Mexico tops China in US imports for the first time in over 20 years
In 2023, Mexico became the top source of goods for the US, beating China for the first time in over 20 years.
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The backstory: China has been the top supplier of goods to the US for over a decade, beating even Canada. But tensions have risen since around 2018 over economic conflicts and a tech race between the US and China. For example, the US started imposing tech export controls left and right, first under former President Trump and then under President Biden, aiming to slow China's tech progress, especially in areas like semiconductors. Then China put some export curbs on important metals required for tech development, like germanium and gallium.
Since the COVID pandemic, many countries have been worried about relying too much on China's factories. To reduce risks, businesses adopted strategies like "China plus one," aiming to diversify their production and where they source parts from. There's also the US and EU's "de-risking" strategy to back off from relying too much on China in the supply chain.
More recently: Mexico benefited from this shift, attracting more investment. Trade between the US and Mexico improved, partly due to the US-Mexico-Canada Agreement that kicked off in 2020, replacing the North American Free Trade Agreement (NAFTA). As a result, Mexico saw a surge in foreign investment, totaling US$32.2 billion in the first three quarters of 2023, which was almost the total for the entire year of 2022.
In December, the US and Mexico agreed to improve screening methods for foreign investments to reduce national security concerns. They also talked about linking cross-border payment systems.
The development: The latest data from the US Census Bureau shows big shifts in US trade patterns. In 2023, Mexico became the top source of goods for the US, beating China for the first time in over 20 years. To break it down – imports from Mexico went up almost 5% from 2022 to 2023, reaching over US$475 billion. Meanwhile, imports from China dropped by 20% to US$427 billion during the same time. So, in 2023, China's share of US imports fell to 13.9%, its lowest since 2004, while Mexico's share went up. China's now in third place, with Mexico making up 16% and Canada providing 15% of imports to the US.
Key comments:
"I don't see the U.S. being comfortable with a rebound in those areas in 2024 and 2025," said Derek Scissors, an expert on China from the American Enterprise Institute. He suggested that the switch in imports from China to Mexico isn't likely just a temporary change.
"Our focus in talking to Mexico is not just China-focused. It is the general belief that it is important to make sure there are not national security concerns that are implicated in any foreign investments," said US Treasury Secretary Janet Yellen at a news conference in Mexico City in December.
"The US needs to stop politicizing and weaponizing trade and tech issues and stop destabilizing global industrial and supply chains," China's foreign ministry spokesperson Mao Ning told a press briefing last year. "We will closely follow the developments and firmly safeguard our rights and interests."
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