A Group 10 Presentation
United States and Canada have
the world’s largest bilateral trade
relationship, with total exports
and imports exceeding $533.7
billion in 2006.
$303.4 billion in goods and
services were imports form
Canada and remaining $230.3
billion exports to Canada
• The US trade deficit with
Canada is $73.1 billion in
• US merchandise trade deficit
with Canada decreased
4.4% from its record $76.5
billion in 2005 to $73.1
billion in 2006.
• Imports generally have
grown faster than exports in
the free trade era, increasing
Canadian Trade since 1991 from 3.5% of the value of
total trade in 1991 to 15.3%
• Up until 2003, the deficit was
attributed, in part, to the
weakness of the Canadian dollar.
The Loonie had steadily
depreciated in value in the
decade prior to 2003.
• In 2006, the depreciating US
dollar — which makes cheaper US
goods more attractive on the
Canadian market — began to
have an ameliorative effect on the
US-Canadian trade deficit.
• Increased prices for natural
resources and energy, attributed
to the global expansion and
Chinese development may be a
factor in the Loonie’s strength.
Trade is dominant feature of Canadian
economy. For Canada the value of trade
(exports + imports) as a percentage of
GDP was about 60% in 2006, while for US
the same figure was 21.8%. Canada’s
goods export to US alone represents 26.9%
of Canadian GDP, while imports from US
represent 18.2% of Canadian GDP.
Canada is highly dependent on FDI.
Foreign investment has played a large part
in the development of the Canadian
economy. In 2005, FDI represented 30.3%
of Canada’s GDP.
Investment is monitored and some types of
FDI are reviewed. “Significant investments
in Canada by non-Canadians” are
reviewed under the Investment Canada Act
to insure “net benefit” to Canada.
• In 2006 approximately $1.5 billion in goods crossed
US-Canada border each day.
• While Canada is an important partner for US, 18.5%
of overall US trade in 2006, with 22.2% of US exports
going and 16.4% of imports coming from Canada,
US is the dominant trade partner of Canada, with
65% of Canada imports coming from US and 79% of
country’s exports going to US.
• The US and Canada benefit from a highly
integrated economy. Why?
• US and Canada free trade agreements reflect
Comparative Advantage Theory, which states
that all countries can benefit from free trade even
if they are characterized by low levels of
• The underlying concept is the opportunity cost
concept – countries have a comparative
advantage in which they are comparatively most
Heckscher-Ohlin model (named after
two Swedish economists) states that
countries have a comparative advantage
in goods whose production involves the
intensive use of a factor that the country
posses in abundance.
In1965, the Automotive Agreement was
signed between US and Canada
eliminating tariffs on shipments of autos
and auto parts between the countries.
In1989, the Free Trade Agreement (FTA)
was signed between the two countries
removing several trade restrictions in
stages over a ten year period
The main purposes of the Canadian-United States Free Trade
Agreement were the following:
• Eliminate barriers to trade in goods and services between
Canada and the United States;
• Facilitate conditions of fair competition within the free-trade
area established by the Agreement;
• Liberalize significantly conditions for investment within that
• Establish effective procedures for the joint administration of
the Agreement and the resolution of disputes;
• Lay the foundation for further bilateral and multilateral
cooperation to expand and enhance the benefits of the
In1994, the FTA was superseded by the
North American Free Trade Agreement
(NAFTA), which included Mexico as well.
The North American Free Trade
Agreement (NAFTA) eliminated the
majority of tariffs between products
traded among the United States, Canada
Restrictions were to be
removed from many
The treaty also protects intellectual property
rights (patents, copyrights, and trademarks),
and outlines the removal of investment
restrictions among the three countries.
In the period of
trade between the
United States and its
The elimination of
tariffs and reduction
of non tariff barriers
have contributed to
the process of
The U.S. and Canada benefit from the
largest energy trade relationship in the
Canada is the largest exporter of energy
(including petroleum, natural gas, and
electricity) to the United States,
providing 17% of U.S. oil imports and
18% of U.S. natural gas demand.
Asof September 2007, the Energy
Information Administration reported
Canada as the top sources of US crude oil
imports with 1.956 million barrels per
Canada has traditional sources of crude oil in
Alberta and off the coasts of Newfoundland and
As the price of crude oil increases, petroleum
extracted from Albertan oil sands are
becoming a major part of Canadian energy
The Automotive Agreement of 1965 (Auto Pact)
between the United States and Canada began
the process of integration
• Eliminated tariffs
• Allowed for Specialization
• Coordinated Production
Overall, Canada’s automotive plants are some
of the most competitive in North America due
to the Loonie’s appreciation and the savings
from Canada’s national health system.
spiked to a level
not seen since
the 1870s this
At one point late this year, the Canadian dollar bought
more than $1.10, a modern-day record. In 2002, the
Loonie sank as low as $0.63 to the US dollar
Effects Purchasing Power
major implications in terms
The shift has
of the energy and auto industries
The United States and Canada have
highly integrated and relatively open,
transparent trading regimes. However, a
few highly contentious issues have arisen
between the trading partners.
The dispute began when the Softwood Lumber Agreement expired in April of 2001. The SLA was established in
1996, setting tariff rate quotas on softwood lumber exported to the United States from four Canadian provinces.
Fees were administered if exports from one of the four provinces exceeded 14.7 billion board feet per year.
After several iterations of the dispute, an agreement was finally reached in 2006, whereby $4 billion dollars in
collected tariffs was returned to Canada, and another $1 billion disbursed in the United States. The current
deal removes tariffs so longs as the price of lumber stays under a set level of production and prices remain
above $355/thousand board feet. If price drops below the set price, a sliding scale export tax would be paid
by the individual provinces.
Inthe post-9/11 era, border security has
become an increasingly salient issue for
United States and Canadian policy
There is a great concern over the U.S.
Canadian border as an entry-point for
terrorists or weapons of mass destruction
and trade vulnerabilities in the event of
The Western Hemisphere Travel
32-point Smart Border Action Plan
• Secure Flow of People
• Secure Flow of Goods
• Secure Infrastructure
• Coordinated Enforcement and Information
Ferguson, Ian. CRS Report for Congress, “United States-Canada Trade and
Economic Relationship,” May 18, 2007.
“Loonie's Rise Yields Splitting Pain for Canada”, JOANNA SLATER and
DOUGLAS BELKIN, November 12, 2007. Wall Street Journal Online.
“Canadian dollar tripped up by oil prices”, Reuters. November 26, 2007.
Financial Post Online.
“Canada to record largest auto trade deficit in history”, 24-Hour Auto
News, November 2007.
“Crude Oil and Total Petroleum Imports Top 15 Countries”. Energy
Information Administration. December 3, 2007.