In our ultra-competitive world of globalization, nations are increasingly teaming up to achieve higher levels of competitiveness and greater economic growth. And as the deepest and longest recession since the Great Depression recedes—creating new economic realities—this is even more important. Unfortunately, the U.S. isn’t keeping pace with other countries. In fact, it’s significantly falling behind.

Currently, the United States is a party to only 11 active free trade agreements involving 17 countries. Today, there are well over 300 existing free trade agreements in force around the world without U.S. participation. And dozens more are being negotiated at a swift pace while the U.S. sits on the sidelines. This is putting American companies at a competitive disadvantage.

In the absence of establishing more job-creating bilateral and multilateral trade agreements, U.S. companies are wise to deepen existing ones. And Canada, America’s largest trading partner, should be the focus of greater economic integration designed to spur more innovation and elevate North American competitiveness.

The Benefits of Economic Integration

Evolving from the U.S.-Canada Auto Pact into the U.S.-Canada Free Trade Agreement, and finally, into the North American Free Trade Agreement, these accords have eliminated barriers to trade, investment and the movement of people across our shared border. In turn, this has greatly advanced north-south integration, stimulated the development of sophisticated supply chains and boosted bilateral trade. The result: in 2008, U.S.-Canadian trade in goods totaled nearly $600 billion and accounted for almost 18 percent of total U.S. world trade. But that’s not all.

Economic integration also has boosted capital flows, promoted the spread of technology, increased productivity, created more good-paying jobs, increased the number of product choices while keeping prices low for consumers, and greatly enhanced North American competitiveness.

A Secure Energy Supply

In addition to the important achievements noted above, Canadian and U.S. energy sectors have become deeply integrated, enabling the two countries to enjoy the world’s most efficient energy relationship. Surprising to many, Canada is the United States’ largest supplier of foreign energy. It’s also the most secure. And in our era marked by global energy volatility, a permanent and secure supply of energy is essential. Thus, from January through August 2009 Canada provided 77 percent more barrels of crude oil to U.S. than Saudi Arabia.

The Rising Cost of Border Delays

Canada, like the United States, understands today’s terrorist threats and since 9/11/01, has increasingly allocated resources to border security. Additionally, thousands of U.S. and Canadian corporations have invested millions of dollars to protect their supply chains. They’ve also complied with voluntary security programs in order to ensure expeditious passage across our 5,525 mile-long border.

Why is all this so important? Prior to the recession, border delays caused by security concerns and inadequate infrastructure were driving up costs while driving down productivity. Consequently, efficiencies attained through just-in-time delivery were being replaced by just-in-case procedures that demanded larger, more expensive inventory stockpiles. The result: U.S. and Canadian companies were forced to pre-ship goods ahead of schedule to guarantee timely arrival.

Although trade, and in turn, border traffic have decreased due to the recession, border crossing issues will again surface once normal trade patterns resume. And the cumulative expenditures can be enormous. For example, it costs $800,000 for every additional hour of inventory to cover the risk of shipment disruptions of American parts headed to Canadian plants.

Likewise, delays of Canadian components destined for American facilities cost an estimated $432,000 per hour of inventory charges, Canadian analysts say.

Since more than 70 percent of two-way trade is carried by trucks—which prior to the recession crossed our border every 1.5 seconds—border delays also have severe implications for the transportation industry. This can be measured in fuel costs for idling trucks, additional drivers to satisfy stringent trucking hours and service requirements, and extra trucks to account for those waiting in line. Unoccupied factory crews waiting for components represent other costs.

And every day, some 300,000 people cross our common border. When delayed, U.S. and Canadian tourism, service sectors, movements of intra-company staff, and North American research and development programs are impacted.

A Gateway or Chokepoint?

Up until the recession, the border situation had worsened. Although there are several reasons which involve infrastructure, staffing and tougher security procedures, this is a major concern.

For the bulk of our history, Canadians and Americans perceived our joint border as a gateway. However, since 9/11/01 it has increasingly been viewed as a checkpoint—which can invariably become a chokepoint. This has severe implications and the potential to significantly reduce efficiencies that provide the U.S. and Canada with much of our advantage over competing trade blocs.

For example, if border issues affecting north-south supply chains make it less expensive per unit to ship 4,000 finished cars from Asia than to truck eight at a time over our bridges, the North American auto industry will be at an even greater risk, impacting U.S. and Canadian jobs.

Deeper Ties and Improved Access

Further U.S.-Canadian economic integration and improved supply chain distribution—involving international bridges, railways, highways, waterways and airports, as well as more thoughtful security procedures—will enhance North American competitiveness even more. However, unless expedited and trouble-free access is granted to goods as well as business people crossing our shared border, the global advantages achieved by existing U.S.-Canadian teamwork—and the hope of improving this—will likely be lost.

This article appeared in Impact Analysis, November-December 2009.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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