American-Canadian Trade and Exchange Analysis

Canada is by far the largest trading partner of the United States, as the U.S.-Canadian relationship accounts for 20% of all U.S. international trade. If we are going to figure out why the United States still has a large trade deficit, this would be a good place to start.

Canadian-American exchange rate and international trade data for 2002 and 2003 is located on the bottom of this article. The column CDN DOL indicates how many Canadian Dollars can be purchased with 1 U.S. Dollar. An increase in this number represents a strengthened (apperciated) U.S. Dollar, and a decrease in this number represents a weakened (depreciated) one. The column CDN DEF indicates the size of the trade balance the U.S. has with Canada. All the numbers in that column are negative, indicating that the United States has a trade deficit with Canada. The numbers are in millions of U.S. Dollars, so -4907.40 across from Oct-03 indicates that U.S. trade deficit with Canada was 4.9 billion dollars for the month of October 2003.

The American Dollar has depreciated rapidly relative to the Canadian Dollar. In October 2002 1 American Dollar could buy you $1.58 Canadian. The next October, a U.S. Dollar would only fetch $1.32 Canadian, a drop of over 16%. However the balance of trade remained steady over this period, with a trade deficit of $4.3 billion in October 2002 and $4.9 billion in October 2003. We would expect the balance of trade to improve over this period, not get worse! The correlation between the exchange rate and the trade deficit was 0.248 for this period. We expect that when the exchange rate goes down, the trade should go up. However a positive correlation between the two indicates that when the exchange rate went down, the trade deficit became larger. So the data does not at all match our expectations.

It appears that the Canadian data does not lead to any great insights to the trade deficit. We will have to see if the data from the other three countries can help us.

To learn more about American-Canadian Trade you'll want to read these articles:

LINKS

• CBC - Canada/U.S. Trade
• Business First - U.S. Trade Deficit is Canada's Gain
• Providence Journal - Canada Finds Huge Market in U.S. trade

Next Section: American-Mexican Trade and the American-Mexican Exchange Rate

LIST OF SECTIONS

• Section 1: The Trade Deficit and Exchange Rates
• Section 2: Canadian-American Trade and the Canadian-American Exchange Rate
• Section 3: Mexican-American Trade and the Mexican-American Exchange Rate
• Section 4: Japanese-American Trade and the Japanese-American Exchange Rate
• Section 5: Chinese-American Trade and the Chinese-American Exchange Rate
• Section 6: Conclusion