Updated April 26, 2021
U.S.-Mexico Trade Relations
Overview
decreased to $325.4 billion in 2020. Leading U.S.
The U.S.-Mexico economic and trade relationship is of
merchandise imports from Mexico in 2020 included motor
interest to U.S. policymakers, including Members of
vehicles ($56.4 billion), motor vehicle parts ($43.7 billion),
Congress, because of Mexico’s proximity to the United
computer equipment ($27.0 billion), audio and video
States, the extensive bilateral trade and investment
equipment ($12.7 billion), and electrical equipment ($11.8
relationship under the North American Free Trade
billion).
Agreement (NAFTA) and its replacement, the U.S.-
Mexico-Canada Agreement (USMCA), and the strong
Figure 1. U.S.-Mexico Merchandise Trade 2002-2020
cultural and economic ties that connect the two countries.
Current U.S. $ in billions
Mexico’s Economy
Mexico is the second-largest economy in Latin America. It has
a population of 129 million 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 $1.1 trillion
in 2020, equal to an estimated 5% of U.S. GDP of $21.1
trillion. In terms of purchasing power parity (PPP), Mexican
GDP was higher, $2.4 trillion, or about 11% of U.S. GDP.
Mexico’s per capita GDP is relatively high by global standards,
and falls within the World Bank’s upper-middle income
category. Trends in Mexico’s GDP growth generally follow

