Introduction
The United States and Canada share the largest geopolitical border in the world. This allows for very high levels of interaction between the two countries and for businesses in each country to transport goods and services quite easily and affordably over this border. Several free trade agreements have been signed by each country that have reduced trade barriers substantially between the two countries. In 1995, McCallum (620) published findings that suggested that the U.S.-Canadian border was a significant and robust deterrent of trade. McCallum (619) argued that even though the two countries were thought to have very free trade between the two, the results of an economic analysis revealed that there were still major impediments to trade being created by the geopolitical border between the two states. Today, it is all but certain that this border remains a deterrent of trade between the two countries. Yet, the levels of two-way trade between the two countries suggests that trade between the two countries is having substantial effects on each economy and businesses in each country. Trade trends and the effects of Canadian and American trade are examined in this project, including a brief examination of how the TPP may affect Canadian and American trade. Clearly, U.S. and Canada trade relations remain strong and highly influential for each country.

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Major Regional and International Trading
In 2015, the U.S. exported more goods to Canada than any other country, while Canada was second in imports in the U.S., trailing only China (U.S. Census Bureau). Trade to and from Canada amounted to 15.4% of U.S. total trade, while trade to and from China amounted to 16% of U.S. total trade in 2015. Canada had long been the top trading partner of the U.S. Chinese oil changed that, but it may not be for long (U.S. Census Bureau). Canada still imports more of its goods and services, collectively, from the U.S. than any other country (U.S. Census Bureau). Given recent data from the U.S. Census Bureau, it appears that the U.S. and Canada will remain very strong trade partners for the foreseeable future.

CUSFTA, NAFTA, and TPP
Canada and the U.S. agreed to the Canada-United States Trade Agreement (CUSFTA) in 1987 (Pomfret 93). The main purpose of the agreement was to liberalize trade between the two countries which would effectively lead to increased trade between the two countries. This agreement included the elimination of any existing tariffs and many of the non-tariff trade barriers that had long diminished trade between the U.S. and Canada. The CUSFTA also reduced trade barriers that included services, rather than simply goods (Pomfret, 97). Finally, the agreement included the means for the two countries to settle any and all trade disputes between the two countries. The North Atlantic Free Trade Agreement (NAFTA) went into effect in 1994 and contains many of the same provisions as the CUSFTA, but also includes Mexico. NAFTA supersedes CUSFTA.

The Trans-Pacific Partnership (TPP) is a free-trade agreement, much like the CUSFTA and NAFTA, that will reduce trade barriers between a number of countries in North America, including the U.S. and Canada, and in the Pacific, including Japan and Australia (Williams 80). TPP is set to go into effect pending all requirements are met in the next several years. The significance of the TPP for Canadian and American trade is that the TPP will further reduce trade barriers between the two countries (Williams 62). On the other hand, the TPP will also open up both the U.S. and Canada to other markets, which will increase trade competition and may potentially decrease trade between the U.S. and Canada. One trade barrier that would be reduce between the U.S. and Canada under the TPP is the import tariff requirement for vehicles. Under NAFTA, 62.5% of a vehicle must be manufactured in a country before the vehicle is considered free from tariffs (Williams 97). However, under the TPP, only 45% of a vehicle would need to be from the U.S. or Canada for it to be free from tariffs between the two countries (Williams 54). This trade barrier reduction is just one example of how the TPP can improve trade between the U.S. and Canada by decreasing trade barriers.

Trade Balance
The United States has received significantly more imports from Canada than it exports to Canada. In 2015, the United States exported $259,016 million in goods to Canada, while importing $271,602 million in goods from Canada (U.S. Census Bureau). While the U.S. may currently hold a negative trade balance with Canada, the imbalance is not very large at all.

U.S. Jobs
One of the most important effects that the high volumes of two-way trade between Canada and the U.S. is the effect on jobs. In the U.S. alone, more than 9 million jobs depend on U.S. trading with Canada (U.S. Census Bureau). Trading between the two countries creates jobs by increasing the demand for certain products and services. The increased demand, of course, translates to increases in revenues, which allows for the creation of more jobs. In many cases, especially in the Northern U.S., Canada may provide the primary source demand for certain goods and services. Without such demand, there would be no need for many of the employees who currently work to fulfill this demand.

Canada Dependence on U.S. Trade
Even though Canada has been seeking to further expand its trade in the Pacific markets, such as those of China and Japan, according to Bloomberg Canada remains heavily dependent on the U.S. for exports. A major reason for this is that Canada has been largely unable to break into other markets, such as with its oil exports. In 2014, Canada was the largest supplier of oil, natural gas, and electricity to the U.S. In fact, in 2014, almost 40% of crude oil imports to the U.S. came from Canada (Bloomberg). Any deals, such as the TPP, that will decrease trade barriers between the U.S. and Canada will certainly fuel Canada’s trade with the U.S. On the other hand, the TPP may also help Canada break into the Pacific, decreasing Canada’s dependence on the U.S.

Conclusion
The effects of the strong trade relations between the U.S. and Canada are substantial. In addition to the millions of jobs created by trade between the two countries, Canada and the U.S. introduce a number of positive goods and services to one another, effectively improving the lives of citizens in each country. The highly liberated trade between the two countries has allowed Canada to remain the top trader with the U.S. for many years, though now Canada remains a close second to China. With the TPP in sight, Canada can simultaneous bolster its trade relations with the U.S., while decreasing its dependency on the U.S. As long as trade remains largely free between the U.S. and Canada, the two countries, their citizens, and their businesses will continue to benefit.

    References
  • Bloomberg. “Canada too dependent on U.S. for trade, Prentice says.” Accessed on January 20, 2016 from: http://www.bloomberg.com/news/articles/2012-09-07/canada-too-dependent- on-u-s-for-trade-prentice-says-1-
  • De Sousa, José, Thierry Mayer, and Soledad Zignago. “Market access in global and regional trade.” Regional Science and Urban Economics 42.6 (2012): 1037-1052.
  • McCallum, John. “National borders matter: Canada-US regional trade patterns.” The American Economic Review (1995): 615-623.
  • Pomfret, Richard. The economic development of Canada. Routledge, 2013.
  • United States Census Bureau. “Trade in goods with Canada.” U.S. Department of Commerce. Accessed on January 20, 2016 from: https://www.census.gov/foreign- trade/balance/c1220.html
  • Williams, Brock R. “Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis.” (2013).