Is Canada America's Top Trading Partner?

One of the most pressing issues confronting the United States is a lack of understanding about our connectivity with other societies across the world, rather than trade, morals, or military capabilities. The deficit can have a severe impact on American consumers, producers, workers, and families, resulting in political, economic, and media blunders. Commercial ties are an excellent example. It's worth noting that cross-border trade in goods is still commonly recognized as the most important indicator of international trade. This metric is long out of date and highly misleading in today's world of stretched supply chains, rapid technical breakthroughs, and renewed strategic competition.

Why? International trade is considerably more than just the exchange of physical things.

Pundits and politicians frequently overlook the trade of services. Services account for a smaller proportion of global commerce than products, but their growth rate has been higher. Services are more important to the American employment market than products. In reality, services are one sector where the United States excels in terms of competitiveness. Furthermore, trade is more than just the movement of goods, and international business extends beyond that. It also includes investment, which is a more substantial form of business connectedness. Many American businesses choose to build a presence near their clients in international marketplaces rather than sending their goods or services over large distances. They have been doing it for almost a century. For years, they were accompanied by corporations from many countries. Because of their actions, America's investment ties with many countries have grown more valuable than its economic relationships. Other considerations are also significant. Cross-border data flows have a substantial impact on global growth because they facilitate a variety of international exchanges. The United States is the world leader in facilitating international trade via data flows. International flows of R&D and talent have also become critical for knowledge economies like the United States. Nowadays, businesses place just as much emphasis on intangible assets related to knowledge exchange as they do on traditional forms of capital such as machinery, equipment, and buildings. Understanding these tendencies might help us evaluate data that we receive on a regular basis and identify our main business allies. America's trade ties with China, for example, might be compared to a busy two-lane highway brimming with merchandise. These lanes are busy and crowded. Accidents on two-lane highways can cause significant traffic disruptions, as shown during the COVID-19 epidemic and the US-China tariff war. We are currently seeing comparable interruptions as a result of Beijing's raw material limits and Washington's curbs on semiconductors and other items. Cyclists have designated bike lanes alongside the main road. 

Data and knowledge flows mirror pedestrian sidewalks in that they are slow, narrow, and frequently constrained. 

Another investment route has been planned for quite some time, but it has been a rough trip as Beijing and Washington tighten their constraints. In 2023, China experienced a huge shift in foreign investment flows, with a large quantity of overseas money that had been flowing into Chinese bonds since 2019 now departing. According to JPMorgan Chase, this reversal represents roughly half of the $250 billion to $300 billion that had been invested. Chinese foreign direct investment (FDI) in the United States is limited, with only seven projects worth $1.8 billion in 2023 and five deals worth $2.6 billion in 2022. Companies are changing their purchasing, selling, and investment strategies to deal with China's tensions and interruptions. Mexico has undoubtedly received its fair share of benefits. According to recent media projections, Mexico will surpass China in 2023 as the United States' largest commercial partner. As expected, the reports focused mostly on goods trade. However, when it comes to services, Mexico has long been America's leading trading partner. In 2021 and 2022, trade in products and services between the United States and Mexico topped that of the United States and China. The trade links between the United States, China, and Mexico are extremely important. However, America's primary trading partner is not a foreign country. The United Kingdom possesses the honor. The size of U.S.-U.K. goods lanes is relatively tiny when compared to U.S. goods highways with China or Mexico. The US-UK services trade exceeds the US services trade with China and Mexico combined. According to the most recent data available, the United States-United Kingdom services trade will be worth roughly $156 billion in 2022. In comparison, US-Mexico services trade was $76 billion, and US-China services trade was approximately $68 billion.

The true differential, however, can be traced to substantial reciprocal investment. 

The investment stock between the United States and the United Kingdom is substantially higher than that between the United States and China, or the United States and Mexico. The US-U.K. investment stock is $1.74 trillion, which is more than 11 times larger than the US-China investment stock of $154.8 billion and more than ten times larger than the US-Mexico investment stock of $164.1 billion. The total amount of US foreign direct investment in the United Kingdom exceeds that of the entire Asia-Pacific region. In 2021, American and British affiliates sold $1.4 trillion in each other's marketplaces, outpacing the combined sales of U.S. affiliates in Latin America (including Mexico) and Latin American affiliates in the United States, which totaled $1.1 trillion. Investments also help to create jobs: U.K. companies contribute significantly to onshored jobs in the United States, while US companies play an important role in creating onshored jobs in the UK. Undoubtedly, the European Union (EU) is an important trade partner for the United States. Given that the EU is made up of 27 countries, comparing it to China, Mexico, or the United Kingdom may appear unfair. However, EU member states have given the European Commission the ability to handle trade issues on their behalf. The trade commissioner of the union represents, acts, and negotiates on their behalf. The commission is in charge of overseeing the EU's Single Market, which allows for free trade within the EU without tariffs or restrictions similar to those found in the USMCA or East Asia's business linkages.