It’s impossible to defy gravity. It’s what ensures our planets and the Moon stay in orbit. And the closer you are to an object, the stronger its gravitational pull.
The same goes for countries. The trade between two countries is proportional to their respective sizes, which is determined by their GDPs. It’s most likely to occur with the largest, closest trading partner with the most similar consumer preferences and at a similar stage of economic development.
This is known as the gravity theory of trade, which is based on Newton’s law of universal gravitation. Newton proposed the gravitational pull of objects is directly proportional to the mass of objects and inversely proportional to the distance between them.
The gravity theory of trade enables researchers to estimate the impact of trade-related policies, which is why it’s often mentioned in trade war analyses. It’s been mentioned frequently given the spate of tariffs imposed by the U.S. on its trading partners in March 2025, and the retaliatory tariffs subsequently announced by Canada and China.
Given that in 2023, the U.S.’ GDP was approximately US$27.7 trillion and China’s was US$17.8 trillion, the trade partnership between the two countries is a clear example of the gravity theory of trade. In this situation, the U.S. opts to trade with a large economy even though it has smaller economies nearby that it could trade with, such as Greenland or Portugal. U.S. total goods trade with China were an estimated $582.4 billion in 2024, according to the Office of the United States Trade Representative.
The Canada-U.S. trade partnership is another example of the gravity theory of trade. Although Canada had a smaller GDP than that of the U.S. — $2.1 trillion in 2023 – its economy was big enough to make it attractive as a trade partner. It also helps that the two countries share a border, keeping trade costs low, and that both have similar levels of education and consumer spending habits. The U.S. total goods trade with Canada were an estimated US $762.1 billion in 2024.
The gravity theory of trade can also be used to determine how political decisions can impact trade flows. According to a 2024 research briefing from the UK House of Commons, Brexit—the UK’s exit from the European Union (EU) — severely affected its trade, as the gravity model was disrupted. While in the EU, trade between the UK and other member countries was free. Post-Brexit, goods traded between the UK and the EU are now subject to customs checks and value-added tax. As a result, in 2023 there was a drop in goods exports to the EU – 11 per cent below their 2019 levels.
