The "America First" trade doctrine hinges on a painfully simplistic premise: that the size of the trade deficit determines whether trade relationships are good or bad, and tariffs on imports will resolve the imbalance. With the U.S. global trade deficit hitting a staggering $971 billion in 2022, it’s no surprise that many Americans believe the U.S. must restore balance to its trade relationships. But a deeper dive into the numbers shows that trade deficits aren’t the definitive metric some make them out to be—especially when examining trade with specific regions.
Take the Western Hemisphere, for example. According to the Office of the United States Trade Representative (USTR), U.S. trade with Canada, Mexico, Central America, South America, and the Caribbean was relatively balanced in 2022. Of the $2.4 trillion in total trade across the region, the U.S. trade deficit was just $76.9 billion—a mere 3% difference between imports and exports. Moreover, U.S. goods exports to the region were up nearly 20% from the previous year.
On the services side, the numbers tell an even more positive story. U.S. exports of services—spanning industries like travel, professional and management services, and financial services—outpaced imports significantly, with a surplus of $244 billion in exports versus $186.5 billion in imports.
Foreign direct investment (FDI) further highlights the mutual economic benefits in the hemisphere. In 2022, U.S. FDI in the Western Hemisphere totaled $1.5 trillion, compared to the $800 billion invested in the U.S. from these countries. This two-way investment is a massive driver of wealth and growth, especially in the U.S. which is the single largest jurisdiction benefitting from this FDI.
Across the Western Hemisphere—one of the most vital regions for U.S. trade—trade flows are balanced, with U.S. exports, particularly in services, showing steady growth.
Now, consider Canada, one of the U.S.’s largest trading partners. The U.S. goods trade deficit with Canada was $80.1 billion in 2022, but this figure deserves context. Much of that deficit consists of energy and intermediate goods that power U.S. industries, fuel competitiveness in other markets, and help keep prices in check for American consumers.
When it comes to services and investment, the balance shifts significantly. U.S. exports of services to Canada reached $71.3 billion in 2022, a nearly 25% increase over the previous year, compared to $44.6 billion in imports. Meanwhile, U.S. FDI in Canada totaled $438.8 billion, though Canada invested even more in the U.S., with $589.3 billion in FDI.
Trade deficits with individual countries, or even regions, only tell part of the story. In fact, the U.S. has run trade deficits since the late 1970s, with the gap widening in the 1990s during one of the largest economic expansions in its history. This growth was driven in no small part by NAFTA, which established a North American production platform to meet global demand.
This isn’t to say trade deficits don’t matter. The U.S. trade deficit with China remains a significant concern, reaching $367.4 billion in 2022, a nearly 40% increase from a decade earlier. Canada, too, faces challenges with China, running a $72 billion trade deficit in the same year.
However, complex policy challenges like trade flows demand nuanced solutions, not knee-jerk tariffs that raise prices for everyone. The data make clear that Canada and the U.S. should strengthen their partnership to preserve North America’s and the broader Western Hemisphere’s competitive edge, rather than retreat into protectionism.
Trade deficits are just one piece of the puzzle. The bigger picture reveals that collaboration and partnership, not isolation, are the keys to shared prosperity.
Adam Taylor is a partner at NorthStar Public Affairs, where he advises companies and governments around the world on complex trade and economic issues. As a senior advisor on international trade in the Conservative government of Stephen Harper, Adam helped Canada expand its access to global markets through various free trade and trade-related negotiations.