Economic cooperation between the US and Mexico – will Mexico replace China?

Friction over economic issues and rising geopolitical tensions between the United States and China have boosted flows of trade and investment between Washington and Mexico. The country has replaced China and Canada as America’s top trade partners. That dealt a blow to China as the Asian country has for decades cemented trade ties with the world’s biggest economy.

China imported $239.06 worth of goods to the United States in the first seven months of 2023. Mexico has once again cemented its place as America’s top trading partner, with $274.95 billion worth of goods passing between the two countries in the first seven months of this year. In July trade with Mexico accounted for 15 percent of goods exported and imported by the U.S., just ahead of America’s trade totals with China, which were 14.6 percent. Mexico has eclipsed China as a top export market. Mexico–U.S. trade during the first seven months of 2023 totaled $186.96 billion compared to $83.25 billion worth of goods shipped to China.

The benefits of relocating supply sources to Mexico matter incredibly in the fifth year of the U.S.-China trade war that is still gaining momentum. The United States has levied retaliatory tariffs of between 7 and 25 percent on $350 billion of imports from China. Moreover, the U.S. administration requires that 75 percent of a vehicle’s content be produced in North America. It takes at least three weeks to ship a container from China to the United States––while just three days from Mexico. It could help better manage production and lower labor costs. Average manufacturing wage costs are relatively low in Mexico, around $480 per month compared to $840 in China.

Mexico’s role in trade ties with the United States is poised to grow. At a July meeting of the USMCA Free Trade Commission, Mexico, the United States and Canada pledged to produce in North America 25 percent of what they currently import from Asia under a new drive to promote the integration of the region’s economy, which is poised to boost Mexico’s gross domestic products by two percentage points. According to financial analysts, over the next decade, between $60 billion and $150 billion could flow into Mexico as part of the efforts to move production closer to consumption centers. Consequently, the Chinese share in the global processing industry could be facing a period of lower growth. However, with its modest economy and a ten times smaller population than China, Mexico is not able to take over China’s role as a top supplier.

Still, in recent months, President Joe Biden has sought to improve the relationship between the U.S. and China after seeing the fracturing grow in recent years, including the shooting down of a Chinese spy balloon in February. Secretary of State Antony Blinken met with China’sleader, Xi Jinping, in June, and Treasury Secretary Janet Yellen recently made a four-day trip to China. U.S. Secretary of State Antony Blinken said they agreed to stabilize badly deteriorated U.S.-China ties. Yellen threaded her expressions of concern about issues including China’s “unfair economic practices” and believed that “the world is big enough for both of our countries to thrive.” With pieces in constant motion, especially with China, one thing is clear for now: trade between Mexico and the U.S. appears to be as strong as ever and should continue to grow.

Author:

Paweł Rudnik – graduate of the Master’s Degree in National Security at the Pomeranian University in Słupsk, specializing in International Security. President of the student branch of the Młodzi dla Polski Słupsk association. His main areas of interest are the topics of the Three Seas Initiative, Central and Eastern European security, international relations, history policy and diplomacy.

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