Overview of the U.S. / Canada Trade Relationship
Overview of the U.S. / Canada Trade Relationship
The United States and Canada enjoy the world’s most lucrative and enduring trade relationship, with more than $1.8 billion in goods and services crossing the border each day. Aside from the geographical proximity of the two countries, several other factors account for the strength of this relationship. There are cultural similarities; we share a language (except in Quebec and other pockets of Canada where French is the dominant language), hold similar values, and have a propensity for the same types of consumer goods.
Another important factor in the U.S./Canada trade relationship is the commitment by both countries to minimize tariffs, consolidate regulatory mandates, and facilitate the cross border clearance process. The two countries initially solidified their commitment to expanded trade with the 1987 U.S.-Canada Free Trade Agreement. That agreement put the two nations “at the forefront of trade liberalization” by eliminating tariffs, reducing many non-tariff barriers and including provisions for trade in services.
That agreement was expanded upon through the 1994 North American Free Trade Agreement (NAFTA), which eliminates most trade barriers on goods traveling between the United States, Canada, and Mexico. In the years since NAFTA has been in effect, cross border trade between the U.S. and Canada has more than doubled.
The U.S. dollar had historically been very strong against its Canadian counterpart, giving U.S. businesses added buying power in the Canadian market. In 2007, that situation changed when the Canadian dollar – referred to as “the loonie” – reached parity with the U.S. dollar, eliminating what had been a 30-year advantage for the U.S. dollar. Since then, the two currencies have traded at or near parity with each other.
U.S. businesses can look north to Canada and see a potential market of more than 34 million consumers, about 75 percent of whom live within 100 miles of the U.S. border. As close as that market might seem, there are hurdles that a U.S. business must clear in order to compete in the Canadian market. Regulatory and statutory mandates, border security requirements, transportation challenges, and inventory and distribution issues must be addressed.
Learn more about the Canadian market, and about how your business can successfully expand to our northern neighbor:
Questions about U.S.-Canada trade? Contact a Purolator representative to learn how Canada’s leading logistics company can help your business succeed in the Canadian market.
U.S. / Canada Trade Relationship: Economic Overview
Canadians and Americans can together claim bragging rights for the world’s largest bilateral merchandise trade relationship. No two countries in the world trade more than Canada and the United States – a claim that has held true for the past decade. - Government of Canada, Foreign Affairs and International Trade Canada
The United States and Canada share the world’s largest and most enduring trade relationship, which supports millions of jobs in each country. Canada is the top supplier of oil to the United States, and the U.S. is a leading supplier of vehicles and machinery to Canada.
In recent years however, that trade relationship felt the strains of the economic uncertainty that has permeated the entire global economy. Trade in goods between the two countries fell by more than 28 percent during 2009, but by 2011 had largely recovered. Cross border trade in goods through November 2012 was on track to surpass pre-recessionary levels.
The United States was hit hard by sharp reductions in manufacturing and housing values, along with high unemployment. Canada was able to largely avoid the full brunt of the recession, but early in 2013, there are signs of economic turbulence ahead. Analysts are predicting a slowdown in the Canadian economy, due in part to a sharp reduction in exports to Europe. In fact, Canada’s November 2012 trade deficit (C$1.96 billion) was the country’s fourth largest on record. A bright spot though, were sales to the United States, which actually increased by almost 4 percent.
What are Canadians buying from the U.S.? According to data from the U.S. Trade Representative, leading sales to Canada during 2011 included vehicles, machinery, oil and natural gas, and plastic.
And what are Americans buying from Canadian businesses? The U.S. Trade Representative lists top 2011 imports as crude oil and natural gas, vehicles, machinery, plastics and “special other” (returns).
U.S. businesses historically enjoyed a buying advantage in Canada, due to the strength of the U.S. dollar over its Canadian counterpart. (The Canadian dollar is commonly referred to as the “loonie.”) This advantage was eliminated in 2007, when the Canadian dollar achieved parity with the U.S. dollar. Since then, values of the two currencies have fluctuated, but have been at-or-near parity.
Canadian consumers have taken advantage of this new buying power, and are increasingly looking to the U.S. as a source for competitively priced goods. This trend has not been lost on U.S. retailers eager to grow their customer bases. Among the familiar U.S. businesses that have opened in stores in Canada during the past few years: Wal-Mart, Sears, Home Depot, Best Buy, Nordstrom, Apple, Brooks Brothers, J.Crew, Coach, Bath and Body Works, Victoria’s Secret, Lowe’s, The Limited, and Target.
American businesses are also tapping into Canada’s growing e-Commerce market. The Canadian government reported that Internet sales passed C$15.1 billion during 2009, an 18 percent increase over the C$12.8 billion spent online during 2007. Internet sales were slow to take hold in Canada, but the trend has caught on and is here to stay. In fact, Canadian e-shoppers were projected to spend more than C$22.8 billion during 2012. The good news for U.S. retailers is that roughly 62 percent of those consumers will place orders with U.S. businesses.