The United States and Canada have achieved a level of international business and economic integration like no other two countries in the world. The U.S.-Canada Free Trade Agreement of 1989, which evolved into the 1994 North American Free Trade Agreement (NAFTA), has helped make this a reality. And U.S. and Canadian transportation systems, including international bridges, railways, highways, waterways and airports, also are a major contributing factor.

The result: each day the U.S. and Canada conduct $1.64 billion in merchandise trade across our 5,525 mile-long shared border, the U.S. Department of Commerce reports. And this level of trade, which is considerably higher than the next largest U.S. bilateral relationship, supports millions of North American jobs. Canada’s affluent, high-technology and market-oriented economy has created tremendous opportunities for American exporters, importers and investors.

Joint Efforts Achieve Joint Successes

Like the United States, the Canadian government increasingly has allocated resources to border security and infrastructure. And U.S. Customs and Border Protection (CBP), in association with the Canada Border Services Agency, operates several programs designed to expedite the movement of people and goods north and south.

For example, CBP maintains preclearance operations at eight Canadian airports, allowing air travelers expedited U.S. entry. Plus, over the years, thousands of U.S. and Canadian firms have invested millions of dollars to protect their supply chains and have participated in programs designed to prevent delays at the border. This is important since, every day, some 300,000 people cross our shared border to do business, shop and/or visit, the U.S. Department of State says.

In turn, our international transportation infrastructure, combined with our integrated security cooperation efforts, have boosted levels of North American efficiencies and global competitiveness, making the U.S.-Canadian relationship increasingly important. And the results have changed the nature of manufacturing.

Long gone are the days when trucks crossing our borders were filled with finished products destined for each other’s retail shelves. Now, trucks are filled with components and parts heading for assembly lines. In turn, the U.S. and Canada don’t just make goods for one another. Together we make attractive goods for the world.

In The Spotlight

As a result of our highly integrated economies, the United States supplies approximately half of all Canadian merchandize imports. In turn, the U.S. buys about 75 percent of all Canadian exports, the Congressional Research Service reports. And the number of companies involved is tremendous.

According to the U.S. Census Bureau, 293,131 U.S. companies exported products in 2010. Of this, 94,443 or about one-third sold goods to Canada. Not surprisingly, Mexico was the destination of the second largest concentration of exporters, at 51,466. In sum, the elimination of tariffs and reductions in non-tariff barriers under NAFTA, the tremendous amount of intra-firm trade, proximity, and cultural similarities largely are responsible for the strong U.S.-Canadian trade relationship.

Canada and the United States also are major investors in one another. In fact, as compared to other countries, the U.S. was the single largest investor in Canada with a stock of nearly $319 billion last year, according to the Bureau of Economic Analysis. U.S. investment in Canada’s manufacturing sector ranked highest at $73.8 billion. Like other countries, Canada monitors certain inbound investment by foreigners under the Investment Canada Act.

Chinese and Mexican Dynamics

Sophisticated U.S.-Canadian supply chains and managerial expertise, combined with an ease of doing business, further enhance U.S.-Canadian competitiveness at a time when North America is facing increasing competition from China and other fast-growing countries.

Some fear Chinese exports to Canada will displace U.S. exports to a significant extent. Yet, these concerns may be over blown. Currently, Chinese exports to Canada primarily are comprised of labor-intensive goods, such as apparel, footwear, consumer electronics, toys, and telecommunications equipment, according to the Congressional Research Service.

Chinese exports to Canada, however, do compete to some degree with Mexican exports to Canada. Nevertheless, Mexico has an export advantage in products with a high ratio of weight to value or that require inputs for industries on a just-in-time basis, customized production or frequent design changes.

Moving Forward

Mexico, the third NAFTA partner, offers strengths that increasingly position North America as a more competitive trading bloc. And as the United States and Canada continue to integrate their economies, co-produced products and services are becoming increasingly attractive on the world stage. In turn, opportunities for both U.S. and Canadian companies, small and large, continue to grow.

This article appeared in International Insights, a Fifth Third Bank publication, September 2012.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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