April 9, 2019
US-Mexico Trade Relations
Overview
motor vehicles ($64.5 billion or 19% of imports from
The U.S.-Mexico economic and trade relationship is of
Mexico), motor vehicle parts ($49.8 billion or 14% of
interest to U.S. policymakers, including Members of
imports), computer equipment ($26.6 billion or 8% of
Congress, because of Mexico’s proximity to the United
imports), oil and gas ($14.5 billion or 4% of imports), and
States, the extensive bilateral trade and investment
electrical equipment ($11.9 billion or 3% of imports).
relationship under the North American Free Trade
Agreement (NAFTA), the conclusion of the NAFTA
Figure 1. U.S.-Mexico Merchandise Trade 2000-2018
renegotiations and proposed U.S.-Mexico-Canada
Current U.S. $ in bil ions
Agreement (USMCA), and the strong cultural and
economic ties that connect the two countries.
Mexico’s Economy
Mexico is the second-largest economy in Latin America. It has
a population of 129 mil ion people, making it the most
populous Spanish-speaking country in the world and the third-
most populous country in the Western Hemisphere. Mexico’s
gross domestic product (GDP) was an estimated $1.22 tril ion
in 2018, equal to about 6% of U.S. GDP of $20.4 tril ion. In
terms of purchasing power parity (PPP), Mexican GDP was

