Our Economic Neighbors: Canada and Mexico

North America is quite the economic powerhouse. It holds 6.5% of the world’s population while realizing 28.0% percent of its Gross Domestic Profit (GDP). In terms of geographical size, Canada is the largest North American nation. However, when it comes to economy and population, the US holds the number one spot. While the US population is roughly two-and-a-half times that of Mexico, our economy is nearly 16 times larger (according to GDP). A comparison with Canada is more even-scaled; the US is roughly 10 times larger than Canada in terms of both population and economy.

Let’s start with what drives Canada’s economy. For our northern neighbor, oil and gas play a crucial role. The abundance of natural resources in the country renders Canada vulnerable to movements in the oil and gas market. The aggressive drop in oil prices in 2015, for example, more negatively impacted Canada than the US or Mexico. Canada's exports are another key cog in their economy. Canada runs a trade surplus with the US and a deficit with Mexico. Our upcoming webinar will discuss in further detail how all of the above factors are essential to the performance of the Canadian economy.

The automotive industry plays a significant role in the Mexican economy, in particular on the country's trade relationship with the US. Mexico's low cost of labor gives it a competitive advantage in the automotive market.

In the upcoming webinar, we will not only discuss automotive-related trade activity between Mexico and its North American allies; we will also assess the impact of export activity from all three countries to the rest of the world.

For the US, the consumer is king. US Personal Consumption accounts for 67.0% of US GDP; Canada and Mexico are not too far behind with their own consumption ratios. A large and resilient consumer base helps the US keep its place as the largest economy in the world.

Clearly, there are differences in the drivers behind the three North American economies, but they certainly share one thing in common: All three depend on one another in some way, shape, or form.

Let’s look a little deeper.

Trade with our neighbors is more complicated than borrowing a cup of sugar. There are deals and regulations that add layers of complexity to trading logistics within North America. Now nearly in the rear-view mirror, the North American Free Trade Agreement (NAFTA) has been renegotiated as the United States-Mexico-Canada Agreement (USMCA).

It is beneficial to understand how much each country trades, and with whom. The below image shows the dollar amount of trade coming into and leaving each North American country on an annual basis. The US runs a trade deficit with both Canada and Mexico. Keep in mind that the USMCA has yet to be ratified by all three parties, so there is still the possibility of changes being made. Once ratified, the agreement would not take effect until 2020.

Join us for the upcoming webinar to learn more on the dynamic relationship between the US, Canada, and Mexico!

Catherine Putney
Economist