The U.S. and Canada have shared one of the world’s largest and most integrated trading relationships, driven by geographical proximity, shared economic interests, and strong political ties. In 1985, trade between the two countries was already significant, but the Canada-U.S. Free Trade Agreement (CUSFTA), signed in 1988, marked a major milestone. This agreement eliminated many tariffs and trade barriers, leading to increased cross-border commerce and economic interdependence.
In 1994, CUSFTA was expanded into the North American Free Trade Agreement (NAFTA), which included Mexico. NAFTA significantly boosted trade volumes between the U.S. and Canada, especially in sectors like automotive, energy, and agriculture. Canada became the U.S.’s largest trading partner, and both countries benefited from tightly integrated supply chains. However, disputes occasionally arose, particularly over softwood lumber, dairy, and steel.
By the 2010s, trade remained strong, but tensions emerged, especially under the Trump administration. In 2018, the U.S. imposed 25% tariffs on Canadian steel and 10% on aluminum, citing national security concerns. Canada retaliated with tariffs on U.S. goods, escalating a trade dispute between the close allies. This led to the renegotiation of NAFTA, resulting in the United States-Mexico-Canada Agreement (USMCA), which took effect in 2020. USMCA modernized trade rules, particularly in digital trade, labor standards, and automotive manufacturing.
Despite occasional trade frictions, the U.S.-Canada relationship remained resilient. Both countries rely heavily on each other for critical goods, particularly energy—Canada is the largest supplier of crude oil to the U.S. The COVID-19 pandemic briefly disrupted trade and travel, but economic recovery efforts reinforced the importance of stable cross-border supply chains. In the 2020s, the focus has shifted toward clean energy, electric vehicle production, and technology trade, as both nations collaborate on climate initiatives and supply chain security.
As of 2024, the U.S. and Canada continue to be each other’s largest trading partners, with trade averaging $700 billion annually. While challenges persist, such as regulatory disputes and competition in key industries, the deep economic ties, shared values, and trade agreements like USMCA ensure that the partnership remains one of the strongest in the world. Moving forward, cooperation on critical minerals, renewable energy, and technological innovation will shape the next phase of U.S.-Canada trade relations.
