On his initial visit to the White House since being elected, Canadian Prime Minister Mark Carney engaged in discussions with President Donald Trump on Tuesday, aiming to resolve tensions stemming from an ongoing trade conflict that has strained the longstanding trust between the U.S. and Canada. Despite the amiable tone of their meeting, President Trump reiterated his inaccurate claim concerning U.S. subsidies to Canada, alleging financial support amounting to billions annually.
“It’s difficult to validate subsidizing Canada to the extent of about $200 billion yearly,” Trump stated. “We defend Canada militarily, and we will continue to do so. That’s consistent, it’s not about the money. Yet, it’s unfair. Why are we providing Canada with a subsidy of $200 billion annually, or whatever the actual figure may be? It’s undoubtedly substantial.”
Let’s delve deeper into the facts concerning this claim.
The assertion: The U.S. subsidizes Canada by approximately $200 billion every year.
Checking the facts, this claim lacks accuracy. The administration’s figures stem from the U.S. trade deficit with Canada coupled with enhanced U.S. military spending, specifically related to the North American Aerospace Defense Command (NORAD). Public figures on NORAD expenses are unavailable, making precise calculations challenging. Nevertheless, even the most liberal assessments fall significantly short of President Trump’s claim.
A trade deficit takes place when a nation’s import costs exceed its export earnings. Using adapted data, the U.S. faced a goods and services deficit with Canada of $35.661 billion in 2024. The deficit increased for goods alone, ranging from $63.336 billion to $70.603 billion.
According to the White House, the total goods and services deficit with Canada was $53.5 billion, aligning closely with 2022’s figure of $57.565 billion. However, referring to these deficits as subsidies is a misrepresentation of their actual nature.
“A subsidy is a donation lacking compensation,” explained Gary Hufbauer from the Peterson Institute for International Economics. “The current interpretation is entirely flawed.”
Brookings Institution’s Gian Maria Milesi-Ferretti noted that trade deficits arise from varying international demand and specialization among countries.
Addressing military expenditures, the White House highlighted the difference in the U.S. and Canada’s military budgets relative to their GDP, referencing NATO guidelines on defense spending. In 2006, NATO countries were instructed to allocate at least 2% of their GDP towards defense. Critics, including Trump, note that Canada has not yet adhered to this standard.
In 2024, Canada allocated $29.3 billion to defense, comprising 1.3% of its GDP. Conversely, the U.S., with a significantly larger economy, spent $997 billion or 3.4% of its GDP, surpassing NATO’s guideline. Prior year figures were slightly less, with Canada at $27.2 billion and the U.S. at $916 billion, maintaining the same GDP proportion.
According to the IMF, Canada’s GDP in 2024 was about $2.241 trillion. To meet NATO’s guideline, Canada would require a defense budget of approximately $44.82 billion, indicating a shortfall of around $15.52 billion.
“There’s no monetary obligation to the U.S., but Canada isn’t contributing its fair share — a valid criticism,” stated Mark Cancian of the Center for Strategic and International Studies.
Even without qualifying them as subsidies, combining the 2024 trade deficit with Canada’s defense spending shortfall totals approximately $51 billion. Considering only the gross goods deficit for 2024 increases this figure to roughly $86 billion.
The White House also mentioned that the U.S. “covers roughly 60% of NORAD expenses.” Established in 1954 against potential Soviet threats, NORAD is a binational entity preventing air and maritime attacks on North America.
Public data on NORAD’s spending by either nation is lacking. The 60% cost figure refers to a 1985 decision on NORAD’s North Warning System still in effect.
In 2022, Canada announced a $4.9 billion (U.S. $3.52 billion) six-year NORAD investment and a $38.6 billion (U.S. $27.72 billion) 20-year plan.
A journal on Defense Economics reported in 2023 by economists Solomon and Fetterly that the U.S. bears about 97.6% of North American defense costs, receiving roughly 64% of benefits, while Canada covers 2% of costs, obtaining about 36% benefits. Excluding Canada’s vast borders, the U.S. receives 91% of benefits, with Canada at 9%.
Cancian stated the U.S. relies on Canada for North American defense due to geolocation advantages, emphasizing NORAD’s role. “Even without Canada, similar measures would be essential,” he commented. “It’s not a subsidy from them. Canada could argue we owe them.”