Canada and the United States have enjoyed a friendly and cooperative spirit for over two centuries. The relationship between the two countries is the closest and most extensive in the world. About 300,000 people cross the shared border daily, and about $1.5 billion is traded in goods daily. What are the differences and similarities between their economies? Which organizations influence their relations the most? How strong are their trade relations?
Canada and the US are both developed countries with free-market capitalist economies and are each other’s largest trade partners. According to the Index of Economic Freedom 2011, the United States’ economic freedom score is 77.8, making its economy the 9th freest among 179 world countries, and Canada ranks sixth, with an economic freedom score of 80.8. The US has about nine times more people, so their GDP is much higher than Canada’s. Comparing their GDP growth rates, both countries are closely connected: when GDP grows in Canada, it also grows in the US and vice-versa. The sectoral components of their GDP are similar. Over two-thirds of both economies are devoted to the services sector, although the sector is larger as a percentage of the GDP in the United States (68 per cent in Canada vs 79 per cent in the US). Agriculture and manufacturing are more important in Canada than in the US. They have very different banking systems because the US banking system was taken from England’s, while Canada’s was copied from Scotland. Prices in Canada tend to be higher than in the US due to Canada’s structural issues (low population density, harsher weather) and Canada’s tax system, which depends more heavily on sales taxes than income taxes relative to the US. According to the 2010 Human Development Report, Canada’s living standard ranks 8th, while the US’s standard ranks 4th in the list of very highly developed countries.
Two organizations have most influenced US-Canada trade relations, FTA and NAFTA. The Free Trade Agreement (FTA) was signed by Canada and the US on October 4, 1988, and its main purposes are to eliminate barriers to trade in goods and services, liberalize conditions for investment and fair competition, and lay the foundation for further bilateral and multilateral cooperation. FTA was superseded by the North American Free Trade Agreement (NAFTA) in 1994. NAFTA is signed by Canada, the US, and Mexico. It created a trilateral trade bloc that is the largest in the world. It is said that Canada gained the most from NAFTA, with Canada’s GDP rate growing faster than other signed countries and the boost of agricultural flows between the US and Canada. Since the implementation of NAFTA, total two-way merchandise trade between the US and Canada has grown by more than 265%. The countries also hold memberships in various multinational organizations, such as the G8, the World Trade Organization (WTO), the World Health Organization(WHO), the Organisation for Economic Co-operation and Development (OECD), the United Nations, et cetera.
Canadian trade with the United States is often easier and less expensive than inter-provincial trade because 80 per cent of the Canadian population lives within 200 miles of the US border, and due to Canada’s structural issues that we’ve already mentioned. Canada is the main export market for 36 of the 50 US states, as the country receives 19% of total US exports. Trade with Canada provides 8 million US jobs. Canada is the US’s single largest foreign supplier of energy, (about 20 per cent of US oil imports and about 18 per cent of US natural gas imports). The US is Canada’s largest foreign investor (its total investment was $280 billion in 2009) and Canada is the fifth-largest foreign investor in the United States (its total investment was $226 billion in 2009). They also cooperate to resolve environmental and drug issues. The US invests the most in Canada’s mining and smelting, petroleum, chemicals, manufacture of machinery and transportation equipment, and finance industries. Here you can find the volume of US-Canada trade from 1985 to 2011.