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Despite animosity, Mexico in top spot as U.S. trade partner

by MARY BETH SHERIDAN THE WASHINGTON POST | April 26, 2019 at 1:47 a.m.

MEXICO CITY -- President Donald Trump has threatened to rip up the North American Free Trade Agreement, to shut the border with Mexico, to impose tariffs on the thriving car industry in Mexico.

"They're killing us on jobs and trade," he said as a candidate.

And yet, two years into his presidency, a strange thing has happened.

Mexico has become the No. 1 U.S. trading partner.

U.S. census data released last week showed that Mexico's trade with the United States rose to $97.4 billion for the first two months of the year -- enabling it to leapfrog ahead of Canada ($92.4 billion) and China ($90.4 billion).

Of course, there's no guarantee Mexico will hold on to the No. 1 spot. Economists note that a major reason Mexico looked so good was that U.S. trade with China fell by more than 10% in January and February compared with the same period in 2018. That was because of trade disputes and seasonal factors.

Still, the numbers show that Mexico is an increasingly vital economic partner of the United States, despite Trump's frequent disparagement of the country.

"The fact that this surprises a lot of people is a reflection of the ignorance in the United States about this theme," said Luis de la Calle, a former undersecretary of the economy in Mexico. "Mexico is a very important market for the United States, and it's going to become the biggest market for the United States in the world."

It's not quite there yet. For the first two months of the year, Mexico was the second-biggest export market for the United States. Mexico's $42.1 billion trailed Canada's $45.8 billion. Exports to America's southern neighbor were flat compared with the same period in 2018.

But U.S. imports from Mexico were up around $3 billion in January and February. Trump has expressed concern about the growing trade deficit with Mexico.

Much of the U.S.-Mexico commerce involves multinational companies that send products back and forth across the border as part of a giant, integrated manufacturing process that has flourished since NAFTA took effect in 1994.

"For the rest of the world, the U.S. is a market -- that's true for China, Korea, et cetera," De la Calle said. "With Mexico and Canada and the United States, we trade in order to produce things together."

Is Mexico likely to remain the No. 1 U.S. trading partner? Economists say it will continue to fight it out with China.

William Reinsch, a trade expert at the Center for Strategic and International Studies, says Chinese shipments to the United States rose and then dropped sharply in recent months because companies there front-loaded exports before American tariffs took effect.

In addition, he said, China's production typically slows in February because of the Lunar New Year holiday.

"I think you'll see imports from China ticking back up as the year wears on, unless Trump does something new," he said.

But Mexico will probably remain a top trading partner. The three members of NAFTA have hammered out an updated version of the deal after months of uncertainty and complaints from Trump that the original pact hurt American workers.

The new accord, known as the U.S.-Mexico-Canada Agreement -- still must be ratified by both countries' legislatures before it can take effect.

"The outlook for Mexico-U.S. trade relations is about as good as it's been in the last 18 months or so," said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. "That's probably giving companies some confidence."

Not that it's all smooth sailing between Mexico and the United States. The Trump administration imposed hefty tariffs on steel and aluminum imports from Mexico, Canada and the European Union a year ago. Those countries have retaliated with their own import taxes on American products.

At the same time, though, Mexico appears to have benefited from the wide array of tariffs the Trump administration has imposed on Chinese goods, as Mexican companies have stepped in to provide those goods to the United States.

The Mexican and U.S. economies will likely become even more integrated, analysts say, with American companies continuing to take advantage of cheaper Mexican wages and the country's proximity.

"The trend you're observing is a culmination of something happening for a number of years," Reinsch said.

Mexican officials have celebrated the new economic data, which was released just weeks after Trump threatened to shut the U.S.-Mexico border in retaliation for what he says is Mexico's failure to stop a rising flow of migrants through the country.

He ultimately backed off, but warned he would impose tariffs on Mexican auto exports if the situation didn't improve over the next year.

"Trade in the first two months of the year grew 3.4% -- against all predictions," Foreign Minister Marcelo Ebrard said Tuesday.

Business on 04/26/2019

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