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 429.7 billion in 2009. 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 North American Free Trade Agreement NAFTA, and asymmetry resulting from Canadian dependence on the U.S. market and from the disparate size of the two economies. The economies of the United States and Canada are highly integrated, a process that has been accelerated by the bilateral U.S.-Canada free trade agreement FTA of 1988 and the NAFTA of 1994. Both are affluent industrialized economies, with similar standards of living and industrial structure. However, the two economies diverge in size, per capita income, productivity and net savings. Canada is the largest single-country trading partner of the United States. In 2009, total merchandise trade with Canada consisted of 224.9 billion in imports and 204.7 billion in exports. In 2007, China displaced Canada as the largest source for U.S. imports for the first time, a trend that has continued since then. 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 United States and Canada also have significant stakes in each others economy through foreign direct investment.