.
Even so, the services sector has become a big growth driver for both countries.
Canada’s services exports to the world have increased 60 per cent from a decade ago in inflation-adjusted terms, while goods exports are up just 6 per cent, Stephen Brown, the deputy chief North America economist at Capital Economics, wrote in a recent report.
Canada’s largest services export sector is commercial services, which includes everything from technology and financial services to architecture and construction. It was worth $122.6-billion in 2023, with 72 per cent of that going to the U.S.
On the whole, Canada’s commercial services trade with the U.S. is generally balanced – in 2023 Canada had a surplus of $1.5-billion with the U.S. in that sector, but an average deficit of $1.7-billion in the three previous years.
Below the surface, it’s a much more dynamic picture.
Over the past decade, Canada’s exports of “computer and information services,” which capture things such as software services, technology consulting, data processing and artificial-intelligence services, have more than tripled, giving it a $7.2-billion surplus with the U.S.
One explanation could be the phenomenal success of companies such as Shopify Inc., Constellation Software Inc. and Open Text Corp.; since 2018, revenue from the U.S. for just those three companies has tripled to $15.3-billion, according to data from S&P Capital IQ.
At the same time, the U.S. enjoys big surpluses in other areas, such as advertising and related services, in which it has a $7.7-billion surplus.
However, that sector speaks to one of the challenges of accurately measuring the billions of dollars in digital services activity flowing back and forth across borders.
Until 2020, Canada regularly posted a trade surplus in advertising. That year, Statistics Canada said the category was “expanded significantly” to capture all the money Canadians pay to “foreign entities for online advertising” on social media and the internet.
In other words, Facebook and Google ads.
It’s one reason Mr. Trump has trained his sights on Canada’s digital services tax, a 3-per-cent levy that foreign tech giants must pay on revenue generated in Canada. This week, Mr. Trump signed his America First Trade Policy directing government agencies to investigate whether countries are subjecting U.S. “citizens or corporations to discriminatory or extraterritorial taxes.”
“On the one hand, Trump ignores the services sector, but what he’s talking about is directly related to U.S. service exports to Canada,” Ms. Goldfarb said. “There’s no question the digital services tax will be on his agenda.”
How the United States-Mexico-Canada agreement fares when it comes up for review next year will also be critical to the services sector, said Mr. Brown of Capital Economics.
For instance, the Canadian bank expansion into the U.S. has benefited from trade rules that compel the U.S. to treat Canadian and Mexican banks the same way as domestic banks. That could be at risk, he said.
Likewise, without USMCA, the U.S. could require foreign companies to have a physical presence in the U.S. to sell services there or demand that data centres be located in the U.S. rather than in Canada, where there is a bounty of affordable hydroelectricity.
“If USMCA came to an end, a services company probably wouldn’t be affected straight away, but over time there could be new standards the U.S. puts in place that are discriminatory to Canadian firms,” Mr. Brown said.