Is Canada America's Leading Trade Partner?

One good illustration of this is in business interactions. It's incredible that cross-border product trade is still widely regarded as the gold standard for international trade. That metric was developed at least fifty years ago, and in an era of expanding supply chains, rapid technological breakthroughs, and revived geopolitical rivalry, it is completely wrong today.

Why? because there are other facets of international business

besides the trade of goods. Furthermore, trade in services is covered, which is something that many politicians and pundits ignore. Services are growing faster than products, even if their share of global trade is still less. Compared to goods, services account for a larger portion of American employment and provide the nation with a competitive advantage.

Moreover, just as trade is more than just the transfer of goods, so too does international business go beyond simple trade. It also includes investment, which is a more sophisticated form of commercial networking. Most American businesses would rather locate offices close to their clients in other markets than send their goods or services across the seas. They have been doing this for almost a century. For decades, businesses have been joining them from many other countries. Because of their activities, America's trade linkages with many other countries are now far less valued than its investment relationships.

There are further essential fluxes.

Cross-border data flows not only support and facilitate practically all other forms of cross-border flows, but they also contribute more to the global economy than trade in goods. By keeping all these flows in mind, we can recognize our most important business partners and interpret the numbers that are thrown at us on a daily basis.

Trade relations between the United States and China, for example, are like a two-lane road congested with cargo. Those are busy, crowded lanes. As the COVID-19 pandemic, the U.S.-China tariff war, and the present limits Beijing is placing on raw material flows that Washington is applying on semiconductors and other exports indicate, any type of collision on a two-lane highway has the potential to substantially hinder traffic. Beside the goods highway are narrow bike lanes designated for services. Data and information exchanges between parties are usually restricted, sluggish, and more like pedestrian walkways. An extra investment lane has been worked on for years, but there are still many challenges because Beijing and Washington are imposing more restrictions on it.

Companies are trying to reduce supply chain disruptions and disputes

with China by changing where and how they invest, sell, and buy. Mexico is one nation that has profited. Recent media projections indicate that in 2023, Mexico will surpass China as the United States' top commercial partner. As usual, those reports were restricted to product trading. But when it comes to services, Mexico has long been the United States' top trading partner: Trade in goods and services between the US and Mexico overtook trade with China in 2021 and 2022.

China and Mexico are two major trading partners of the United States. However, neither is the main commercial partner of the United States among other countries. The UK is one country that possesses this distinction. US-UK goods routes are significantly smaller than US goods highways with China or Mexico. However, at approximately $156 billion in 2022 (the most recent year for which data is available), U.S.-UK services trade exceeded U.S. services trade with China and Mexico combined. By contrast, U.S. services trade with Mexico was approximately $76 billion, while U.S. services trade with China was approximately $68 billion.

The real reason for the disparity, however, is massive mutual investment. The U.S.-U.K. investment stock is $1.74 trillion, more than 11 times larger than the U.S.-China ($154.8 billion) and U.S.-Mexico ($164.1 billion) investment stocks combined. The UK receives more US foreign direct investment than the whole Asia-Pacific region. Twenty-one percent less than the combined sales of American and British affiliates in each other's markets ($1.4 trillion) was the combined sales of U.S. affiliates in all of Latin America (including Mexico) and Latin American affiliates in the United States in 2021 ($1.1 trillion). Moreover, the jobs created by their investments In the same way that American enterprises account for the majority of onshore employment in the US, British businesses also bear this distinction.

The European Union (EU) is arguably the United States' most important business partner, not a nation. Some may feel that comparisons to China, Mexico, or the United Kingdom are unjust given that the EU is made up of 27 countries. However, the European Commission, whose trade commissioner speaks, acts, and negotiates on behalf of the union, has been granted sovereignty over trade matters by the member states of the EU. The commission is also in charge of the EU Single Market, where the majority of trade can occur without encountering intra-EU tariffs, the kinds of limitations found in the U.S.-Mexico-Canada free trade agreement (USMCA), or trade ties with East Asia.