China passes Canada to become U.S.’s largest trading partner

by Jonathan Adams

The U.S. and Canada have had a close relationship throughout the countries’ histories — but there is now a third wheel in this cozy relationship.

In September, China eclipsed Canada to become the U.S.’s biggest trading partner for goods.

Trade between the U.S. and China hit $441.56 billion in the first nine months of the year while U.S.-Canada trade totaled $438.08 billion, according to U.S. government data.

What’s behind the shift? Weak crude oil prices.

Canada is the top source of U.S. crude oil imports and, with the decline in prices, the value of trade between the two countries has likewise suffered.

“It’s not unexpected,” said Colin Cieszynski, chief market strategist at CMC Markets, noting that oil prices are down nearly 50% over the past year.

But China’s emergence as an economic power also cannot be ignored, he said.

Trade with Canada surged 467% from 1985 to $660.22 billion in 2014. During the same period, bilateral trade with China soared 7,551% to $590.43 billion. In that time, China went from an under-developed country to emerge as the second largest economy after the U.S.

Still, given the sizeable trade flow across the U.S.’s northern border, Canada is expected to reclaim its pre-eminent position once oil prices rebound, although that isn’t expected to happen any time soon.

Crashes in the oil market generally take at least two years to recover, and the last time oil prices crashed, they stayed under $100 for five years, according to Cieszynski.

Oil prices are currently in their second year of decline, he added.

West Texas Intermediate crude has fallen 44% over the past 12 months and are down 18% year to date. December crude CLZ5, +0.50% dropped 1% to settle at $43.87 Monday.

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