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

Abstract

The United States and Canada conduct the world's largest bilateral trade relationship, with total merchandise trade (exports and imports) exceeding $561.5 billion in 2007. 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 2007, total merchandise trade with Canada consisted of $313.1 billion in imports and $248.4 billion in exports. However, China displaced Canada as the largest source for U.S. imports for the first time in 2007. 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 other's economy through foreign direct investment. Disputes concerning the 2006 softwood lumber agreement are under arbitration and agriculture subsidies are being addressed by dispute settlement body at the WTO. In addition, U.S. regulatory proceedings restricted the importation of Canadian beef (now lifted). 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.

CRS Report for Congress.