For the first time, China has edged out Canada by becoming the top exporter of goods to the United States.

According to international trade data released this week, goods sold to the U.S. from Canada during July dropped by $4 billion US from the month before. That's enough to make China the world's number one seller of goods to the U.S.

"This is perhaps the wake-up call that people need," Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, told The Globe and Mail. "We have to take it very seriously and be prepared to compete."

In July, Canada sold goods worth $20.6 billion US south of the border, down from $24 billion US in June. China, meanwhile, drew $21.3 billion US for its exports to the United States, up from $21 billion US a month earlier.

"We can't be taking U.S. markets for granted. There's very stiff competition," Hughes Anthony added.

China has been gearing up for the coveted top spot for a couple of years, with trade values growing in large jumps.

Last year, China replaced Mexico by jumping into the second spot for selling goods to the United States.
Canada, meanwhile, has seen its exports to the United States grow at a more even pace.

"It was bound to happen," Stephen Poloz, chief economist at Export Development Canada, told The Globe.

"U.S. trade with China has been growing faster than trade with anybody."

But there are some caveats about the trade data.

Canada still maintains its historical spot in first place as far as cumulative sales to date for the year, with exports totalling $158.7 billion US so far.

China's exports to the United States amount to $130.5 billion US for the year to date.

In addition, Canada's sales to the United States are typically low during the summer, when most of the automotive industry shuts down for vacation, while China's summer numbers are high.

The U.S. Commerce Department does not adjust the country-by-country statistics for seasonal variations.

And although Canada has ceded the top position to China for now, it still maintains the top spot for two-way trade.

Total trade between Canada and the United States in July was worth $39.2 billion US.

Total trade between China and the United States in the same month was valued at $24.9 billion US.

Experts have long been warning that Canada's lead position was in jeopardy.

China's exports to the United States in 2005 are well on track to far surpass those of previous years.

And the strong Canadian dollar has not helped Canada's trade volumes to the United States.

But there's much more to it than that, Poloz told The Globe.

China's trade with the United States has changed dramatically in the past few years, with U.S.-based multinationals setting up shop in China to take advantage of low labour costs.

Many of China's exports to the United States consist of goods that American firms import for their own internal use, Poloz noted.

"It's a global production model that works well for them," he said. "The U.S. companies are leaders in this."

However the consequences are a large U.S. trade deficit with China and increasing friction between the United States and China about their trade and investment relationship, Poloz added.

Michael Hart, chairman of trade policy at Carleton University's school of international affairs, told The Globe that Canada should not feel threatened by China's ascent because China and Canada differ so much in the types of exports they sell to the U.S.

Most of Canada's exports to the United States are a result of cross-border industrial production, Hart said, and North American supply lines are "deeply integrated" and not about to disappear.