From Offshoring to Nearshoring: Mexico Leads as US’ Key Trading Ally

Mexico has taken the lead as the United States top trading partner ,overtaking China. According to the US Census Bureau,  $328.11bn worth of goods passed between the two countries in the first 5 months of 2023. As of the second quarter’s start, the US’s trade with Mexico accounted for 15.4% of goods exported and imported, just ahead of trade totals with Canada and China, which were 15.2% and 12% respectively. Imports from Mexico are up 8.67% month on month.

The Automotive market is a main driver in the increase of imported goods. In May, the top goods imported by the US from Mexico by value were passenger cars, motor vehicle parts, and commercial vehicles. The top three U.S. exports by value in May were Gasoline and other fuels, Motor vehicle parts, and Computer chips. 

However, there’s also an import increase of other manufactured goods. This dynamic has interestingly developed as a result of the previous administration’s tariffs on select Chinese goods, in addition to updating the NAFTA trade deal with Canada and Mexico. Now, we observe a push towards nearshoring, as countries shift their trade policies in favour of bringing supply chains for crucial goods back to their local regions, instead of looking east. 

The pandemic accelerated the shift towards nearshoring, due to the skyrocketing trans-pacific freight rates at the time, coupled with the immediate high demand for faster shipping consumer goods.  

US companies are scrambling to replace China, with its rising labour costs, pandemic induced manufacturing difficulties,  and supply-chain difficulties, even as China is reopening its economy after nearly two years of its strict zero-Covid policy.

This shift can also be in part attributed to shifting political tides, as companies like Walmart were increasingly looking closer to home for ways to fill their needs as political tensions between the US and China heated up.

With more production opportunities emerging in Mexico, and as crossing the border is ultimately cheaper than crossing the pond, the supply chain scales in North America could be tipping towards road freight rather than ocean freight.  

However, it is worth noting that  while Mexico-US trade runs hot, so does commerce between Mexico and China. Chinese exports to Mexico rose 28% YoY in 2022, according to the Census Bureau, suggesting that Chinese companies are using the United States-Mexico-Canada Agreement as an end-run around US tariffs on Chinese goods. Thus, we might see containers with Chinese goods being in a way redirected to Mexican ports, to resale in the US.