Mexico Trade with US: A Comprehensive Analysis

A Comprehensive Analysis of Mexico Trade With US

Mexico and
the US enjoy a longstanding relationship, historically as well as in trade. The
Mexico trade with US is strong, and
Mexico is one of the United States most valued partners. Both countries share a
long border with products moving across the frontier every day, making this the
busiest border in the world.

1.
Historical Overview of Mexico-US Trade Relations.

With a
tumultuous history such as the Texas Revolution (1835-1836) and the
Mexican-American War (1846-1848), both countries have signed several treaties,
such as the Gadsden Purchase, for example, and ultimately in 1992 (with the US
and Canada) the North American Free Trade Agreement (NAFTA).

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Beginnings
of Mexico Trade with US

Mexican
president Porfirio Diaz (1876-1911) opened his country to foreign investment.
Consequently, many American businessmen invested in Mexican agriculture, mines,
and ranches.

In the
1960s, Mexico saw a dramatic surge of the “maquiladoras” (assembly plants)
which by the early 90s provided jobs for half a million people. These plants
use raw materials from the US to assemble products for the US market.

In 1986,
Mexico started taking steps to reduce trade barriers. Mexican president Carlos
Salinas de Rotari (who was elected in 1988) further paved the way for the North
American Free Trade Agreement.

2. Economic
Impact of Mexico-US Trade Partnership.

Not only
did the NAFTA agreement open the door for Mexico trade with US, but it also expanded diplomatic cooperation.
Although there are many critics of the NAFTA deal, according to experts it has boosted
the economy considerably.

Texas – Mexico’s No. 1 Trade Partner

In 2022,
Mexico trade with US amounted to $779.3 billion, making Mexico the second largest
trading partner, after Canada.

Texas does
the most trade with Mexico, it exceeds the United States’ total trade with both
Germany and Spain. Furthermore, the US exports more goods to Mexico than to
South and Central America.

More
importantly, research by the Mexico Institute reveals that nearly 5 million
employments depend on Mexico trade
with US. If, for some reason, this activity were stopped or severely
decreased, between 4 and 4.9 million people could lose their jobs.

3. Key
Industries and Products in Mexico-US Trade

The
automotive industry is one of the most noteworthy contributors to Mexico’s trade with US. Most of
these exports are cars, light trucks, and auto parts.

In general,
top exports from Mexico to the US are computers, machinery, steel,
electrical equipment, chemicals, food products, and approximately 4/5 of
Mexico’s petroleum.

US exports
to Mexico include agricultural products, electronics, minerals, plastic,
rubber, fuels, vehicles, and machinery.

Additionally,
numerous companies from Europe and Asia have invested in assembly plants in
Mexico, due to the affordable labor costs and a highly educated workforce.
Naturally, Mexico’s strategic location and its access to sea, land, and air transport
is also a huge advantage.

Several US
manufacturers have built factories in Mexico, and foreign investment is still
on the rise.

4. NAFTA
and its Influence on Mexico-US Trade.

The growth of foreign companies on Mexican soil is mainly due to the NAFTA agreement. As
stated before, the US trades more with Mexico than with any other country.

Most
importantly, the North American Free Trade Agreement (NAFTA) offers special
access to a major part of Mexico’s exports to the US and Canada. Due to this
and the previously mentioned factors, Mexico has become one of the most
attractive emerging markets worldwide and remains a loyal and vital partner to
the neighboring US.

Key
Positive Effects of NAFTA:

• Increased
  trade – with reduced and eliminated tariffs, the trade between Mexico, the US, and
  also Canada has tripled.
• Better
  consumer prices – also thanks to the elimination/decrease of trade tariffs
• Foreign investment – FDI has tripled and
  continues to surge.
• Created
  jobs – NAFTA and trade led to the creation of millions of jobs.
• Helped
  government spending – government contracts became available to suppliers in
  Mexico, the US, and Canada, which lowered costs and increased competition.

Negative
Effects of NAFTA:

• Job losses –
  although the NAFTA deal created millions of work opportunities, in some US
  industries around 680,000 jobs were lost, more notably in the manufacturing,
  automotive, textile, electrical appliance, and computer industries.
• Lower wages
  – the “maquiladoras” (assembly plants) pay very little.
• Environmental
  damage – to save costs, US companies that invested in Mexico use more
  fertilizers and chemicals which has consequences on the environment.
• Farmers out
  of business – this affected many Mexican farmers who couldn’t compete with the
  subsidized prices.

Although the cons are significant and should be addressed, from a purely
economic perspective, NAFTA could be called a success. Economists believe that
free trade agreements are necessary.

5. Future
Prospects and Challenges for Mexico-US Trade.

Mexico trade with US is expected to
remain steady. Cross-border freight flow should continue to be constant and
could increase.

Nearshoring
(the relocation of business operations to another country – or region) is
predicted to become the next economic boom for Mexico.

All in all, prospects look excellent, but the NAFTA deal may also present a challenge to companies that are looking at exports to Mexico. 

Due to the free trade agreements, consumers have a wide array of products and brands available. Mexican consumers can buy goods from not only North America but also from Europe and Asia. This can lead to fierce competition. Nonetheless, it shouldn’t stop any international business from entering this market. There is ample opportunity to overcome this particular challenge.

In
conclusion, Mexico trade with US
has brought many advantages to both nations. Foreign investment is on the rise,
consumer prices have become more compatible, and the relationship between these
neighboring countries remains strong.

Consumers
are also becoming increasingly aware of the origins of the products they buy,
which in turn pushes companies to make production more environmentally
friendly. Several notable businesses have already taken the ecological route.
Hopefully, many others will follow suit.

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