How US Exports to Canada Boost the Economy: A Comprehensive Guide
Are you wondering how US exports to Canada impact the economy of both countries? Do you want to learn more about the trade relationship between the two neighbors and the benefits of exporting to Canada? If so, you are in the right place.
In this article, we will provide you with a comprehensive guide on US exports to Canada, covering the following topics:
- The history and overview of the US-Canada trade relationship
- The main categories and products that the US exports to Canada
- The advantages and challenges of exporting to Canada
- The best practices and tips for exporting to Canada successfully
By the end of this article, you will have a better understanding of how US exports to Canada boost the economy and how you can take advantage of this lucrative market.
The History and Overview of the US-Canada Trade Relationship
The US and Canada have a long and close trade relationship that dates back to the 18th century. The two countries share a 5,525-mile border, the longest in the world, and have similar cultures, languages, and values. They are also each other’s largest trading partners, with bilateral trade reaching $718.4 billion in 2019, according to the United States Trade Representative (USTR).
The US-Canada trade relationship is governed by several agreements and institutions, such as:
- The North American Free Trade Agreement (NAFTA), which came into effect in 1994 and eliminated most tariffs and barriers on trade between the US, Canada, and Mexico.
- The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2020 and modernized the rules and standards for trade in North America.
- The World Trade Organization (WTO), which sets the global rules and principles for trade and resolves trade disputes among its members.
- The Canada-US Regulatory Cooperation Council (RCC), which aims to align and harmonize regulations and standards across various sectors, such as agriculture, transportation, health, and environment.
The US-Canada trade relationship is characterized by a high degree of integration and interdependence, meaning that both countries rely on each other for goods, services, investment, innovation, and jobs. According to the USTR, in 2019:
- The US exported $360.4 billion worth of goods and services to Canada, accounting for 18% of total US exports.
- The US imported $358 billion worth of goods and services from Canada, accounting for 12.8% of total US imports.
- The US had a trade surplus of $2.4 billion with Canada, meaning that it exported more than it imported.
- Over 30 US states ranked Canada as their number one export market.
- Nearly 9 million US jobs depended on trade and investment with Canada.
The Main Categories and Products that the US Exports to Canada
The US exports a wide range of goods and services to Canada across various sectors and industries. According to the USTR, the top categories of goods that the US exported to Canada in 2019 were:
- Vehicles ($52 billion)
- Machinery ($45 billion)
- Electrical machinery ($25 billion)
- Mineral fuels ($25 billion)
- Plastics ($13 billion)
The top categories of services that the US exported to Canada in 2019 were:
- Travel ($24.7 billion)
- Professional and management services ($10.6 billion)
- Intellectual property ($8.8 billion)
- Financial services ($6.1 billion)
- Telecommunications, computer, and information services ($5.7 billion)
Some of the most popular products that the US exports to Canada include:
- Cars, trucks, buses, motorcycles, and parts
- Computers, software, hardware, peripherals, and parts
- Petroleum, natural gas, coal, electricity, and renewable energy
- Medical devices, pharmaceuticals, biotechnology products, and health services
- Agricultural products, such as fruits, vegetables, grains, meat, dairy products,
and processed foods - Consumer goods, such as clothing, footwear, cosmetics,
jewelry,
and toys
The Advantages and Challenges of Exporting to Canada
Exporting to Canada offers many advantages for US businesses, such as:
Proximity:
Canada is geographically close to the US, which reduces transportation costs, time, and risks. It also facilitates face-to-face communication, travel,and cultural exchange.
Market size:
Canada is a large and wealthy market, with a population of 37 million people and a GDP of $1.7 trillion in 2019, according to the International Monetary Fund (IMF). It also has a high demand for quality goods and services from the US, especially in sectors such as energy, healthcare, technology, and agriculture.
Market access:
Canada has a free trade agreement with the US, which eliminates most tariffs and barriers on trade between the two countries. It also has a similar legal and regulatory system to the US, which makes it easier to comply with rules and standards.
