how are the economies of the united states and canada linked?

Answer 1

A significant concern for many Canadians in the first few years of the 21st Century is Canada's relationship with the U.S. Although "brain drain" has slowed as a result of the minor economic downturn in the U.S. between 2001 and 2003 following the September 11, 2001 attacks, Canada's own job market has suffered as well. Disputes over trade tariffs, multi-lateral military action and controversial Canadian legislation such as same-sex marriage, immigration law, and legal medical marijuana have raised tensions and cooled relations between these two countries. The two countries also seem to be heading in different directions where values are concerned, and this could begin to provide problems with relations in the future.

Despite these differences, Canada is by far the United States' largest trading partner, with more than $1.7 billion CAD in trade per day in 2005. This relationship represents 81% of exports and 67% of imports for Canada, [4] and 23% of exports and 17% of imports for the United States[5]. By comparison, in 2005 this was more than U.S. trade with all countries in the European Union combined, [6] and well over twice U.S. trade with all the countries of Latin America combined. [7] Just the two-way trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan. Canada's importance to the United States is not just a border-state phenomenon: Canada is the leading export market for 35 of 50 U.S. states, and is the United States' largest foreign supplier of energy.

Bilateral trade increased by about 52% between 1989, when the U.S.-Canada Free Trade Agreement (FTA) went into effect, and 1994, when the North American Free Trade Agreement (NAFTA) superseded it. Trade has since increased by 40%. NAFTA continues the FTA's moves toward reducing trade barriers and establishing agreed upon trade rules. It also resolves some long-standing bilateral irritants and liberalizes rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. NAFTA forms the largest trading area in the world, embracing the 406 million people of the three North American countries.

The largest component of U.S.-Canada trade is in the automotive sector. Under the 1965 Canada-United States Automotive Agreement (also known as the Auto Pact), which provided for free trade in cars, trucks, and auto parts, two-way trade in automotive products rose from $715 million in 1964 to $104.1 billion in 1999. Auto Pact benefits are incorporated into NAFTA.

The U.S. is Canada's most important agricultural export market, taking well over half of all Canadian food exports. [8] Similarly, Canada is the largest market for U.S. agricultural goods with nearly 20% of American food exports going to its Northern neighbor[citation needed]. Nearly two-thirds of Canada's forest products, including pulp and paper, are exported to the United States; 72% of Canada's total newsprint production also is exported to the U.S.

At $73.6 billion in 2004, U.S.-Canada trade in energy is the largest U.S. energy trading relationship, with the overwhelming majority ($66.7 billion) being exports from Canada. The primary components of U.S. energy trade with Canada are petroleum, natural gas, and electricity. Canada is the United States' largest oil supplier and the fifth-largest energy producing country in the world. Canada provides about 16% of U.S. oil imports and 14% of total U.S. consumption of natural gas. The United States and Canada's national electricity grids are linked and both countries share hydropower facilities on the Western borders.

While 95% of U.S.-Canada trade flows smoothly, there are occasionally bilateral trade disputes over the remaining 5%, particularly in the agricultural and cultural fields. Usually, however, these issues are resolved through bilateral consultative forums or referral to World Trade Organization (WTO) or NAFTA dispute resolution. In May 1999, the U.S. and Canadian Governments negotiated an agreement on magazines that will provide increased access for the U.S. publishing industry to the Canadian market. The United States and Canada also have resolved several major issues involving fisheries. By common agreement, the two countries submitted a Gulf of Maine boundary dispute to the International Court of Justice in 1981; both accepted the Court's 12 October 1984 ruling which demarcated the territorial sea boundary. A current issue between the United States and Canada is the ongoing softwood lumber dispute, as the U.S. alleges that Canada unfairly subsidizes its forestry industry.

In 1990, the United States and Canada signed a bilateral Fisheries Enforcement Agreement, which has served to deter illegal fishing activity and reduce the risk of injury during fisheries enforcement incidents. The U.S. and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty for the next decade.

Canada and the United States signed an aviation agreement during President Clinton's visit to Canada in February 1995, and air traffic between the two countries has increased dramatically as a result. The two countries also share in operation of the St. Lawrence Seaway, connecting the Great Lakes to the Atlantic Ocean.

The U.S. is Canada's largest foreign investor; at the end of 1999, the stock of U.S. direct investment was estimated at $116.7 billion, or about 72% of total foreign direct investment in Canada. U.S. investment is primarily in Canada's mining and smelting industries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance.

Canada is the third-largest foreign investor in the United States. At the end of 1999, the stock of Canadian direct investment in the United States was estimated at $90.4 billion. Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.