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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________

 

Congressional Research Service (CRS)

 

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

Ian F. Fergusson, Specialist in International Trade and Finance

September 14, 2011

http://fpc.state.gov/documents/organization/174202.pdf

[full-text, 28 pages]

 

Summary

The United States and Canada conduct the world’s 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 other’s economy through foreign direct investment.

 

Both countries are members of the World Trade Organization (WTO) and both are partners with

Mexico in the NAFTA. While most trade is conducted smoothly, several disputes remain

contentious. Disputes concerning the 2006 softwood lumber agreement are under arbitration, and

Canada has sought WTO consultations over country-of-origin-labeling requirements. In addition,

the United States has placed Canada on its Special 301 priority watch list over intellectual

property rights enforcement issues. Canada has also vigorously protested the implementation of

the “Buy American” provisions of the economic stimulus package.

 

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,

either through incremental measures such as greater regulatory cooperation or potentially larger

goals such as a customs or monetary union. Congressional interest has focused mostly on trade

disputes, and also on the ability of the two nations to continue their traditional volume of trade

with heightened security on the border.

 

Contents

The Economies of the United States and Canada ............................................................................ 1

The Trade and Investment Relationship .......................................................................................... 3

Autos ......................................................................................................................................... 4

Energy........................................................................................................................................ 6

China ......................................................................................................................................... 6

Trade Deficit.............................................................................................................................. 8

Services ..................................................................................................................................... 9

Investment ............................................................................................................................... 10

Canadian FDI Policy ......................................................................................................... 11

Disputes ................................................................................................................................... 13

Softwood Lumber.................................................................................................................... 13

Arbitration ............................................................................................................................... 15

Country of Origin Labeling..................................................................................................... 16

Buy American Stimulus Provisions......................................................................................... 16

Intellectual Property Rights..................................................................................................... 17

Security and Trade ......................................................................................................................... 18

Western Hemisphere Travel Initiative (WHTI) ....................................................................... 18

Action Programs and Initiatives .............................................................................................. 19

Prospects and Policy Options ........................................................................................................ 21

NAFTA Plus ............................................................................................................................ 22

Security Perimeter ................................................................................................................... 23

Customs Union ........................................................................................................................ 23

Common Market or Economic Union ..................................................................................... 24

Monetary Union....................................................................................................................... 24

 

Figures

Figure 1. Canadian Dollar per U.S. Dollar Exchange Rate ............................................................. 9

Figure 2. Merchandise U.S. Trade Deficit with Canada ................................................................ 10

Figure 3. FDI Flows 2001-2010 .................................................................................................... 11

Figure 4. FDI Stock 2001-2010 ..................................................................................................... 12

Tables

Table 1. Selected Comparative Statistics, 2010 ............................................................................... 2

Table 2. U.S. Merchandise Trade With Canada, 2010 ..................................................................... 7

Contacts

Author Contact Information...........................................................................................................

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Institute for Workplace Studies 
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