U.S. economic trends, but with higher fluctuations.
Source: U.S. International Trade Commission’s DataWeb.
U.S.-Mexico Trade
Services Trade
In 2020, Mexico was the United States’ second largest
In services trade, the United States had a surplus with
merchandise trade partner, after China. In U.S. merchandise
Mexico of $3.1 billion in 2019, down from $5.1 billion in
exports, Mexico ranks second among U.S. markets after
2018. U.S. services exports to Mexico totaled $32.9 billion
Canada. It also ranks second, after China, among suppliers
in 2019, up from $14.2 billion in 1999, while imports
of U.S. imports. The United States is by far Mexico’s most
increased from $9.7 billion in 1999 to $29.8 billion in 2019.
important export market for goods, with 80% of Mexican
U.S. services trade with Mexico largely consisted of travel,
exports destined for the United States. Merchandise trade
transportation, business, and financial services.
between the two countries increased exponentially since
NAFTA entered into force. In 2020, the economic
Bilateral Foreign Direct Investment
slowdown due to the Coronavirus disease 2019 (COVID-
Foreign direct investment (FDI) is an integral part of the
19) pandemic resulted in a 12% decrease in total bilateral
economic relationship between the United States and
merchandise trade from $614.5 billion to $538.1 billion.
Mexico since NAFTA implementation. The liberalization
The merchandise trade balance went from a surplus of $1.7
of Mexico’s restrictions on foreign investment in the late
billion in 1993 (the year before NAFTA entered into force)
1980s and early 1990s, combined with NAFTA investment
to a widening deficit that reached $112.7 billion in 2020.
provisions, played an important role in attracting foreign
U.S. Merchandise Exports
investment to Mexico. The United States is, by far, the
largest source of FDI in Mexico. According to the U.S.
U.S. merchandise exports to Mexico increased from $41.6
Bureau of Economic Analysis, the stock of U.S. FDI
billion in 1993 to a peak of $265.9 billion in 2018, and then
increased from $37.2 billion in 1999 to a high of $100.9
decreased to $212.7 billion in 2020. Leading U.S. exports
billion in 2019. While the stock Mexican FDI in the United
to Mexico in 2020 consisted of petroleum and coal products
States is much lower, it has increased significantly over the
($18.2), motor vehicle parts ($15.8 billion), semiconductors
past 20 years, from $3.0 billion in 1999 to $42.9 billion in
& other electronic components ($15.3 billion), computer
2019 (by ultimate beneficial owner).
equipment ($11.5 billion), and basic chemicals ($8.9
billion).
U.S.-Mexico Supply Chains
U.S. Merchandise Imports
Many economists credit NAFTA with helping U.S.
U.S. merchandise imports from Mexico increased from
manufacturing industries, especially the U.S. auto industry,
$39.9 billion in 1993 to $358.0 billion in 2019, and then
become more competitive through the development of
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U.S.-Mexico Trade Relations
supply chains. A significant portion of merchandise trade
Issues for Congress
between the United States and Mexico occurs in the context
of production sharing as manufacturers in each country
USMCA
work together to create goods. The flow of intermediate
U.S. policymakers may follow trade policy issues regarding
inputs produced in the United States and exported to
USMCA. Some policymakers view the agreement as vital
Mexico and the return flow of finished products greatly
for U.S. firms, workers and farmers, and believe that the
increased the importance of the U.S.-Mexico border region
updated agreement will benefit U.S. economic interests.
as a production site. U.S. manufacturing industries,
Others are concerned over Mexico’s implementation of
including motor vehicles and electronics, all rely on the
USMCA worker rights provisions and the ability of the
assistance of Mexican manufacturers. In the auto sector, for
Mexican government to implement required labor reforms.
example, there are multilayered connections between U.S.
Other concerns include the scaling back of ISDS provisions
and Mexican suppliers and assembly points. An automobile
and the effect on U.S. investors in Mexico, especially in the
produced in the United States, for example, can have
energy sector. The U.S. business community contends that
thousands of parts that come from different U.S. states and
USMCA will strengthen North American supply chains and
various Mexican locations. The place of final assembly may
help the region recover from the COVID-19 pandemic.
have little bearing on where its components are made. Most
Nevertheless, others are concerned about Mexico’s recent
economists suggest that these linkages offer important trade
steps to strengthen the state’s role in the energy sector and
and welfare gains from free trade agreements.
argue that these actions violate USMCA and could
adversely affect U.S. investment in Mexico’s energy sector.
NAFTA and the USMCA
NAFTA, which entered into force on January 1, 1994,
The full effects of the USMCA on the U.S.-Mexico trade
contained provisions on tariff and nontariff barrier
relationship are not expected to be significant, because
elimination, customs procedures, energy, agriculture,
nearly all U.S. trade with Mexico that meets rules of origin
technical barriers to trade, government procurement,
requirements has been conducted duty and barrier free for
foreign investments, services trade, temporary entry for
many years under NAFTA. The USMCA maintains
business persons, intellectual property rights protection, and
NAFTA’s tariff and non-tariff barrier eliminations. Many
dispute resolution procedures. NAFTA was the first U.S.
economists believe that USMCA is not expected to have a
free trade agreement with labor and environmental
measurable effect on U.S. trade and investment with
provisions. See CRS Report R44981, The United States-
Mexico, jobs, wages, or overall economic growth.
Mexico-Canada Agreement (USMCA), by M. Angeles
Villarreal and Ian F. Fergusson.
Bilateral Economic Cooperation
The United States shares strong economic ties with Mexico
On July 1, 2020, USMCA replaced NAFTA. It retains
and any disruption to the economic relationship could have
many of NAFTA’s chapters, while making notable changes
adverse effects on investment, employment, productivity, or
to others, including on those related to market access
North American competitiveness. The COVID-19
provisions for autos and agriculture products, rules on
pandemic has raised new issues regarding the U.S.-Mexico
investment, government procurement, and intellectual
supply chain and North American manufacturing.
property rights (IPR). It also contains stronger labor and
Policymakers may consider issues on how the United States
environmental provisions and adds new chapters on digital
can improve cooperation with Mexico in areas of mutual
trade, state-owned enterprises, and currency misalignment.
interest such as coordination on essential services. Some
policy experts encourage increased bilateral cooperation in
NAFTA’s requirements of 62.5% North American content
cross-border trade and investment. Mexican officials have
for motor vehicles and 60% for all other vehicles and
pointed to a USMCA-established “Competitiveness
automotive parts are tightened under USMCA. The new
Committee” as an important framework through which the
rules require that 75% of a motor vehicle and 70% of its
two countries can advance shared interests. U.S. Trade
steel and aluminum originate in North America and that
Representative Katherine Tai met with her Canadian and
40%-45% of auto content be made by workers earning at
Mexican counterparts in March 2021 and discussed
least $16 per hour. Side letters exempt up to 2.6 million
USMCA implementation efforts, reportedly committing to
vehicles from Canada and Mexico annually from potential
holding a USMCA Free Trade Commission meeting soon.
Section 232 auto tariffs.
For more information, see CRS Report R42917, Mexico:
USMCA maintains the NAFTA state-to-state mechanism
Background and U.S. Relations, by Clare Ribando Seelke
for the settlement of most disputes as well as the binational
and CRS Report RL32934, U.S.-Mexico Economic
dispute settlement mechanism to review trade remedy
Relations: Trends, Issues, and Implications, by M. Angeles
disputes. However, it maintains investor-state dispute
Villarreal.
settlement (ISDS) only between the United States and
Mexico, without Canada, regarding government contracts in
M. Angeles Villarreal, Specialist in International Trade
oil, natural gas, power generation, infrastructure, and
and Finance
telecommunications sectors. It also maintains U.S.-Mexico
ISDS in other sectors provided the claimant exhausts
IF11175
national remedies first, among other changes.


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U.S.-Mexico Trade Relations


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https://crsreports.congress.gov | IF11175 · VERSION 2 · UPDATED

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