Updated September 29, 2022
U.S.-Mexico Trade Relations
The U.S.-Mexico economic and trade relationship is of
2021. Leading U.S. exports to Mexico in 2021 included
interest to many Members of Congress because of Mexico’s
petroleum and coal products ($28.1 billion), motor vehicle
proximity to the United States, the extensive bilateral trade
parts ($17.3 billion), semiconductors & other electronic
and investment relationship under the U.S.-Mexico-Canada
components ($16.6 billion), oil and gas ($13.9 billion), and
Agreement (USMCA), and the strong cultural and
computer equipment ($13.1 billion).
economic ties that connect the two countries. The United
U.S. Merchandise Imports
States shares strong economic ties with Mexico. Any
Mexico ranks second, after China, among suppliers of U.S.
disruption to the economic relationship could adversely
imports. U.S. merchandise imports from Mexico increased
affect bilateral investment, employment, productivity, or
from $39.9 billion in 1993 to $384.7 billion in 2021.
North American competitiveness. Policymakers may
Leading U.S. merchandise imports from Mexico in 2021
consider how the United States can improve cooperation
included motor vehicles ($62.1 billion), motor vehicle parts
with Mexico in areas of mutual interest. Some policy
($50.5 billion), computer equipment ($29.1 billion), audio
experts encourage increased bilateral cooperation on cross-
and video equipment ($15.6 billion), and electrical
border trade and investment, such as the U.S.-Mexico High-
equipment ($13.6 billion).
Level Economic Dialogue, which the Biden Administration
relaunched in 2021.
Figure 1. U.S.-Mexico Merchandise Trade 2002-2021
Current U.S. $ in bil ions
Mexico’s Economy
Mexico is the second-largest economy in Latin America. It has
a population of 127 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 $1.3 tril ion in 2021, equal
to about 6% of U.S. GDP of $23.0 tril ion. In purchasing
power parity (PPP), Mexican GDP was greater, $2.6 tril ion,
11% of U.S. GDP. Mexico’s per capita GDP is relatively high
by global standards, within the World Bank’s upper-middle
income category. Mexico’s GDP growth generally fol ows U.S.
economic trends, with higher fluctuations.

