IMPORTANT POINTS:
- Trade between the US and Mexico reached $263 billion during the first four months of this year.
- The rise of “nearshoring” and regionalization are transforming the trends of the global economy.
- Despite the tensions, the US seeks to stabilize its relations with China while strengthening trade ties with Mexico.
Meet America’s old and new best friend in the global economy. According to a new report by Luis Torres, senior business economist at the Federal Reserve Bank of Dallas, Mexico has reconsolidated its position as the United States’ main trading partner with $263 billion in merchandise trade between the two countries in the first four months of the year. Trade with Mexico represented 15.4% of the merchandise exported and imported by the US, slightly ahead of Canada and China, with 15.2% and 12% respectively.
Even as the world moves on after the height of the pandemic, Mexico’s ability to wrest first place from China — which had spent the past two decades becoming more integrated into the US economy — is a clear indicator of how the economic chaos of 2020 will continue. defining the world economy for years to come.
The Nearshoring Phenomenon
Torres mentioned that the foundations for this change were established before the pandemic with former President Donald Trump’s tariffs on some Chinese products and the signing of the trade agreement between the US, Canada and Mexico, a slight update of the NAFTA agreement of almost three decades. However, Torres noted that the changes also suggest a rapid shift toward “nearshoring,” a practice in which countries move supply chains of essential goods to countries that are physically and politically close.
“Recent nearshoring data is sparse and the evidence is largely anecdotal; however, increased protectionism and related industrial policy are consistent with reduced global trade, more intense regional trade, and nearshoring and reshoring practices .Towers.
The nearshoring trend intensified during the pandemic due to the high cost of shipping products across the Pacific and consumer demand for faster delivery times, the latter of which we will call “The Amazon Prime Effect”. Peter S. Goodman of the New York Times also wrote that companies like Walmart were looking increasingly closer to home for ways to meet their needs as political tensions between the US and China intensified.
On the other hand, Michael Burns, Managing Partner at Murray Hill Group, an investment firm focused on supply chain, explained: “This is not about deglobalization. It is the next stage of globalization centered on regional networks”.
Regionalization over globalization
In Shannon O’Neil’s new book, “The Globalization Myth: Why Regions Matter,” she argues for regionalization over globalization, suggesting that keeping production closer to home would benefit American workers. NPR’s Greg Rosalsky sums up O’Neil’s argument by noting that the average import from Mexico is “40% US-made”, while Canadian imports are 25% US-made. As for products from China, only 4% were made in the US.
President Joe Biden has recently sought to improve the US-China relationship, noting further estrangement in recent years, including the downing of a Chinese spy balloon in February. Secretary of State Antony Blinken met Chinese leader Xi Jinping in June, while Treasury Secretary Janet Yellen recently undertook a four-day trip to China.
Blinken and Xi pledged to stabilize the China-US relationship. Yellen, for her part, expressed concerns about “unfair economic practices” but said she hoped the two sides could collaborate more closely since “the world is big enough for both countries to prosper.”
With pieces in constant motion, especially with China, one thing is clear for now: US-Mexico trade appears to be as strong as ever and should continue to grow.
