Importance of Global Trade to North America

Canadian & Mexican Economies are More Open to International Trade

Jan 12, 2009 Daniel Workman

This comparison shows that global trade generates a much smaller percentage of the United States' Gross Domestic Product than is the case for Canada and Mexico.

Economists use a simple statistical formula to measure how open a country is to global trade. First, they calculate the total value of a nation’s global trade by adding exports and imports. That sum is then divided by the country’s Gross Domestic Product (GDP).

Openness of North American Nations to Global Trade

No one can argue that the U.S. is 100% independent from the influence of its international trade partners. However, the following statistical summary illustrates that America’s massive GDP is much less driven by globe trade than neighboring Canada and Mexico.

  1. Canada ... 57.1% driven by global trade (2007 exports & imports of US$817.5 billion divided by GDP of $1.432 trillion)
  2. Mexico ... 40.9% driven by global trade ($553.8 billion divided by $1,353 trillion)
  3. USA ... 22.6% driven by global trade ($3.116 trillion divided by $13.78 trillion).

The above statistics show that Canada depends on global trade to generate 2.5 times more of its GDP than America does.

Gross Domestic Product

GDP represents the total goods and services that an economy produces. GDP equals the sum of the following 4 partitions:

  • Consumer spending (the largest component), plus
  • Private investment, plus
  • Government spending, plus or minus
  • Net exports (imports subtracted from exports).

America depends much more on consumer spending, private investment and government spending than Canada and Mexico.

Recent Global Trade Trends

Considering the number of aggressive multinationals like Wal-Mart and McDonalds that have their headquarters in the United States, it is somewhat surprising that the U.S. hasn’t grown the percentage of its global trade businesses at a faster pace.

Overall, the importance of international trade has dramatically increased during the past 5 years.

This accelerated growth has three major aspects:

  • Volume of global trade exports and imports has jumped.
  • Market for a country’s good and services has expanded.
  • Number of international financial transactions has soared, led by orders for Chinese-manufactured goods.

United States Still a Massive Global Trade Player

Bearing in mind the gargantuan size of the $13.78 trillion American economy in 2007, the vast absolute contribution of the United States to global trade shouldn’t be overlooked.

Below are statistics for the overall $4.487 trillion global trade by North American nation in 2007.

  1. USA ... $3.116 trillion (69.5% of total North American global trade)
  2. Canada ... $817.5 billion (18.2%)
  3. Mexico ... $553.8 billion (12.3%).

North American Global Exports

The United States is a much larger country than Canada, with a GDP more than 16 times greater. Yet America’s total exports are only 2.7 times more than Canada’s overall shipments.

Below is a summary of the estimated $1.851 trillion in total exports by North American country/

  1. USA ... $1.148 trillion (62% of total North American global exports)
  2. Canada ... $431.1 billion (23.3%)
  3. Mexico ... $271.9 billion (14.7%).

North American Global Imports

America accounts for a much larger percentage of total North American iimports of $2.636 trillion.

  1. USA ... $1.968 trillion (74.6% of total North American global imports)
  2. Canada ... $386.4 billion (14.7%)
  3. Mexico ... $281.9 billion (10.7%).

Can Global Trade Galvanize U.S. Consumer Demand?

In the past, governments have turned to growing exports when domestic consumer demand slowed. If Barack Obama can focus on exporting products and services where the United States has comparative advantages like advanced software technology, America may well repair its financial imbalances by strengthening its participation in global trade.

Sources for this Article

This article presents independent calculations and insights based on estimated 2007 data drawn from the CIA World Factbook and Carbaugh’s International Economics, 12th edition.

The copyright of the article Importance of Global Trade to North America in International Trade is owned by Daniel Workman. Permission to republish Importance of Global Trade to North America in print or online must be granted by the author in writing.
USA Relatively Low Global Trade Participation, morguefile 61814
USA Relatively Low Global Trade Participation