The Emergence of Mexico as a Top Trading Partner

The landscape of international trade has been reshaped with Mexico surpassing China to become the leading U.S. trading partner in 2023. The first four months of 2023 witnessed a bilateral trade volume of $263 billion between the two countries. The emergence of Mexico as a top trading partner is linked to its increasing prowess in manufacturing, which forms a substantial portion of the goods traded between the two countries.

U.S.-Mexico Trade Statistics

During the initial four months of 2023, the total trade of manufactured goods between Mexico and the U.S. amounted to $234.2 billion. Mexican imports to the U.S. reached $157 billion, while U.S. exports to Mexico stood at $107 billion. This trade represented 15.4% of all goods exported and imported by the U.S. during this period.

The Decline of China as a Top Trading Partner

China’s position as the leading trading partner of the U.S. began to falter due to tense relations and the subsequent imposition of tariffs on Chinese goods by the U.S. in 2018. This transition was further accelerated by disruptions in supply chains during the pandemic era. Trade with China started to decline following the implementation of restrictive tariffs on Chinese imports by the Trump administration in 2018. This decline was further compounded by the global disruption of supply chains induced by the pandemic.

U.S.-China Trade Statistics

Approximately $335 billion worth of trade, equivalent to 66.4% of China’s exports to the U.S., remains subject to the tariffs. The average U.S. tariff on Chinese imports is 19.3%, while China’s average tariff on U.S. imports is 21.2%, according to WTO data. This tariff rate exceeds the general 9% tariff among WTO members who enjoy the most-favored-nation status.

The Role of the Automotive Industry

The automotive industry is at the forefront of the U.S.-Mexico manufacturing relationship. A significant portion of the manufacturing trade activity between the U.S. and Mexico is attributed to the auto industry, accounting for nearly a quarter of the total manufacturing trade. The industry operates on a model where an intermediate good produced in a U.S. plant is exported to Mexico for assembly before the final good is imported back into the U.S.

Foreign-Owned Assembly Plants in Mexico

The trade linkages are bolstered by the presence of foreign-owned assembly plants, also known as “maquiladoras”, in Mexico. These plants, which are labor-intensive and designed for exports, have increasingly become the backbone of the U.S.-Mexico trade relationship. Over the past two decades, transportation has accounted for about 24.5% of total bilateral manufacturing trade, followed by computer and electronic equipment (22.4%), electrical equipment, appliances and components (8.5%), and machinery excluding electrical (7.7%).

The Impact on U.S. Producers and Consumers

While Mexico benefits from increased trade with the U.S., the impact on U.S. producers and consumers has been mixed. The ascension of Mexico in the trade rankings, largely due to frictions with China, has increased the cost burden on U.S. firms and consumers through higher input and purchase prices. This shift from prioritizing low prices and greater efficiency to more nuanced factors has significant implications for the global economy.

The Evolving Focus of Trade Policy

The principal focus of trade policy is no longer solely about free trade, greater efficiency, and lower prices. Today’s global economic relationships encompass a myriad of concerns, including national security, climate policy, and supply-chain resiliency. This shift in focus reflects the changing dynamics of the global economy and the need to adapt to new realities.

The Biden Administration’s Stance

Under the Biden administration, efforts are underway to improve U.S.-China relations. Notably, Treasury Secretary Janet Yellen met with China’s premier, Li Qiang, indicating a potential thaw in relations. More visits from U.S. officials are expected over the summer, suggesting a possible realignment of U.S.-China trade dynamics.

From NAFTA to USMCA

The North American Free Trade Agreement (NAFTA), which was renegotiated as the United States-Mexico-Canada Agreement (USMCA) in 2020, has played a pivotal role in shaping U.S.-Mexico trade relations. This agreement has facilitated trade with far fewer barriers, contributing to the close economic ties between the U.S. and Mexico.

Conclusion: The Future of U.S. Trade Relations

As the U.S. navigates the complex landscape of global trade, the shifts in its trading relationships with Mexico, China, and Canada will continue to have significant implications for its economy. While these shifts present challenges, they also open up new opportunities for growth and cooperation. The future of U.S. trade relations will be shaped by how it navigates these changing dynamics and adapts to the evolving global economic landscape.