Benefits of being neighbors

Benefits of being neighbors

Mexico is winning big time in its trade balance with the US.

This week, Mexico reported a record-high trade surplus of $1.8 billion for December. The key reason: a 9% increase (link in Spanish) in its exports to the US.

Some analysts are attributing the rise in exports to growing confidence (paywall) that the long-awaited US-Mexico-Canada Agreement, a replacement for the existing NAFTA deal, won’t derail commercial ties between the two countries.

 

Mexico’s growing exports

Donald Trump has repeatedly equated the US’s trade deficit with his country “losing” at trade, and the goal of his policy is to reduce it. In 2017, he called for a renegotiation of the North American Free Trade Agreement to fix what he saw as the US’s lopsided trade relationship with Mexico. In order to achieve that, the Trump administration negotiated policies to push manufacturers to produce more goods in the US, instead of importing them from NAFTA partners or other countries. The revamped deal still has to be approved by lawmakers in the three countries.

In another effort to reduce the deficit, Trump imposed tariffs on Mexican steel and aluminum last year. Yet since he took office, Mexican exports to the US have actually grown.

In October, the latest month for which data is available, the US’s overall trade deficit reached a 10-year high. That was in part due to another Trump effort to reduce the deficit: his trade war with China.

 

Trade balance scorecard

In Trumpian terms, the latest trade statistics show Mexico is winning and the US is losing. But economists and experts say bilateral trade balances make for a bad scorecard.

Trade is not a zero-sum game. When Mexican companies sell their products in the US, Americans benefit as well. American factories can reduce production costs by importing raw materials and components from Mexico, which translate into lower prices for consumers.

Around 40% of US imports from Mexico are intermediate goods—those that American workers turn into final products, according to research published by the Petersen Institute for International Economics. Mexican factories also buy such goods from their American counterparts, meaning that some of the components in the goods it exports to the US are originally produced by American workers.

2019-02-01T01:24:54+00:00

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