Analysis of Intra- and Inter-Industry Trade Flows of U.S. State – Canadian Province Pairs: Implications for the Cost of Border Delay

Intra-industry trade (IIT) occurs when trading partners import and export similar products. A high volume of IIT of horizontally differentiated goods implies a deep level of regional integration, stable regional trading patterns, and potentially significant consequences from border delay. In this paper, trade between Washington State and British Columbia, Canada (the Cascade gateway), is compared with trade between Michigan State and Ontario, Canada (the Great Lakes gateway). The Grubel–Lloyd index, which measures IIT, is used to analyze trade in these two corridors. Higher levels of IIT and regional integration within the Great Lakes gateway are shown. The paper argues that cross-border supply chains most exposed to higher cost from increasing border delays are composed of horizontally differentiated manufactured goods having high levels of IIT and relying heavily on truck transportation. These types of goods are more common in the Great Lakes gateway, and this region may therefore experience greater economic impacts from long and unpredictable delays than the Cascade gateway.

The value of trade between the United States and Canada is the highest of that between any two countries worldwide, and Canada is the largest foreign trading partner for 37 of the 50 U.S. states (1, 2). The border between the countries is 5,525 mi, making it the longest common border in the world, with 12 U.S. states bordering seven Canadian provinces (3). The commodities traded in different parts of this border are varied, and so is the nature of that trade. Most of this trade—almost 63% of the total value and 35% of the weight— is moved by trucks, which are often subject to long and unpredictable delays at the border crossings (4). This paper uses the Grubel–Lloyd (GL) index, a measure of intra-industry trade (IIT), to describe the nature of the trade along the U.S.–Canada border and its relation to trade corridors. It is argued that increasing delay for roadway vehicles crossing the borders has different impacts on intra-industry versus interindustry trade and that knowledge of these impacts should be considered in evaluating potential policy solutions to addressing border congestion.