Chart of the Week

Thursday
Feb092017

Week 5, 2017: US Trade with Mexico

 

Summary: The chart shows that the US has been in trade deficit with Mexico since Clinton came to power, with George Bush Jnr presiding over the period with the largest deficit increase; around $29 billion. Obama’s presidency saw this trade deficit fluctuate more than at any other point, likely due to the 2008 global recession, where shrinking household incomes in the US would likely have decreased demand for Mexican-produced consumer goods, food and automobiles.

What does the chart show? The blue line shows the US/Mexico trade balance in billions of US dollars at nominal value. The data runs from 1994 until 2016 end. The smaller chart gives a snapshot of 2015 US/Mexico trade, broken down by sector. The data is not seasonally adjusted.

Why is the chart interesting? The chart demonstrates the extent to which the USA and Mexico’s economies are intertwined and the scale of the US trade deficit with Mexico, which has steadily increased over the last 23 years. The US trade deficit with China, which we examined a few weeks ago, has shown a similar pattern over the last two decades (although at its highest, the Mexico/US deficit was 5 times smaller than that with China). Considering the smaller chart- it is consumables and automobile trade where the imbalance is most pronounced. Figures from the US Census Bureau which break down trade in greater detail show that Mexico’s biggest export to and import from the US is auto parts. However Mexican consumers only spend around $3bn on completed cars versus approximately $22bn on auto parts from the US. From the US perspective, $43bn worth of auto parts are imported from Mexico and $24bn spent on cars. Where capital goods (goods that increase future production) are concerned, the US and Mexico export almost equal amount to each other. The chart demonstrates the mammoth challenge involved in Trump’s expressed desire to reimagine US Mexico economic relations, particularly his emphasis on ‘buying American’. Any drive to reduce the trade deficit with Mexico would likely be economically impossible in a single presidential term.