US-Canada Trade Who's in the Lead

 US exports of goods and services to Canada topped $429 billion in 2022, a 16.7% increase over 2021. Thirty-four states in the United States consider Canada to be their top export market, while 45 see Canada as their first or second export market. In 2022, US exports to Canada surpassed those to Denmark, France, Germany, Italy, Spain, and the United Kingdom combined. Whether your firm is a first-time or experienced exporter, Canada should be a key component of your export growth strategy.The United States and Canada have the world's largest and most comprehensive trading alliance, which supports millions of employment in both countries and totals $1.95 trillion in bilateral trade and investment. Canada has always been the leading US export destination, accounting for 14.2% of total US goods exports in 2022. In 2022, Canada remained the United States' greatest trading partner.

Every day, Canada and the United States trade more than $2.5 billion in goods and services. According to the Department of Commerce's Bureau of Economic Analysis, two-way trade in goods and services totaled US$919.2 billion in 2022, with bilateral investment stock exceeding US$1.027 trillion, crossing the trillion-dollar milestone for the first time. In 2022, US exports to Canada reached $357.3 billion. In 2022, the major export categories (2-digit HS) to Canada were vehicles (US$53.8 billion), nuclear reactors, boilers, and machinery (US$49.7 billion), mineral fuels and oil (US$35.3 billion), electric machinery (US$28.3 billion), and plastics and plastic products (US$17.7 billion).

US service exports to Canada were valued at $71.3 billion in 2022. The top service exports from the United States to Canada were business services



professional and management consulting services, and travel. In 2022, Canada remained the biggest export destination for US agricultural exports, worth US$28.3 billion. Prepared foods, baked goods, cereals and pasta, fresh and processed vegetables, fresh and processed fruit, meat and animal products, snack foods, non-alcoholic beverages, chocolate and cocoa products, condiments and sauces, coffee, wine, beer, and pet food are among the most popular categories. In most industry sectors, Canada is a very welcoming, open, and transparent market for US goods and services. The countries have similar lifestyles and are close geographically, resulting in cultural familiarity. Canada has two official languages: English (75%) and French (23%). The provinces with the highest concentration of French speakers are Québec (85%) and New Brunswick (32%).

Investment plays an important role in the bilateral relationship. In 2022, Canadian foreign direct investment (FDI) in the United States was $683.80 billion, making Canada the second-largest source of FDI (by nation of ultimate beneficial owner). The United States is Canada's largest source of FDI, with investment stock totaling $438.76 billion in 2022. As of 2020, U.S. affiliates of Canadian-owned enterprises employed 844,600 Americans, invested $1.5 billion in creative R&D, and provided $13.4 billion to US exports. The United States, Mexico, and Canada have all signed the United States-Mexico-Canada Agreement (USMCA), which entered effect on July 1, 2020, and superseded the North American Free Trade Agreement.

The USMCA is a 21st-century, high-standard trade agreement that promotes mutually beneficial trade, resulting in freer markets



more equitable trade, and strong economic growth throughout North America. Canada plays a significant role in the international agriculture trade. According to the World Trade Organization (WTO) definition of "agricultural products" based on Canadian government trade data, Canada's total global agricultural exports to all nations in 2022 were approximately $66.0 billion, with equivalent imports of $48.4 billion. The United States is Canada's largest agricultural trading partner, accounting for 59.2 percent of its exports and 57.0 percent of its imports. Furthermore, when exports and imports are combined, Canada is the United States' largest agricultural trade partner. In 2022, Canada accounted for 14.5% of US agricultural exports and 18.8% of imports (under the WTO definition of "agricultural products").

The Canada-U.S. Free Trade Agreement (CUSTA), which went into effect in 1989 and was later replaced by the North American Free Trade Agreement (NAFTA) in 1994, contributed to the increased level of integration between the agricultural sectors of the United States and Canada. From 1989 to 1998, CUSTA and NAFTA eliminated almost all tariff and quota barriers to Canada-US agricultural trade, with a few notable exceptions, such as U.S. imports of dairy products, peanuts, peanut butter, cotton, sugar, and sugar-containing products, as well as Canadian imports of dairy products, poultry, eggs, and margarine. In November 2018, the Canadian, Mexican, and US governments signed the United States-Mexico-Canada Agreement (USMCA), which will replace NAFTA. The USMCA entered into force on July 1, 2020. In general, USMCA maintains NAFTA's provisions for tariff- and quota-free trade in practically all agricultural products exchanged between the United States and Canada, while expanding market prospects for U.S. dairy, poultry, and egg exports to Canada.

Agricultural trade between Canada and the United States has expanded practically uninterrupted during the CUSTA-NAFTA-USMCA timeframe




Between 1988, the last year before CUSTA was implemented, and 2021, U.S. agricultural exports to Canada and imports from Canada increased at a compound annual rate of 7.9 percent. The largest outliers to this pattern of growth came in 2009, following the economic slump of 2007-09, and from 2015 to 2020, due to a drop in numerous commodity prices.Much of Canada-US agricultural trade is intra-industry, which means that each country sells items to the other in certain industries. In grains and feeds, intra-industry commerce includes a wide range of processed products, such as dog and cat food for retail sale, mixes and doughs, pastries, cake, bread, and pudding, morning cereal, and uncooked pasta. Beef and pork are well-known instances of intra-industry trade outside the grains and feeds sector.

Grains, fruits, vegetables, meat, and related products accounted for over two-thirds (65.8%) of US agricultural exports to Canada in 2022. The top exports included gasoline ethanol ($1.4 billion), corn ($1.3 billion), dog or cat food for retail sale ($1.1 billion), pork ($832 million), and beef and veal ($811 million).Meat and other animal items, cereals and feeds, and oilseeds and oilseed products made up 63.2% of US agricultural imports from Canada in 2022. Biscuits and wafers ($4.2 billion) were the most popular agricultural imports in 2022, followed by rapeseed oil ($3.8 billion), beef and beef variant meats ($2.6 billion), cocoa and cocoa preparations ($1.9 billion), pigs and pig variety meats ($1.4 billion), and frozen potatoes ($1.4 billion).

Foreign direct investment (FDI), defined by the United Nations as "investment made to acquire a lasting interest in or effective control over an enterprise operating outside of the investor's economy," is another type of economic linkage that connects Canada's and the United States' agricultural, food, and beverage industries. At the end of 2021, Canada was the third largest destination for US direct investment abroad (after the European Union and the United Kingdom), with a total US direct investment position of approximately $374 billion, according to FDI data on a historical cost basis from the US Department of Commerce's Bureau of Economic Analysis (BEA). The BEA defines "direct investment position at historical cost" as "a measure of the value of direct investors' equity in, and net outstanding loans to, their affiliates, in which the direct investors' investment is valued at book value." It mostly reflects pricing at the time of investment rather than current prices and is not typically adjusted to reflect changes in current or replacement costs of tangible assets, or in firm stock market valuations."

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