$200 billion ‘subsidy’ to Canada
No matter how we do the math, the numbers don’t add up.
Analysis by Glenn Kessler
“We’re spending $200 billion a year to subsidize Canada.”
— President Donald Trump, during remarks with NATO Secretary General Mark Rutte, March 13
As he hosted the NATO secretary general, Trump once again took the opportunity to bash NATO member Canada. “We don’t need their cars. We don’t need their energy. We don’t need their lumber. We don’t need anything that they give,” he said, arguing that Canada’s 40 million people should give up their sovereignty and agree to become the 51st state.
We were curious about Trump’s math about the alleged $200 billion subsidy. Trump has a habit of exaggerating trade deficits to justify tariffs, but the $200 billion figure is so off-kilter that we suspected Trump was counting something else. Indeed, a White House official said he was also counting military expenditures allegedly spent on behalf of Canada.
So does this get Trump close to $200 billion?
The Facts
Let’s start with the trade deficit. As we often remind readers, it’s incorrect to claim that a trade deficit is a “subsidy.” A trade deficit simply means that people in one country are buying more goods from another country than people in the second country are buying from the first country. Americans want to buy these products from overseas, either because of quality or price.
Trade-deficit numbers are also shaped by underlying factors, such as an imbalance between a country’s savings and investment rates. A bigger federal budget deficit — caused by, say, a large tax cut or more government spending — can boost the trade deficit because the country saves less and borrows more from abroad. A booming economy can also be at fault — the more money people have, the more they can spend on goods from overseas. And a strong currency means those foreign goods are cheaper for a particular country and its goods are more expensive for foreign consumers.
In other words, Trump can impose as many tariffs as he wants, but the sheer force of economics might still leave a trade deficit.
But, for the sake of argument, what’s the trade deficit with Canada? It’s not much. Canada is the United States’ second-biggest trading partner — and it has one of the smallest deficits.
In 2024, the deficit in trade in goods and services was about $45 billion. The deficit in goods — which is what Trump concentrates on — was about $63 billion, according to the U.S. Census Bureau. A trade surplus in services, mainly Canadians flowing over the U.S. border for tourism and education, helped close the gap — but that surplus may fall this year because Canadians are so angry at Trump that they are canceling trips across the border.
So the trade deficit only gets Trump about one-quarter of his $200 billion.
As for military spending, Trump has long griped that Canada does not pull its weight in NATO. The military alliance in 2014 set a goal of members spending at least 2 percent of their gross domestic product on defense spending, and Canada only achieved 1.37 percent in 2024. (Canada’s GDP in 2024 was $2.12 trillion.)
That’s $13 billion short of 2 percent. The White House official suggested that Canada should match the 3.4 percent of GDP spent by the United States, which would mean Canada theoretically is short $43 billion. But we also cannot forget that the United States is significantly larger than Canada in population and economic might.
Even if we grant Trump this figure — again, it’s not really a subsidy — that still leaves him far short of $200 billion.
The White House official also pointed to the North American Aerospace Defense Command (NORAD), a combined U.S.-Canada air defense program originally aimed to detect Soviet bombers. The official noted that the United States shoulders 60 percent of the cost.
But Binyam Solomon, a research professor at Carleton University who has studied NORAD burden-sharing, said the 60-40 split refers to a $20 billion radar system, and that Canada is responsible for a lot of the maintenance because most of the installations are in that country. (Canada houses about 73 percent of the long-range radars and 92 percent of the short-range radars.) “These systems are not expensive,” he said. ‘We’re not going to get $200 billion from that.”
Solomon, along with colleague Ross Fetterly of the Royal Military College of Canada, has calculated the relative burden-sharing of the United States and Canada for North American defense. Depending on the way the numbers are calculated, the differences are stark.
“The U.S. shoulders about 97.6 percent of the North American defense burden but receives about 64 percent of the benefits,” they wrote. “Meanwhile, Canada contributes about 2 percent of the burden and enjoys 36 percent of the benefits.”
But when the vast Canadian coastline is taken out of the calculations, the numbers change: The United States enjoys 91 percent of the benefits for 97.6 percent of the cost, but Canada receives only 9 percent of the benefits in exchange for about 2.4 percent of the cost. That’s still an imbalance, but not nearly as large as the initial calculation.
The Defense Department budget does not break out spending by region, so it’s unclear how much is spent for defense of the Northern Hemisphere. But even under the initial Solomon-Fetterly calculation, the imbalance does not appear to be enough get Trump to a total of $200 billion.
The Pinocchio Test
Since becoming president again, Trump has claimed more than a half-dozen times that the United States provides a $200 billion annual “subsidy” to Canada. Never mind that a trade deficit is not a subsidy. Even if one includes various buckets of military spending, we can’t figure out how Trump calculated this figure. The White House offered some suggestions, but the math still does not add up.
Canada is a much smaller country and certainly benefits from the military might of its larger neighbor. The United States would need to protect itself from missiles in any case, and Canada provides the land on which to base early-warning radar systems. Trump has a point that the burden is somewhat unequal, but his numbers make little sense.
Until the White House can provide a more precise accounting, Trump earns Four Pinocchios. We suspect, for marketing purposes, he just liked a nice round number, and that’s the source of $200 billion.
Four Pinocchios
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