Mexico Breaks China's 2-Decade Run as Top Exporter to U.S.
The Lede: Data released on Wednesday from the U.S. Commerce Department showed that neighboring Mexico surpassed China for the first time in 20 years as the top source of U.S. imports, a sign of the shifting trade links resulting from the economic rivalry between Washington and Beijing.
What We Know:
- The trade data from the Commerce Department’s Bureau of Economic Analysis shows that the value of goods imported by the United States from Mexico rose nearly 5% from 2022 to 2023 to more than $475.6 billion. Over the same time, the value of goods imported from China fell by 20% to $427.2 billion. Besides Mexico, other countries and regions American consumers turned to for imports include Europe, South Korea, India, Canada, and Vietnam.
- Analysts point to the tariffs imposed by the Trump administration and continued by the Biden administration as major determining factors for this change. The weight of Beijing’s economic policies under the COVID-19 lockdowns and increased probes on foreign companies may also be considered.
- Other observers warn that the data may be misleading as a significant portion of manufacturing and supply chains that had previously been traced directly to China have been re-located and re-routed through other countries, which is not captured by traditional trade statistics.
The Background: The Trump administration slapped tariffs averaging about 19% on Chinese imports beginning in 2018. U.S. and Chinese trade officials have been meeting more since the establishment of a working group by U.S. Treasury Secretary Janet Yellen and Chinese Vice Premier He Lifeng at a September 2023 meeting. The Economic Working Group met on Monday and Tuesday in Beijing to discuss trade concerns and broad economic issues. This was the third meeting and involved senior officials from the U.S. Department of Treasury and China's Ministry of Finance among other agencies. The group agreed to meet again in April.
Likely Outcomes:
- Overall, the data confirms that direct trade between the U.S. and China, especially in goods that have been popularly targeted with trade policies, has been diminished in recent years. Whether the trend downward continues remains to be seen. That would be an indicator of a longer-term rotation in U.S. imports away from China, which appears likely. Persistently elevated tensions between the two biggest economies would make alternative countries that have lower associated risk more attractive to the U.S. to link supply chains moving forward.
- As suggested by many analysts, Chinese goods will likely continue to flow through third countries that have stable trade relations with the U.S. to either completely manufacture goods for the U.S. market or finish products that have undergone some output processing in China as a means of circumventing Washington’s restrictions. Without an overhaul of policy or trade data calculation methods, the numbers may continue to show trends in a manner that does not completely reflect the real flow of trade and supply chains. The dilemma of direct and indirect import of Chinese-manufactured solar panels in both the U.S. and Europe with Southeast Asian countries as intermediaries provides a template for the issues that may arise.
- Recently, former U.S. President Donald Trump has considered expanding trade measures against China if he is reelected. These include a possible flat 60 percent tariff on all Chinese imports, according to anonymous sources of private conversations, and downgrading China’s ‘most favored nation’ trade status. This would result in even greater disruptions to the global economy and likely bring tremendous costs to bear on U.S. consumers and companies.
Quotables:
"One thing that we're really trying to grapple with, is how much of this is true friendshoring, which is what you'd see if Mexico was buying a lot of basic Chinese components and then really refiguring them and then using them to service the market. China might be sending Mexico almost-finished goods. Mexico is doing the final touches such that they can meet the different criteria that they need to so that this is now a 'Mexican-made' versus a Chinese-made good." Niels Graham, associate director of the GeoEconomics Center at the Atlantic Council
“There was a period where geopolitics didn’t really matter for trade much, but as uncertainty increases in the world, we do see that trade becomes more sensitive to these positions.” - Stela Rubinova, research economist at the World Trade Organization
“People realized we cannot have such dependencies on China, which we built up over the last 40 years as we were making China the factory of the world.” - Jesús Carmona, president for Mexico and Central America at Schneider Electric
"Combine that with the academic research showing the rerouting of supply chains, showing Chinese firms doing more business with these third countries, and then these third countries doing more business with the United States, and it's not difficult to see what's going on. It argues against the tariff approach to trade policy: Tariffs are a sledgehammer and they don't actually achieve the goals they set out to achieve. Importing a made-in-Mexico widget that has 75% Chinese content is not a policy 'win." - Scott Lincicome, vice president of general economics at the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute
Good Reads:
Mexico overtakes China as the leading source of goods imported by US (AP)
For First Time in Two Decades, U.S. Buys More From Mexico Than China (NYT)
Mexico replaces China as top exporter to U.S. in 2023 (Nikkei)