Market diversification:
Canada offers a diverse and dynamic market, with different regions, provinces, and territories that have their own characteristics, preferences, and opportunities. It also offers access to other markets, such as Mexico, Europe, and Asia, through its trade agreements with these regions.
However, exporting to Canada also poses some challenges for US businesses, such as:
Competition:
Canada is a competitive market, with many domestic and foreign players that offer similar or substitute products and services. US businesses need to differentiate themselves and offer value-added solutions to stand out and gain market share.
Currency fluctuations:
Canada has a different currency than the US, the Canadian dollar (CAD), which fluctuates in value against the US dollar (USD). This can affect the profitability and pricing of US exports to Canada, depending on whether the CAD appreciates or depreciates against the USD. US businesses need to monitor the exchange rate movements and hedge their currency risk accordingly.
Taxes and fees:
Canada has different taxes and fees than the US, such as the goods and services tax (GST), the harmonized sales tax (HST), the provincial sales tax (PST), and the customs duties and fees. These can increase the cost of doing business in Canada and affect the competitiveness of US exports. US businesses need to understand the tax and fee structure in Canada and factor it into their pricing strategy.
The Best Practices and Tips for Exporting to Canada Successfully Exporting to Canada can be a rewarding and profitable venture for US businesses, if they follow some best practices and tips, such as:
Do your research
Before entering the Canadian market, US businesses should conduct thorough market research and analysis, to identify their target customers, competitors, opportunities, threats, and entry strategies. They should also consult with experts, such as trade specialists, lawyers, accountants, and bankers, who can provide them with valuable insights and advice on the Canadian market.
Adapt your product or service
US businesses should adapt their product or service to meet the needs and preferences of the Canadian market, such as by customizing their features, packaging, labeling, branding, and marketing. They should also comply with the Canadian regulations and standards that apply to their product or service, such as by obtaining the necessary certifications, licenses, permits, and approvals.
Find a reliable partner
US businesses should find a reliable partner in Canada, such as a distributor, agent, representative, or joint venture partner, who can help them access the market, distribute their product or service, provide after-sales service and support, and handle logistics and customs clearance. They should also establish a clear and mutually beneficial contract with their partner, outlining their roles, responsibilities, expectations, and compensation.
Promote your product or service
US businesses should promote their product or service in Canada, using various channels and methods, such as online platforms, social media, trade shows, exhibitions, seminars, webinars, newsletters, brochures, and referrals. They should also leverage their unique selling proposition (USP) and competitive advantage to attract and retain customers in Canada.
Provide excellent customer service
US businesses should provide excellent customer service to their customers in Canada, such as by delivering high-quality products or services on time and at a reasonable price, offering warranties, guarantees, returns, and refunds policies, providing technical assistance and troubleshooting solutions, soliciting feedback and testimonials, and building long-term relationships.
US exports to Canada boost the economy of both countries by creating jobs, increasing income, stimulating innovation, and enhancing competitiveness. US businesses can take advantage of this lucrative market by following some best practices and tips for exporting to Canada successfully.
How U.S. Exports to Canada Changed in 2020
The United States and Canada have a long-standing and mutually beneficial trade relationship, with Canada being the largest export market for U.S. goods and the second-largest supplier of U.S. imports. However, the trade flows between the two countries were significantly affected by the COVID-19 pandemic and its economic impacts in 2020. Here are some key statistics that show how U.S. exports to Canada changed in 2020 compared to 2019.
Overall Decline in U.S. Exports to Canada
According to the Bureau of Industry and Security (BIS), U.S. exports to Canada totaled $255.1 billion in 2020, a 12.8% ($37.5 billion) decrease from 2019. This was the largest annual decline in U.S. exports to Canada since 2009, when they fell by 23.4% due to the global financial crisis. The drop in U.S. exports to Canada in 2020 was mainly driven by the reduced demand for goods and services caused by the lockdowns, travel restrictions, and social distancing measures implemented to contain the spread of the coronavirus.