U.S.-Mexico Trade
Source: U.S. International Trade Commission’s DataWeb.
In 2021, Mexico ranked second, after Canada, among all
U.S. trading partners. Total U.S. merchandise trade (exports
Services Trade
plus imports) with Mexico amounted to $661.1 billion in
In 2021, the United States had a surplus in services trade
2021. In comparison, U.S. trade with Canada totaled $665.6
with Mexico of $2.7 billion in 2021, compared to $6.3
billion, while trade with China totaled $656.4 billion. The
billion in 2020. U.S. services exports to Mexico increased
United States is by far Mexico’s most important export
from $23.5 billion in 2020 to $30.5 billion in 2021, while
market for goods, with approximately 80% of Mexican
imports increased from $17.2 billion in 2020 to $27.8
exports destined for the United States. Merchandise trade
billion in 2021. U.S. services trade with Mexico largely
between the two countries increased exponentially since
consisted of travel, transportation, business, and financial
NAFTA entered into force. In 2021, bilateral trade
services.
increased by almost 14%, after a 12% decrease in 2020,
resulting from the economic slowdown due to the
Bilateral Foreign Direct Investment
Coronavirus Disease 2019 (COVID-19) pandemic. The
Foreign direct investment (FDI) is an integral part of the
merchandise trade balance went from a surplus of $1.7
economic relationship between the United States and
billion in 1993 (the year before NAFTA entered into force)
Mexico since NAFTA implementation. The liberalization
to a widening deficit that reached $108.2 billion in 2021.
of Mexico’s restrictions on foreign investment in the late
U.S. Merchandise Exports
1980s and early 1990s, combined with NAFTA investment
Mexico ranks second, after Canada, among markets for
provisions, played an important role in attracting foreign
U.S. merchandise exports. The value of U.S. merchandise
investment to Mexico. The United States is, by far, the
exports to Mexico increased from $41.6 billion in 1993 (the
largest source of FDI in Mexico. According to the U.S.
year before NAFTA’s entry into force) to $276.5 billion in
Bureau of Economic Analysis, the stock of U.S. FDI
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U.S.-Mexico Trade Relations
increased from $15.2 billion in 1993 (the year before
USMCA maintains the NAFTA state-to-state mechanism
NAFTA) to a high of $110.7 billion in 2021. While the
for the settlement of most disputes, as well as the binational
stock Mexican FDI in the United States is much lower, it
dispute settlement mechanism to review trade remedy
has increased significantly over the past 20 years, from $4.1
disputes. It maintains investor-state dispute settlement
billion in 1997 (the earliest data available) to $48.1 billion
(ISDS) only between the United States and Mexico, without
in 2021 (by ultimate beneficial owner).
Canada, regarding government contracts in oil, natural gas,
power generation, infrastructure, and telecommunications
U.S.-Mexico Supply Chains
sectors, which was very important for U.S. investors in
Many economists credit NAFTA with helping U.S.
Mexico. It also maintains U.S.-Mexico ISDS in other
manufacturing industries, especially the U.S. auto industry,
sectors, provided the claimant exhausts national remedies
become more competitive through the development of
first. .
North American supply chains. A significant portion of
merchandise trade between the United States and Mexico
Many economists state that USMCA will not have a
occurs in the context of production sharing, as
measurable effect on U.S. trade and investment with
manufacturers in each country work together to create
Mexico, jobs, wages, or overall economic growth as most
goods. The flow of intermediate inputs produced in the
of the bilateral trade liberalization took place under
United States and exported to Mexico and the return flow of
NAFTA. The U.S. business community contends that
finished products greatly increased the importance of the
USMCA will strengthen North American supply chains,
U.S.-Mexico border region as a production site. U.S.
especially after the COVID-19 pandemic. Some analysts
manufacturing industries, including motor vehicles and
contend that the United States and Mexico could strengthen
electronics, all rely on the assistance of Mexican
North American supply chains by bringing the two
manufacturers. In the auto sector, for example, there are
countries into better alignment in regulatory areas, tax
multilayered connections between U.S. and Mexican
incentives, collaboration with the private sector and
suppliers and assembly points. An automobile produced in
investment in human capital.
the United States, for example, can have thousands of parts
that come from different U.S. states and various Mexican
Issues for Congress
locations. The place of final assembly may have little
Given the size of U.S.-Mexico trade and investment, many
bearing on where its components are made. Most
U.S. policymakers follow trade policy issues. Some
economists suggest that these linkages offer important trade
policymakers view NAFTA/USMCA as vital for U.S.
and welfare gains from free trade agreements.
firms, workers and farmers, and beneficial to U.S.
economic interests. Others are concerned over issues such
NAFTA and the USMCA
as worker rights and the scaling back of ISDS provisions,
NAFTA, which entered into force on January 1, 1994,
which could adversely affect U.S. investors in Mexico,
contained provisions on tariff and nontariff barrier
especially in the energy sector. Numerous policymakers and
elimination, customs procedures, technical barriers to trade,
industry representatives have expressed serious concerns
government procurement, foreign investment, services
about the Mexican government’s actions to strengthen the
trade, temporary entry for business persons, intellectual
state’s role in the energy sector. The U.S. government
property rights (IPR) protection, and dispute resolution.
argues that the actions violate USMCA and has filed a
USMCA trade dispute against Mexico. On worker rights
On July 1, 2020, USMCA replaced NAFTA. Composed of
issues, numerous policymakers are concerned about
34 chapters and 12 side letters, USMCA retains most of
Mexico’s ability to implement labor reforms required by
NAFTA’s provisions, while making notable changes to
USMCA. The United States and Mexico have successfully
market access provisions for motor vehicles and agriculture
resolved four cases brought under the USMCA rapid
products, rules on investment, government procurement,
response mechanism; a fifth case is under review.
IPR, and on worker rights and the environment. New
provisions on digital trade, state-owned enterprises, and
Numerous experts contend that the initiative could
currency misalignment are part of the new agreement.
strengthen North American supply chains and provide a
mechanism by which the United States and Mexico could
Some USMCA provisions that most affect the U.S.-Mexico
cooperate on regulatory areas critical to strengthening
trade relationship arguably include changes to the rules of
supply chains, aligning tax incentives, collaborating with
origin for motor vehicles, the new chapter on digital trade,
the private sector and investing in human capital. Mexican
and more enforceable provisions on worker rights. For
officials have pointed to a USMCA-established
example, USMCA modified NAFTA rules of origin for
“Competitiveness Committee” as another important
motor vehicles by raising the minimum level of regional
framework to advance shared interests.
value content from 62.5% to 75%, adding a wage
requirement that 40%-45% of motor vehicle content be
See CRS Report R42917, Mexico: Background and U.S.
made by workers earning at least $16 per hour, and
Relations, by Clare Ribando Seelke and CRS Report
requiring 70% of a vehicle’s steel and aluminum originate
RL32934, U.S.-Mexico Economic Relations: Trends, Issues,
in North America. On labor issues, USMCA added a new
and Implications, by M. Angeles Villarreal.
“rapid response” mechanism to provide a faster
independent panel investigation of labor disputes.
M. Angeles Villarreal, Specialist in International Trade
and Finance
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U.S.-Mexico Trade Relations

IF11175


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https://crsreports.congress.gov | IF11175 · VERSION 3 · UPDATED

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