The trade relationship between Canada and the United States is one of the most significant in the world and has an enormous effect on the USD to CAD exchange rate, with both countries being each other’s largest trading partners. The trade balance between the two nations has been a topic of much discussion and debate over the years.
In general, the United States has a trade surplus with Canada, meaning that it exports more goods and services to Canada than it imports from Canada, this is one of the reasons that the USD to CAD rate is above 1, making the US dollar more valuable than the Loonie. According to the United States Trade Representative, in 2020, the United States had a trade surplus with Canada of $12.8 billion USD. This surplus was primarily driven by the export of goods such as vehicles, machinery, and electrical machinery.
The more a country exports, the more imports sell their own currency, to buy theirs. If a Canadian imports a product from the United States, they must sell Canadian dollars, to buy US dollars. In this process the trade balance plays a key role in the USD to CAD exchange rate, and also for Canada’s other key trading partner foreign exchange rates.
However, it is important to note that the trade relationship between the two countries is much more complex than simply looking at the overall trade balance. There are many factors that contribute to this balance, including fluctuations in the USD to CAD currency exchange rates, changes in global supply chains, and differences in regulatory environments.
Additionally, there are many industries in which Canada has a trade surplus with the United States. For example, Canada is a significant exporter of energy products such as oil and natural gas to the United States, which helps keep the demand for CAD strong. In 2020, the United States imported $53 billion worth of energy products from Canada, making it the largest source of U.S. energy imports.
Another industry in which Canada has a trade surplus with the United States is in the area of forestry and wood products. Canada is a major exporter of lumber, pulp, and paper products to the United States, which are used in a variety of industries including construction and publishing.
Overall, while the United States has a trade surplus with Canada, the trade relationship between the two countries is highly interdependent and benefits both economies. The two countries have worked to strengthen this relationship through various trade agreements, including the North American Free Trade Agreement (NAFTA) and the more recent United States-Mexico-Canada Agreement (USMCA), which aim to reduce barriers to trade and support economic growth in the region.