August 1st 2024
Written By: Raymond Kelley, President of Rogers & Brown
In 2023, The United States did $5.1 trillion of overall trade with the world. This was down 3.9% from the previous year when it did just over $5.3 trillion in trade. The U.S. trade deficit, the difference between what is exported and imported, was $1.1 trillion in 2023, the third straight year with a deficit of over $1 trillion. The data shows the top 10 countries that the U.S. trades with as follows:
In reviewing the historical trade data for Mexico with the U.S. from 2004 (NAFTA was implemented in 1994 and ended in late 2020 when the USMCA replaced it) until May 2024, the growth has been fast-paced. Here is a table that illustrates it:
If the 2024 projections hold, the 2024 trade between the U.S. and Mexico will be the highest recorded between the U.S. and any other country. This represents a 200%+ increase in the past 20 years. The previous high was in 2018, when the trade with China was $817 billion. The only other time the U.S. trade amount with another country exceeded $800 billion was in 2017 with China as well.
Several things are contributing to the cross-border rapid growth:
Data from the 2023 Trade Statistics give some good insight into the effect of USMCA on the increased trade between the U.S. and Mexico on specific industries. The 2 industries of note are automotive and computers. This is attributed to Mexico’s increased growth in becoming an automotive production and assembly hub. Thus, parts (including computer chips) are being exported from the U.S. to Mexico to support the growth. This has taken place even with the higher standards for automobiles to qualify for special duty treatment under the USMCA. The rules require a minimum of 75% of the components to be manufactured in one of the 3 USMCA countries.
Under NAFTA, the rules only required a minimum of 62.5%. Also, USMCA stipulates that 40-45% of the manufacturing work must be done by employees who are making a minimum of $16/hour. This was not part of NAFTA. The result of this minimum wage rule is that Mexican workers in the automotive manufacturing sector have seen double wage increases since the USMCA went into effect in mid-2020. In addition, the workers have seen improved pensions and paid holidays.
As the USMCA continues to shape North American trade dynamics, its long-term impact remains subject to various factors. Adapting to evolving economic landscapes, addressing geopolitical tensions, and ensuring compliance with the agreement’s terms are among the key challenges that lie ahead. Moving forward, the USMCA will continue to play a crucial role in driving growth in the North American economies.