It’s a common misconception to think about international commerce solely through the lens of goods trade. This limited perspective leads to misunderstandings about the intricate web of global economic relationships that the United States navigates. Many believe that nations with the largest flow of goods to and from the US are automatically the most critical trading partners. However, this view is increasingly outdated and fails to capture the full picture of modern international commerce, potentially leading to flawed policy and business decisions. To truly understand Who Are The Us Biggest Trading Partners, we need to look beyond just the exchange of goods.
For decades, the focus has predominantly been on cross-border trade in goods as the primary indicator of international commercial importance. While the movement of physical products remains significant, it’s no longer the sole, nor even the most accurate, measure of economic partnership. In today’s interconnected world, characterized by intricate global supply chains, rapid technological advancements, and shifting geopolitical landscapes, a more comprehensive approach is essential.
International commerce encompasses far more than just tangible goods. It includes a substantial and rapidly expanding trade in services, often overlooked in mainstream discussions. While services may constitute a smaller portion of overall global trade volume compared to goods, their growth rate is significantly outpacing goods trade. For the United States, the service sector is not only a major employer but also a key area of competitive advantage. Ignoring services provides an incomplete and potentially skewed view of America’s true commercial alliances.
Furthermore, reducing international commerce to just trade, whether goods or services, misses another crucial dimension: investment. Investment represents a deeper and more enduring form of commercial connection. American companies, mirroring a global trend, often prefer establishing a local presence in foreign markets to better serve their customer base, rather than simply exporting goods or services across borders. This strategy has been in play for over a century, and it’s been adopted by firms from numerous nations. Consequently, for many countries, the United States’ investment relationships are now considerably more substantial and impactful than its straightforward trade relationships.
Beyond goods, services, and investment, other critical flows shape international commerce. Cross-border data flows, for instance, are not only a significant contributor to global economic growth, but they also underpin and facilitate virtually every other type of international exchange. The United States stands as a global leader in international trade delivered through these digital channels. Similarly, international flows of research and development, and the movement of skilled talent, have become indispensable for knowledge-based economies like the US. Many modern businesses now invest as heavily in intangible assets related to knowledge dissemination as they do in traditional physical capital like machinery and buildings.
Considering this wider spectrum of commercial flows – goods, services, investment, data, and knowledge – provides a much clearer and more accurate understanding of global economic partnerships. It allows us to move beyond simplistic trade balances and identify the nations with whom the United States has the most profound and multifaceted commercial relationships. This broader perspective is crucial for informed decision-making in both the public and private sectors.
Daniel S. Hamilton
When we examine specific commercial relationships through this comprehensive lens, some surprising insights emerge. Take, for example, the commercial ties between the United States and China. Often perceived as the US’s primary trading partner, the relationship is more accurately described as a heavily trafficked two-lane highway primarily focused on goods. While this goods highway is undeniably busy, any disruption, such as the COVID-19 pandemic’s supply chain shocks or the US-China tariff disputes, can severely impede the flow of commerce. Furthermore, in areas beyond goods, the commercial infrastructure between the two nations is considerably less developed. Services operate on narrow bike lanes, while data and knowledge flows resemble pedestrian walkways – restricted and slow. Investment, once a promising avenue, has become increasingly potholed due to growing regulatory hurdles from both Beijing and Washington. Recent data reveals a significant downturn in foreign investment in China, and a considerable outflow of international capital. Chinese foreign direct investment in the United States also remains modest.
In response to these tensions and supply chain vulnerabilities, businesses are actively diversifying their sourcing, sales, and investment strategies. Mexico has emerged as a notable beneficiary of this shift. Recent reports highlighting Mexico surpassing China as the top goods trading partner of the United States have gained traction. However, these reports often focus solely on goods trade. When services are factored in, Mexico has actually been the United States’ leading trade partner for some time. The combined trade in goods and services between the US and Mexico has already exceeded that between the US and China in recent years.
Despite the significance of trade relationships with both China and Mexico, neither nation holds the title of the United States’ most comprehensive commercial partner among foreign countries. That distinction belongs to the United Kingdom. While the goods trade lanes between the US and the UK are smaller compared to those with China or Mexico, the services trade tells a different story. US-UK services trade surpasses the combined services trade of the US with China and Mexico.
However, the true depth of the US-UK commercial partnership is revealed when we consider investment. The total US-UK investment stock dwarfs that of US-China and US-Mexico combined, exceeding them by a factor of ten. US foreign direct investment in the UK alone surpasses the total US FDI in the entire Asia-Pacific region. The sales generated by American and British affiliates within each other’s markets are substantial, exceeding the combined sales of US affiliates in all of Latin America and Latin American affiliates in the United States. This robust investment relationship also translates into job creation, with UK companies being the largest source of onshored jobs in the US, and vice versa.
A hand grips a wooden cube printed with the scales of justice
Expanding our perspective further, arguably the most significant commercial partner for the United States isn’t a single country, but the European Union (EU). Comprising 27 member states, the EU operates as a unified commercial entity in many respects. EU member states have ceded trade policy authority to the European Commission, which acts as a single negotiator and representative for the entire bloc. The EU’s Single Market further facilitates seamless commerce within its borders, minimizing trade barriers.
The commercial artery connecting the EU and the United States is less like a two-way street and more akin to a vast, multi-lane Autobahn. Compared to the US’s commercial routes with China, the US-EU pathway boasts fewer restrictions, wider lanes for goods, and additional lanes for services, investment, and intra-company sales. Transatlantic digital infrastructure carries a significant majority of global digital content. Innovation and R&D flows are most intense between these two partners. Critically, the US-EU commercial relationship sustains millions of jobs on both sides of the Atlantic.
The rapid ascent of China as a global manufacturing powerhouse might lead to the assumption that China is the US’s, and even the EU’s, primary trading partner. However, data contradicts this notion. US-EU goods trade volume surpasses both US-China and EU-China goods trade. The disparity is even more pronounced in services trade, where US-EU services trade significantly outstrips trade with China.
Combining goods and services, US-EU trade volume remains substantially larger than both EU-China and US-China trade. Even when considering individual nations within the EU, such as Germany, which often cites China as its top trading partner, the US-Germany commercial relationship, encompassing both goods and services, is actually larger. Furthermore, while trade with China has shown signs of weakening, US-EU trade has strengthened.
The divergence becomes even more striking when we examine investment. US investment stock in the EU is exponentially larger than US investment in China. Similarly, EU investment in the United States dwarfs investment from all of Asia combined.
Comparisons with the USMCA region (United States-Mexico-Canada Agreement) are also revealing. While US trade with USMCA partners is significant, mutual investments between the US and EU, and the associated jobs and sales, far exceed those within North America. US-EU foreign affiliate sales are triple those of USMCA, and the combined US-EU investment stock is four times greater than that of USMCA.
Photo of an American flag and stock market chart representing the economy and patriotism.
In conclusion, a comprehensive analysis of the full spectrum of US commercial relationships reveals that the European Union and, to a lesser extent, the United Kingdom, are the United States’ most significant commercial partners. This conclusion holds true when considering not just goods trade, but also services, investment, data flows, and knowledge exchange. While dependencies on China and other nations exist in specific sectors, particularly for critical raw materials, the deep and multifaceted commercial linkages with the EU and UK provide a robust geo-economic and geostrategic foundation. Strengthening these transatlantic partnerships is crucial for addressing emerging economic and geopolitical challenges and harnessing the combined potential of these key alliances in the years to come.
