United States-Canada Trade and Economic Relationship: Prospects and Challenges

The United States and Canada conduct the worlds largest bilateral trade relationship, with total merchandise trade exports and imports exceeding 499.3 billion in 2005. The U.S.-Canadian relationship revolves around the themes of integration and asymmetry integration from successive trade liberalization from the U.S.-Canada Auto Pact of 1965 leading to the North American Free Trade Agreement NAFTA of 1994, and asymmetry resulting from Canadian dependence on the U.S. market and from the disparate size of the two economies. Canada is the largest single country trading partner of the United States. In 2005, total merchandise trade with Canada consisted of 287.9 billion in imports and 211.4 billion in exports. While Canada is an important trading partner for the United States, the United States is the dominant trade partner for Canada, and trade is a dominant feature of the Canadian economy. Automobiles and auto parts, a sector which has become highly integrated due to free trade, make up the largest sector of traded products. Canada is also the largest exporter of energy to the United States. Like the United States, the Canadian economy is affected by the transformation of China into an economic superpower. The U.S. trade deficit with Canada has continued to increase, but the rate of increase declined in 2005 perhaps partly due to the 30 rise in the Canadian dollar since 2002. The United States and Canada also have significant stakes in each others economy through foreign direct investment. Disputes concerning softwood lumber, wheat, and the disposition of antidumping duties the Byrd Amendment have been addressed by dispute settlement bodies at the WTO and NAFTA. The terrorist attacks of 2001 focused attention on the U.S.-Canadian border. Several bilateral initiatives have been undertaken to minimize disruption to commerce from added border security. The focus on the border has renewed interest in some quarters in greater economic integration.