If Canada is 'Ripping Off' the U.S., Why Is It Falling Behind?
Americans have been widening the prosperity gap with our neighbors for years.
President Donald Trump's latest temper tantrum over Canada, including the renaming of Lake Ontario as Lake America after the collapse of trade negotiations, is premised on the claim that "Canada has been ripping off the United States for decades." At least, that's what the White House insisted in an August 25 press release about the tariff dispute. But, if that's true, why are Canadians poorer than Americans and falling further behind?
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Americans Grow Wealthier More Quickly Than Canadians
A new study from Canada's Fraser Institute points out that while our northern neighbors started the century with high hopes for their economic prospects, the years since have shown them lagging Americans. If Canadians are taking advantage of us, they're doing a remarkably poor job of it.
"In 1999, inflation-adjusted gross domestic product (GDP) per person in the US was CA$10,766 higher than in Canada. By 2024, that gap had more than doubled to CA$23,757," write study authors Grady Munro, Jake Fuss, and Joel Emes. "Similarly, in 2010, inflation-adjusted median employment income in the US was CA$6,126 higher than in Canada. By 2024, that gap had increased to CA$8,663."
The Fraser study notes that since 1999, government-sector employment has been growing faster than private-sector employment in Canada. The opposite has been true in the United States. And while Canadian workers have increased their productivity by 26.7 percent since 1999, they've still lost ground as Americans increased productivity by 67.9 percent.
Canada's relatively slow growth in prosperity as compared to the United States is, no doubt, frustrating for our northern neighbors. As international communications strategist James Stranko noted last week in a Wall Street Journal column, Canada has defined itself since its founding as the "un-America" and "almost all of Canada's major moments of national unity were born out of rejection of, or protection from, American power."
The Canadian Century That Wasn't
The Fraser authors underline this point, quoting Sir Wilfrid Laurier, Canada's seventh prime minister, who said in 1904, "the nineteenth century has been the century of the United States development….The twentieth century shall be the century of Canada and Canadian development." When the 20th century turned out fine, but not brilliantly so, for the northern country, hopes for a Canadian breakthrough were transferred to the 21st century. Again, Canada has done all right, but not especially well by comparison to the southern giant that Canadians measure their own achievements against.
"Policymakers have thus far squandered the Canadian Century," adds the Fraser study. "In particular, Canada began to truly squander this opportunity post-2014. Prior to 2014, Canada largely kept pace with, or in some cases exceeded the US, across multiple measures."
World Bank figures demonstrate the problem. In 2000, per capita GDP was $36,330 in the U.S. and $24,271 in Canada in current American dollars. The gap largely disappeared a decade later—only to widen again within a few years. GDP per capita was $90,026 in the U.S. last year and $55,697 in Canada. The Fraser study draws its data from different sources, but they show a similar lag in Canada's relative economic performance.
"From 1999 to 2024, GDP per person in Canada grew by 23.8%, while the United States experienced a 41.5% increase over the period. Put differently, GDP per person in the United States has grown 1.7 times faster than in Canada since 1999," write Munro, Fuss, and Emes. Or, to put it another way, Canadian per capita GDP was 81.7 percent of the figure for the U.S. in 1999 and 71.5 percent of American per capita GDP in 2024.
Looking at another measure, as of 2010, the Fraser study observes, "median income in Canada was $32,580 compared to $38,706 in the United States, leaving an income gap of $6,126 between the two countries" in a comparison using Canadian dollars. While that gap narrowed over the next few years, "by 2024, median employment income had risen to $37,361 in Canada and $46,024 in the United States, leaving an income gap of $8,663." That is, median employment income in Canada was 84.2 percent of the U.S. figure in 2010 and 81.2 percent of that figure in 2024.
Canada has been growing more prosperous over the years, but it's losing ground when compared to the increasing wealth of the United States.
Hobbled by a Growing Government
A significant part of the problem is that government employment has been growing faster north of the border than private sector employment. In 1999, private sector jobs represented 85.8 percent of employment in the U.S. and 81.2 percent in Canada. As of 2024, private-sector employment had slightly risen to 86.5 percent of all jobs in the U.S. but fallen to 78.5 percent of Canadian jobs. That means the private sector must shoulder a growing burden to fund the expanding government: "New government-sector jobs impose a corresponding cost through the tax system, which limits the extent to which government-sector employment growth contributes to overall economic growth." Also, labor productivity has declined for Canadian government workers while increasing in the private sector.
To an even greater extent than in America, Canada's private sector is hobbled by an unproductive and expensive government.
"Despite some early hopes prior to 2014, Canada has made virtually no economic progress relative to its southern neighbour and has instead fallen further behind where it stood at the turn of the century," the Fraser authors conclude.
It's difficult to see where Canada has been "ripping off the United States," no matter what the Trump administration claims. Instead, Canada has hampered its own economic prospects with a growing government sector that drains wealth from the productive private sector. Yes, Canada has some foolish protectionist trade policies—including barriers between provinces—but so does the United States, especially under the Trump administration. Both are now doubling down on self-harming tariffs.
The real question in the years to come is who will be more damaged by the escalating trade war between the U.S. and Canada. The country that does better at building prosperity will likely be the beneficiary of comparatively worse economic policies inflicted on the neighboring country's population by its own government. May the less self-destructive competitor win.
