Mexico Replaces China as the US’s Top Trade Partner

Mexico has become the US’s top trade partner. Previously, this spot had been held by China but this has changed due to the US-China trade war, the pandemic and nearshoring. 

According to data presented by the Ministry of Economy, in April of 2023, Mexico's exports to the US amounted to US$36.7 billion, while imports reached US$20 billion. This results in a trade balance of US$16.6 billion. In 2018, before the COVID-19 pandemic and the nearshoring phenomenon, Mexico was third place in the trade partner with the US. 

The pandemic introduced numerous difficulties in importing and exporting products from Asia, leading countries like the US to move their manufacturing and production closer to home. Mexico’s location and close relationship with the US made it an attractive destination for investment. 

The US, Canada and Mexico benefit from trade agreements like the USMCA, which have allowed for the construction of complementary manufacturing capabilities. “[Given] that the US, Mexico and Canada operate within a vast trade area, their supply chains are often intertwined. Each contributes parts and raw materials used in the finished goods by the other. For example, cars assembled in Mexico rely heavily on parts produced in factories in the US,” reads an article by the New York Times.

Trade between Mexico and its closest northern neighbor has strengthened in recent years. During 1H23, Mexico received an unprecedented amount of FDI, US$29 billion, of which 43% was from the US. Last year, Mexico saw a total of US$15.02 billion in FDI distributed across reinvested earnings, new investments and intercompany accounts. 

The increase in FDI can be linked to a growing manufacturing sector, which is an important part of the trade relationship between the US and Mexico. “During the first four months of 2023, total trade of manufactured goods between Mexico and the US reached US$234.2 billion,” reports the Federal Reserve Bank of Dallas. China and Canada, on the other hand, registered a decrease in trade with the US of 2.4% and 3.2%, respectively. 

This change can also be attributed to the trade war between the US with China. Chinese imports worth about US$250 billion are still subject to US tariffs. The average tariffs in the US for Chinese goods are 25%.