China is no longer America’s largest trading partner—and has been overtaken by Mexico.
Key Details
- According to a new report from Dallas Fed economist Luis Torres, Mexico overtook China at the beginning of 2023, with total bilateral trade between the U.S. and Mexico increasing to $263 billion for the first four months of the year.
- China had previously ceased the title from Canada in 2014, but rising manufacturing in Mexico has elevated the U.S.’s southern neighbor into a more central trading partner.
- U.S.-Mexico trade currently represents 15.4% of all U.S. trade, compared to 15.2% for U.S. Canada trade and 12% of U.S.-China trade.
Why It’s Important
The shift from China to Mexico represents a massive realignment of global trade and change in light of the aftermath of the COVID-19 pandemic, supply chain crises, and hostile Chinese militarism against its neighbors. Tensions have flared between the U.S. government and its counterparts in the Chinese Communist Party, and businesses have acknowledged this by starting to reduce reliance on Chinese manufacturing gradually.
China and the U.S. have had a complicated trade relationship for the past several decades. China joined the World Trade Organization in 2001 and has expanded manufacturing and exports in the decades since. However, hostilities flared as President Donald Trump imposed greater tariffs on Chinese imports. The subsequent pandemic and supply chain breakdown only created more incentives to reduce dependency.
Mexico has benefited from its immediate proximity to the United States, which has allowed many companies to “nearshore” manufacturing rather than “offshore” it—with nearly a quarter of all current automobile manufacturing coming from Mexico.
“While the principal focus of trade policy was once free trade, greater efficiency, and lower prices, that may no longer be the case. Today’s global economic relationships encompass a myriad of concerns, among them national security, climate policy, and supply-chain resiliency,” says Torres.
As we previously reported, a recent Pew Research study found that China is no longer viewed as the dominant economic superpower by other nations—with the U.S. being viewed as the global leader. China continues to face severe economic and demographic decline, in addition to its ongoing military hostility towards Taiwan. The U.S. government and leading corporations like Apple have looked to China’s neighbors like India as a possible alternative for global trade.
