Last month, the Federal Reserve Bank of Dallas reported that Mexico has officially replaced China as America’s top trade partner. From January to April 2023, trade between the U.S. and Mexico reached $263 billion, surpassing that of both China and Canada.
It should be no surprise that China was the top trade partner for the U.S. during the majority of the 2010s. China’s previous reign as the top U.S. trade partner began in 2014, but the country’s increase in trade started shortly after it joined the World Trade Organization (WTO) in 2001. Then, within 10 years of its admission, “critics increasingly accused China of flooding the world with cheap exports while limiting foreign access to its market.”
There seemed to be no way to surmount China from its top spot until its dramatic decline in 2018, immediately after “the Trump administration imposed new tariffs on imports from China, whose government responded with a similar action on imports from the U.S. China subsequently lost its position as top trading partner later that year.”
China began to rise again in the early 2020s leading into the pandemic until supply chain issues took hold. However, the global economy is also rapidly changing and being drastically influenced by recent sociopolitical issues unfolding all over the world. America’s relations with China have been fractured as of late, and that continues to hinder business and imports between the two countries.
Meanwhile, Mexico has upped the ante. Its “expanding manufacturing base has offered an alternative to producing in China,” giving them an edge in the exchange with the U.S. Approximately $157 billion worth of Mexican goods were imported into the United States between January and April, while America’s exports to Mexico totaled roughly $107 billion.
According to the Federal Reserve Bank of Dallas, “sourcing or producing goods in a nearby country is sometimes referred to as ‘nearshoring,’” and it offers many benefits. Sourcing manufactured goods from Mexico helps prevent supply chain issues and utilizes far fewer resources than having goods shipped from overseas.
Although still anecdotal, “more activity in Mexico would support increased bilateral manufacturing with the U.S.,” and “increased protectionism and related industrial policy are consistent with less global trade, more regional trade, and nearshoring and reshoring (returning production to the home country).”
One key example of this is how the automotive industry promotes cross-border manufacturing between Mexico and the U.S. This occurs when “a U.S. plant typically produces an intermediate good that is then exported to Mexico where it becomes part of the assembly process before a final good is then imported back into the U.S.”
Business Insider adds “that the average import from Mexico is ‘40% U.S made,’ meaning that 40% of the parts that go into the end product are still produced in the U.S. The average Canadian import, meanwhile, is 25% made in the U.S. ‘As for a product coming in from China? Just 4% of it was made in the USA,’” according to author Shannon O’Neil’s book, “The Globalization Myth: Why Regions Matter.”