In the first four months of this year, Mexico has once again solidified its position as America’s top trading partner, facilitating a staggering $263 billion worth of goods exchanged between the two nations. This robust trade with Mexico accounted for 15.4% of goods exported and imported by the US, surpassing trade totals with Canada and China, which stood at 15.2% and 12%, respectively.
Remarkably, even as the world emerges from the peak of the pandemic, Mexico’s ability to claim the top spot from China, a country that has deeply integrated itself into the US economy over the past two decades, underscores how the economic disruptions of 2020 will continue to shape the global economy for years to come.
Luis Torres, a senior business economist at the Federal Reserve Bank of Dallas, points out that the groundwork for this shift was laid before the pandemic. Initiatives such as former President Donald Trump’s tariffs on select Chinese goods and the signing of the US-Canada-Mexico trade deal, an updated version of the long-standing NAFTA agreement, have contributed to this transformation. Additionally, the shift toward “nearshoring” is gaining momentum, with countries now bringing supply chains for essential goods closer to home, in countries that are both geographically and politically close.
This shift in trade dynamics highlights how the global economic landscape is rapidly evolving, driven by both pre-existing factors and the experiences of the pandemic. As countries reevaluate their trade relationships and supply chain strategies, the implications of these changes will reverberate throughout the world economy in the years to come.
According to Luis Torres, a senior business economist at the Federal Reserve Bank of Dallas, while concrete data on recent nearshoring is scarce and mostly based on anecdotal evidence, the rise in protectionist measures and related industrial policies align with a trend of reduced global trade, increased regional trade, and nearshoring and reshoring of production back to the home country.
During the pandemic, nearshoring witnessed a surge due to rising shipping costs across the Pacific and the growing consumer demand for faster delivery times, often referred to as “The Amazon Prime Effect.” The intensifying political tensions between the US and China also motivated companies like Walmart to explore regional options to meet their needs, as reported by Peter S. Goodman in The New York Times earlier this year.
However, experts like Michael Burns, managing partner at Murray Hill Group, an investment firm focused on the supply chain, emphasize that this shift isn’t about deglobalization but rather represents the next phase of globalization, with a focus on building strong regional networks.
In her new book, titled “The Globalization Myth: Why Regions Matter,” Shannon O’Neil advocates for regionalization instead of globalization, highlighting that keeping production closer to home would be beneficial for American workers. NPR’s Greg Rosalsky summarized O’Neil’s argument, pointing out that the average import from Mexico consists of “40% US made” components, implying that 40% of the parts used in the final product are still produced in the US. Similarly, Canadian imports have 25% US-made components. In stark contrast, only 4% of products coming in from China are made in the USA, as per O’Neil’s analysis.
Despite recent fractures in the relationship between the US and China, President Joe Biden has been making efforts to improve the ties between the two countries. Instances such as the shooting down of a Chinese spy balloon in February have added tension, prompting Biden’s administration to take action. Secretary of State Antony Blinken met with China’s leader, Xi Jinping, in June, aiming to stabilize the relationship. Additionally, Treasury Secretary Janet Yellen’s recent four-day trip to China emphasized concerns about “unfair economic practices” but also expressed hope for closer cooperation, acknowledging that both countries can thrive in the global landscape.
While the situation with China remains dynamic and complex, one aspect is clear for now: trade between Mexico and the US remains robust and is anticipated to continue growing in the foreseeable future.
Source: www.businessinsider.com / Cork Gaines