Countries that promote exports but discourage imports, such as Japan and several other Asian nations, have low levels of productivity in their domestic economy and high consumer prices.
Trade agreements replace the state-to-state resolution of trade disputes with investor-to-state resolution. Disputes are resolved with investor-to-state settlements in an arbitral setting within the rules set by governments, such as the dispute between Canada and the U.S. over softwood lumber. Trade agreements allow companies to plan long-term decisions on where to locate production and distribution with more certainty about the “rules of the game.”
US & Canada Under NAFTA
Perhaps the most compelling explanation as to how the United States functions as an economic partner rather than competitor due to the unique nature of bilateral trade under NAFTA is to look at its trade with Canada.
The U.S. continues to dominate Canada’s international trade flows, accounting for three-quarters of total exports and two-thirds of imports. Canada’s reliance on the U.S. for trade has fallen over the past two decades, especially with the emergence of Asian nations such as China and South Korea, both as suppliers of manufactured goods and as export markets for natural resources.
The value of U.S. content in imports from Canada averages 25%. Two-way trade between the U.S. and Canada amounted to about $760 billion in 2015, but the U.S. had a goods and services trade surplus of $11.9 billion in 2015. With autos and the communication technology sector, 50% of all inputs originate in the U.S., while in construction and natural resources, imports amount to less than 20% of all inputs.
Cars built in North America cross the U.S. borders eight times during production, integrating materials and parts developed in Mexico and Canada. The Detroit metropolitan area, a hub of the motor vehicle industry, exports more goods to Mexico than any other city in the U.S.
The demise of the recently approved Trans-Pacific Partnership before it was off the ground is not good news for the global economy, but is actually good news for Canada. Canada is planning to build pipelines to its Western and Eastern coasts for oil and gas shipments to Asia and Europe. It recently signed an agreement with the European Union and continues to negotiate with Asia-Pacific countries.