This study examines the intricate trade interdependencies between Canada and the United States, highlighting how aggregate export–import figures can mask deeper economic realities. Approximately three-quarters of Canadian merchandise exports head to the United States each year, contributing to a bilateral merchandise trade surplus for Canada in the range of 100 to 170 billion Canadian dollars. Yet, when energy products are excluded, the United States shows a small surplus with Canada, illustrating how both sides benefit from specialized cross-border value chains. Analyses of selected sectors demonstrate that a hypothetical 25 percent tariff on Canadian goods would translate into lost export revenue for Canada, but it would also raise production costs for many U.S. manufacturers dependent on Canadian imports.

Despite Canada’s smaller economy, the potential for economic harm runs in both directions. Automakers in Michigan and Ohio, for instance, rely on numerous Canadian inputs that cross the border multiple times, and integrated refiners on the Gulf Coast often process crude oil from Alberta. Inelastic supply chains amplify these vulnerabilities: short-run elasticity estimates indicate that energy flows might see only a 2 percent immediate reduction under a 10 percent tariff, yet over a longer horizon, both sides risk further setbacks if either country shifts to alternative markets. On both sides, adjustments to cross-border barriers are neither simple nor immediate because specialized capital investments and elaborate production networks cannot be realigned without significant cost.

These findings underscore the limitations of viewing trade solely through the lens of net balances. They suggest that resilience policies, dispute-resolution frameworks, and incremental diversification strategies are integral to mitigating risk. In a climate where protectionist rhetoric can swiftly translate into new barriers, maintaining stable, predictable conditions for trade in both Canada and the United States is essential to preserving the mutual gains flowing from decades of close economic integration.

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To cite:

Warin, T. (2025). Canada–U.S. Trade in a Globalized Economy: Elasticities, Asymmetries, and Policy Imperatives(2025PR-01, For reflection, CIRANO.) https://doi.org/10.54932/SLPH3996