This article is written by Porfirio Waters
The economic relationship between the United States and Mexico is a robust and mutually beneficial partnership, influenced by trade balance, foreign direct investment, migration, and remittances. In 2022, the total trade in goods and services between the two countries reached $855.1 billion, with the U.S. exporting $362.0 billion to Mexico and imports from Mexico totaling $493.1 billion. Mexico is the leading trading partner, accounting for 72% of its total exports and 38% of its total imports. The trade relationship has been growing, with U.S. goods imports from Mexico increasing by 18.9% from 2021 to 2022.
The United States-Mexico-Canada Agreement (USMCA) supports this strong trade relationship, enhancing economic cooperation among the three countries. The U.S. is a major source of Foreign Direct Investment (FDI), investing in sectors such as manufacturing, services, and energy, which drive economic growth, create jobs, and advance technology in Mexico. Migration is another significant aspect of the relationship, with many Mexicans migrating to the U.S. for better opportunities. Remittances from the U.S. to Mexico amount to approximately $16.639 billion in the second quarter of 2024.
Between April and June 2024, Mexico experienced the largest outflow of portfolio investment since the end of 2021, with the Bank of Mexico reporting a withdrawal of $8.233 billion in portfolio investment. Global economic activity expanded at a slower pace, with the exchange rate exceeding 20 pesos per dollar on international markets for the first time since 2022.
Here are some of the main contributors to the trade relationship between the United States and Mexico:
U.S. Exports to Mexico:
- Machinery and Mechanical Appliances: This sector accounted for 29.9% of U.S. exports to Mexico in 2021.
- Oils, Minerals, Lime, and Cement: These commodities made up 16.0% of U.S. exports to Mexico.
- Chemicals, Plastics, Rubber, and Leather Goods: This sector contributed 15.9% to U.S. exports.
- Refined Petroleum: In 2022, the U.S. exported $39.4 billion worth of refined petroleum to Mexico.
- Motor Vehicles and Parts: This sector contributed $16.5 billion to U.S. exports.
- Petroleum Gas: The U.S. exported $15.6 billion worth of petroleum gas to Mexico.
U.S. Imports from Mexico:
- Metallic Products, Machinery, and Equipment: These items made up 59% of Mexico’s total exports to the U.S.
- Oil Products: This sector accounted for 12% of Mexico’s exports to the U.S.
- Agricultural Goods: These products contributed 3% to Mexico’s exports to the U.S
However, after the victory of Claudia Shienbaum of the Monera Party, her mentor, President Andrés Manuel López Obrador (AMLO) and allies are likely to secure a two-thirds majority in Congress, providing him the power to unilaterally amend Mexico’s constitution.
Before leaving office on October 1, AMLO’s super-majority plans to implement 18 constitutional reforms that would weaken Mexico’s economic regulatory framework, degrade its investment climate, dismantle checks and balances, and undermine the country’s ability to meet international commitments, including the US-Mexico-Canada Agreement (USMCA). If approved, these legal changes could significantly challenge North America’s long-term competitiveness and nearshoring potential, jeopardize billions in US and Canadian investments in Mexico, and complicate the 2026 review of USMCA.
Mexico’s Supreme Court has ruled some of AMLO’s actions unconstitutional, like trying to limit private investment in the energy sector and putting civilian security forces under military control. If the judicial reform is approved, it would gradually replace all Supreme Court justices and federal judges with ones chosen through popular elections, without clear professional qualifications. This reform would weaken the judiciary’s independence, making it more vulnerable to political influence and donor interests.
AMLO’s actions, including proposed constitutional reforms, could significantly impact the US-Mexico-Canada Agreement (USMCA) and nearshoring efforts. These reforms might weaken Mexico’s economic regulatory framework, degrade its investment climate, and disrupt regional economic integration. This could jeopardize billions of dollars in US and Canadian investments in Mexico and complicate the 2026 review of the USMCA. Additionally, the reforms could create uncertainties and risks for businesses looking to relocate their operations to Mexico, challenging North America’s long-term competitiveness and nearshoring potential.
To address the impact of AMLO’s actions on the USMCA and nearshoring, the US and Canada can engage in diplomatic discussions with Mexico, encourage legal and institutional reforms for transparency and stability, strengthen regional cooperation, support private sector initiatives, monitor compliance with USMCA provisions, and diversify supply chains to reduce risks. These steps can help maintain the effectiveness of the USMCA and ensure nearshoring opportunities continue to thrive in a stable environment.
Strategic decision-making and collaboration are crucial for navigating these challenges and ensuring growth and success in the globalized supply chain. With careful management and informed policy decisions, there are opportunities for growth and success in the complex landscape of global manufacturing as a whole. Here at TradeFlex, we can guide and help overcome the possible issues that may arise in the future and provide a long lasting partnership that will help overcome any obstacle. With our El Paso and McAllen, Texas locations, we deliver the best dedicated and reliant teams no matter your location. We are always ready to share a helping hand. Visit us at https://trade-flex.com/ for more details.
