The Ins and Outs of Trade With Canada

To prepare a NAFTA burger at your Labor Day BBQ, you need a cow from Alberta that enjoys corn from Iowa. Next, just add a bun made from Saskatchewan wheat, a Mexican tomato slice, and some Arizona lettuce. Then, if you want fries, yes, we grow the potatoes. But many are processed in Canada before returning as frozen french fries. And Canadian steak could have come from one of their cows that was processed in the U.S. and then sent back to them.

That NAFTA burger displays the back and forth trips that trade statistics hide. So please keep those details in mind as we look at the big picture. Our purpose is to do a what, where, and why for trade with Canada, our #2 trading partner.

What?

Representing a trade surplus, the value of the goods and services we sell to Canada exceeds what we buy from them.

Vehicles and machinery top the list of goods that we send there while travel, computer software, and management are typical of our services exports.

As for imports, mineral fuels and vehicles had the highest goods totals and travel and transport are among the services we send to them:

Where?

If I had to choose one state that really cares about trade with Canada, it would be North Dakota. But Michigan is near the top, too.

In dollars, Michigan and Texas lead a list of U.S. exporters to Canada with Ohio and California next. But as a percent of their exports, we have North Dakota (close to a whopping 83%), and then Maine (48%), Montana (47%), and Michigan (43%).

You can see that Canada is a top export partner for the majority of U.S. states:

With imports too, Canada plays a hefty role for quite a few states. Slightly more than 82% of Montana’s imports come from Canada. Next we have Vermont (69%), Wyoming (62%), and North Dakota (53%):

Our Bottom Line: Why?

It all comes down to comparative advantage.

First explained by 19th century economist David Ricardo (1772-1823), comparative advantage just means you do what you sacrifice the least for. So, if I can write for econlife or do my dishes, I prefer sacrificing the dishes. Eventually they would get washed, but by someone who has less to sacrifice.

Similarly, as NAFTA intended, when goods and services flow smoothly among three nations, we can benefit from comparative advantage.

My sources and more: This The Washington Post focus on  trade with Canada was a good starting point. From there I suggest their source at the Office of the U.S. Trade Representative and this howmuch.net trade visualization. Next, here, you can see what we mean by a service export. And then finally, excellent, for bios, econlib is a handy resource for more on David Ricardo and comparative advantage.