The decline in U.S. exports to Canada was broad-based, affecting most of the major commodity sectors. The largest decreases were recorded in mineral fuels ($10.4 billion), vehicles ($8 billion), machinery ($5 billion), electrical machinery ($2.7 billion), and aircraft and spacecraft ($2 billion). Some of the sectors that saw an increase in U.S. exports to Canada in 2020 were pharmaceutical products ($1 billion), medical instruments ($0.6 billion), and cereals ($0.3 billion).
Decreased Share of U.S. Exports to Canada in World Trade
The United States Trade Representative (USTR) reports that U.S. exports to Canada accounted for 18% of overall U.S. exports in 2019, making Canada the largest destination for U.S. goods. However, in 2020, this share dropped to 17.8%, as U.S. exports to other markets declined less than those to Canada.
For example, U.S. exports to Mexico, the second-largest export market for U.S. goods, decreased by 9% in 2020, while U.S. exports to China, the third-largest export market, increased by 18%. As a result, Mexico’s share of U.S. exports rose from 15% in 2019 to 15.5% in 2020, while China’s share rose from 7% to 8%.
Moreover, U.S. exports to Canada also lost some competitiveness in the global market, as other countries increased their exports to Canada at a higher rate than the United States did. For instance, China’s exports to Canada grew by 14% in 2020, while Germany’s exports grew by 4%. Consequently, China’s share of Canada’s imports rose from 12% in 2019 to 14% in 2020, while Germany’s share rose from 3% to 4%.
Reduced Trade Surplus with Canada
The BIS also indicates that the United States had a trade surplus with Canada of $2.4 billion in services and a trade deficit of $26.8 billion in goods in 2019, resulting in a net trade surplus of $2.4 billion with Canada that year.
However, in 2020, both the trade surplus and the trade deficit with Canada decreased, as both U.S. exports and imports from Canada fell due to the pandemic-induced slowdown in economic activity.
Specifically, U.S. services exports to Canada decreased by 1.7% ($1.2 billion) while services imports from Canada decreased by 6% ($2.5 billion) in 2020, leading to a reduced trade surplus of $29.2 billion in services.
Similarly, U.S. goods exports to Canada decreased by 2.4% ($7.1 billion) while goods imports from Canada decreased by 15% ($49 billion) in 2020, leading to a reduced trade deficit of $15.2 billion in goods.
Therefore, the net trade surplus with Canada shrank from $2.4 billion in 2019 to $14 billion in 2020.
The COVID-19 pandemic had a negative impact on the trade relationship between the United States and Canada in 2020, as both countries experienced a decline in their exports and imports of goods and services due to the reduced demand and supply caused by the health crisis.
U.S. exports to Canada fell by more than $37 billion or 12.8% in 2020, the largest annual drop since 2009. This resulted in a decreased share of U.S. exports to Canada in world trade, as well as a reduced trade surplus with Canada.
The outlook for U.S. exports to Canada in 2021 depends on several factors, such as the pace of vaccination, the recovery of consumer and business confidence, the easing of trade barriers, and the implementation of the new United States-Mexico-Canada Agreement (USMCA).
References:
http://www.nationalaglawcenter.org/wp-content/uploads/assets/crs/RL33087.pdf
http://nbr.org/downloads/pdfs/eta/PES_2013_summitpaper_Slutz.pdf
http://www.accessmylibrary.com/coms2/summary_0286-12155569_ITM
https://www.bis.doc.gov/index.php/country-papers/2785-2020-statistical-analysis-of-u-s-trade-with-canada/file
https://ustr.gov/countries-regions/americas/canada
https://ustr.gov/countries-regions/americas/canada
https://tradingeconomics.com/united-states/exports/canada
https://www.export.gov/article?series=a0pt0000000PAtTAAW&type=Country_Commercial__kav
https://www.trade.gov/knowledge-product/canada-market-overview
Essential Topics You Should Be Familiar With:
