Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
There are three key reasons why U.S. companies should consider exporting to Mexico:
- Mexico is the 15th-largest economy in the world and has generally enjoyed low, but stable economic growth since the 1990s. Despite COVID 19-linked contraction in 2020, Mexico’s economy is expected to rebound in 2021 and achieve moderate growth driven by external demand.
- Given Mexico’s large, diversified market, most U.S. products and services have ample opportunities. The new United States–Mexico–Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) on July 1, 2020, provides additional trade-related benefits for U.S. companies.
- Close cultural, social, and economic ties make Mexico a natural market to consider for first-time exporters and those firms looking for new export markets.
Mexico is the largest Spanish-speaking country in the world. Its USD 1.1 trillion economy is the second-largest in Latin America and the country maintains deep trade and investment ties with the United States. Mexico remains an upper–middle-income member of the G-20 and OECD with a per capita GDP of USD 8,346. Still, Mexico’s 2.0 percent average annual GDP growth rate since the signing of NAFTA in 1993 has been slower than most emerging markets, due in part to its high rates of labor informality (55 percent), poverty (42 percent), and declining oil production. Additionally, the country’s economy was hit hard by the COVID-19 pandemic, lockdowns, and the accompanying economic contractions elsewhere around the world. According to the International Monetary Fund (IMF), Mexico’s real GDP growth rate for 2020 was -8.5 percent, with IMF forecasts estimating a return to 5 percent GDP growth in 2021, so long as the public health situation continues to improve.
Two-way trade in goods and services between the United States and Mexico totaled USD 582.4 billion in 2020, positioning Mexico as the third-largest overall U.S. trading partner. During this period U.S. exports to Mexico totaled USD 235 billion and imports totaled USD 347.4 billion. Even though this large volume of trade continues to directly and indirectly support millions of U.S. jobs, U.S. exports to Mexico in 2020 did fall 18.8 percent from 2019, while U.S. imports from Mexico declined by 11.6 percent. The U.S. goods and services trade deficit with Mexico in 2020 was USD 112.4 billion. Mexico is the first, second, or third largest destination for merchandise exports from 29 U.S. states. Top U.S. goods exports include electronics, vehicles, fuels, minerals, plastics, and machinery. Mexico was the third-largest destinations for U.S. agricultural exports in 2020, importing USD 18.3 billion in U.S. agricultural products, including corn, soybeans, dairy, pork, and poultry meat.
Mexico is the 19th-largest investor in the United States, having amassed a total stock of USD 42.9 billion at the end of 2019. U.S. affiliates of Mexican-owned firms, in such diverse sectors as food, communications, plastics, metals, auto components and business services, employed 85,700 U.S. workers in 2018 (the most recent year for which figures are available). Over the last 20 years U.S. and Mexican supply chains have become increasingly integrated and production sharing—with intermediate steps in the creation of a final good taking place on both sides of the border—is now commonplace.
In 2018, Andrés Manuel López Obrador won Mexico’s presidential election with the largest margin in decades. Following the June 2021 midterm elections, his National Regeneration Movement party (Movimiento de Regeneración Nacional or MORENA) and its coalition partners dropped to 56 percent of seats in the lower house (the Chamber of Deputies), down from 67 percent. MORENA’s coalition maintains control of the federal budget as the Chamber of Deputies alone approves the yearly budget with a simple majority. However, MORENA must now negotiate with the opposition to pass constitutional amendments, which require the support of two-thirds of both federal legislative houses, as well as a majority of state legislatures. MORENA holds majorities in 18 of 32 state legislatures (and holds 16 of 32 governorships). López Obrador’s six-year term ends in 2024 and he cannot run for reelection.
In August 2017, the United States entered into negotiations with Canada and Mexico seeking to update and rebalance the NAFTA, which had progressively eliminated tariffs and trade restrictions since 1994. The resulting USMCA entered into force on July 1, 2020. The Agreement modernizes and rebalances U.S. trade relations with Mexico and Canada and reduces incentives to outsource by providing strong labor and environmental protections, innovative rules of origin, and revised investment provisions. It also includes important commitments on customs inspections, automation, and the treatment of low-value goods. Additionally, the USMCA establishes the strongest and most advanced provisions on intellectual property and digital trade ever included in a trade agreement, while also bringing labor and environment obligations into the core text of the agreement and making them fully enforceable.
Mexico is a member of the World Trade Organization (WTO), Asia-Pacific Economic Cooperation (APEC), G-20, and Organization for Economic Cooperation and Development (OECD). Mexico has 13 free trade agreements (FTAs) covering 50 countries, including the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, formerly known as the Trans-Pacific Partnership). For U.S. exporters, Mexico’s participation in these international agreements means that, in general, the Mexican market is one of the most open and competitive in the world.