higher, $2.52 tril ion, or about 12% of U.S. GDP. Mexico’s per
capita GDP is relatively high by global standards, and falls
Source: U.S. International Trade Commission’s DataWeb.
within the World Bank’s upper-middle income category.
Trends in Mexico’s GDP growth generally fol ow U.S.
Services Trade
economic trends, but with higher fluctuations.
In services, the United States had a surplus in trade with
Mexico of $7.4 billion in 2017 (latest available data). U.S.
services exports to Mexico totaled $32.8 billion in 2017, up
U.S.-Mexico Trade
from $14.2 billion in 1999, while services imports totaled
Mexico is the United States’ third-largest trading partner.
$25.5 billion in 2017, up from $9.7 billion in 1999. U.S.
Mexico ranks third as a source of U.S. merchandise imports
services trade with Mexico largely consisted of travel,
and second as an export market for U.S. goods. The United
transportation, business, and financial services.
States is Mexico’s most important export market for goods,
with 80% of Mexican exports destined for the United
Bilateral Foreign Direct Investment
States. Merchandise trade between the two countries in
Foreign direct investment (FDI) is an integral part of the
2018 was six times higher (in nominal terms) than in 1993,
economic relationship between the United States and
the year NAFTA entered into force. The merchandise trade
Mexico since NAFTA implementation. The liberalization
balance went from a surplus of $1.7 billion in 1993 (the
of Mexico’s restrictions on foreign investment in the late
year before NAFTA entered into force) to a widening
1980s and early 1990s, combined with NAFTA investment
deficit that reached $81.5 billion in 2018.
provisions, played an important role in attracting foreign
U.S. Merchandise Exports
investment to Mexico. The United States is, by far, the
U.S. merchandise exports to Mexico increased from $41.6
largest source of FDI in Mexico. While the stock of U.S.
billion in 1993 to $265.0 billion in 2018. Leading U.S.
FDI increased from $15.2 billion in 1993 to $109.7 billion
exports to Mexico in 2018 included petroleum and coal
in 2017, the stock Mexican FDI in the United States is
products ($28.8 billion or 11% of exports to Mexico),
much lower and also increased significantly since NAFTA,
motor vehicle parts ($20.2 billion or 8% of exports),
from $1.2 billion in 1993 to $18.0 billion in 2017.
computer equipment ($17.4 billion or 7% of exports),
semiconductors and other electronic components ($13.1
U.S.-Mexico Supply Chains
billion or 5% of exports), and basic chemicals ($10.3 billion
Many economists credit NAFTA with helping U.S.
or 4% of exports).
manufacturing industries, especially the U.S. auto industry,
U.S. Merchandise Imports
become more globally competitive through the
development of supply chains in North America. A
U.S. merchandise imports from Mexico increased from
significant portion of merchandise trade between the United
$39.9 billion in 1993 to $346.5 billion in 2018. Leading
States and Mexico occurs in the context of production
U.S. merchandise imports from Mexico in 2018 included
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US-Mexico Trade Relations
sharing as manufacturers in each country work together to
Issues for Congress
create goods. The flow of intermediate inputs produced in
the United States and exported to Mexico and the return
USMCA
flow of finished products greatly increased the importance
Policymakers may consider numerous issues related to
of the U.S.-Mexico border region as a production site. U.S.
U.S.-Mexico trade as they debate the proposed USMCA.
manufacturing industries, including motor vehicles,
Some issues could include the timetable for congressional
electronics, appliances, and machinery, all rely on the
consideration under TPA, whether the proposed USMCA
assistance of Mexican manufacturers. In the auto sector, for
meets Trade Promotion Authority’s (TPA) negotiating
example, there are multilayered connections between U.S.
objectives and other requirements, and the impact of the
and Mexican suppliers and assembly points. An automobile
agreement on U.S.-Mexico trade relations. The U.S.
produced in the United States, for example, can have
International Trade Commission (ITC) is conducting an
thousands of parts that come from different U.S. states and
investigation into the economic impacts of a USMCA,
various Mexican locations. The place of final assembly may
which is expected to be completed on April 20th 2019.
have little bearing on where its components are made. Most
economists suggest that these linkages offer important trade
The timing for congressional consideration of the proposed
and welfare gains from free trade agreements.
USMCA is unclear because of issues of interest and
concern voiced by Congress. Some policymakers view the
NAFTA and the Proposed USMCA
agreement as vital for U.S. firms, workers and farmers, and
NAFTA, which entered into force on January 1, 1994,
believe that the updated agreement would benefit U.S.
contains provisions on tariff and nontariff barrier
economic interests. Others contend that the path forward is
elimination, customs procedures, energy, agriculture,
uncertain because of concerns over the lack of worker
technical barriers to trade, government procurement,
rights protection in Mexico and the enforceability of labor
foreign investments, services trade, temporary entry for
provisions, the scaling back of ISDS provisions that could
business persons, intellectual property rights protection, and
affect U.S. investors, and possible adverse effects of auto
dispute resolution procedures. NAFTA was the first U.S.
rules of origin on U.S. automakers, among other issues.
free trade agreement with labor and environmental
provisions. See CRS Report R44981, NAFTA Renegotiation
Section 232 Tariffs
and the Proposed United States-Mexico-Canada Agreement
Some policymakers have voiced concerns over the tariffs
(USMCA), by M. Angeles Villarreal and Ian F. Fergusson.
imposed by President Trump under Section 232 of the
Trade Expansion Act of 1962, and say that the three
On November 30, 2018, the United States, Canada, and
countries must first resolve disputes over U.S. steel and
Mexico signed the proposed USMCA, which, if approved
aluminum tariffs before the USMCA could be considered
by Congress and ratified by Mexico and Canada, would
by Congress. The United States and Mexico are in a trade
replace NAFTA. The proposed USMCA would retain many
dispute over U.S. actions to impose tariffs on imports of
of NAFTA’s chapters, while making notable changes to
steel and aluminum under Section 232, which authorizes
others, including market access provisions for autos and
the President to impose restrictions on certain imports based
agriculture products, and to rules such as investment,
on national security threats. Using these authorities, on May
government procurement, and intellectual property rights
31, 2018, the United States imposed a 25% duty on steel
(IPR). It would add new chapters on digital trade, state-
imports and a 10% duty on aluminum imports from Mexico
owned enterprises, and currency misalignment.
and Canada. Mexico and other countries have retaliated
against U.S. exports by imposing tariffs.
NAFTA’s requirements of 62.5% North American content
for motor vehicles and 60% for all other vehicles and
NAFTA Withdrawal
automotive parts would be tightened under USMCA. The
President Trump stated on December 1, 2018, that he would
new rules would require that 75% of a motor vehicle and
notify Mexico and Canada of his intention to withdraw
70% of its steel and aluminum originate in North America
from NAFTA. A NAFTA withdrawal by the United States
and that 40%-45% of auto content be made by workers
prior to congressional approval of the proposed USMCA
earning at least $16 per hour. Side letters would exempt up
would have significant implications for U.S. trade policy
to 2.6 million vehicles from Canada and Mexico annually
and U.S.-Mexico-Canada economic relations. Canada and
from potential Section 232 auto tariffs (discussed below).
Mexico likely would maintain NAFTA between themselves
if the United States were to withdraw. See CRS Report
USMCA would maintain the NAFTA state-to-state
R45557, The President’s Authority to Withdraw the United
mechanism for the settlement of most disputes as well as
States from the North American Free Trade Agreement
the binational dispute settlement mechanism to review trade
(NAFTA) Without Further Congressional Action, by
remedy disputes. However, it would maintain investor-state
Brandon J. Murrill.
dispute settlement (ISDS) only between the United States
and Mexico, without Canada, regarding government
Katarina de la Rosa, CRS Research Associate, contributed
contracts in oil, natural gas, power generation,
to this report.
infrastructure, and telecommunications sectors. It would
also maintain U.S.-Mexico ISDS in other sectors provided
M. Angeles Villarreal, Specialist in International Trade
the claimant exhausts national remedies first, among other
and Finance
changes.
IF11175
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US-Mexico Trade Relations


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https://crsreports.congress.gov | IF11175 · VERSION 1 · NEW

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