Updated September 1, 2023
U.S.-Mexico Trade Relations
The U.S.-Mexico economic and trade relationship is of
parts ($17.5 billion), oil and gas ($15.1 billion) basic
interest to Congress because of Mexico’s proximity to the
chemicals ($14.1 billions), and resin and similar products
United States, the extensive bilateral trade and investment
($11.1 billion).
relationship under the U.S.-Mexico-Canada Agreement
U.S. Merchandise Imports
(USMCA), and the strong bilateral cultural and economic
Mexico ranks second, after China, among suppliers of U.S.
ties. The United States shares strong trade ties with Mexico
imports. U.S. merchandise imports from Mexico increased
and any disruption to the economic relationship could
from $39.9 billion in 1993 to $454.8 billion in 2022.
adversely affect investment, employment, productivity, or
Leading U.S. merchandise imports from Mexico in 2022
North American competitiveness. Policymakers may
included motor vehicles ($72.2 billion), motor vehicle parts
consider how to improve cooperation with Mexico in areas
($57.7 billion), computer equipment ($37.7 billion), oil and
of mutual interest, including economic competitiveness,
gas ($18.6 billion), and electrical equipment ($16.1 billion).
trade facilitation, energy security, and endeavors such as the
U.S.-Mexico High-Level Economic Dialogue and the North
Figure 1. U.S.-Mexico Merchandise Trade 2002-2022
American Leaders’ Summit.
Current U.S. $ in bil ions
500
Mexico’s Economy
400
Mexico is the second-largest economy in Latin America. It has
a population of 127 mil ion people, making it the most
300
populous Spanish-speaking country in the world and the third-
200
most populous country in the Western Hemisphere. Mexico’s
100
gross domestic product (GDP) was $1.4 tril ion in 2022, equal
to about 5% of U.S. GDP of $25.5 tril ion. In purchasing
0
power parity (PPP), Mexican GDP was greater, $2.7 tril ion,
-100
11% of U.S. GDP. Mexico’s per capita GDP is relatively high
-200
by global standards, within the World Bank’s upper-middle
income category. Mexico’s GDP growth generally fol ows U.S.
U.S. Exports
U.S. Imports
Trade Balance
economic trends, with higher fluctuations.

Source: U.S. International Trade Commission’s DataWeb.
U.S.-Mexico Trade
In 2022, Mexico ranked second, after Canada, among all
Services Trade
U.S. trading partners. Total U.S. merchandise trade (exports
In 2022, the United States had a deficit in services trade
plus imports) with Mexico amounted to $779.1 billion in
with Mexico of $630 million in 2022, compared to a
2022. In comparison, U.S. trade with Canada totaled $793.0
surplus of $2.7 billion in 2021. U.S. services exports to
billion, while trade with China totaled $690.3 billion. The
Mexico increased from $30.5 billion in 2021 to $37.7
United States is by far Mexico’s most important export
billion in 2022, while imports increased from $27.8 billion
market for goods, with approximately 80% of Mexican
in 2021 to $38.3 billion in 2021. Trade largely consisted of
exports destined for the United States. Canada is Mexico’s
travel, transportation, business, and financial services.
second most important trading partner, with China ranking
third. Merchandise trade between the United States and
Bilateral Foreign Direct Investment
Mexico increased exponentially since NAFTA entered into
Foreign direct investment (FDI) is an integral part of the
force. The merchandise trade balance went from a surplus
economic relationship between the United States and
of $1.7 billion in 1993 (the year before NAFTA entered
Mexico since NAFTA implementation. The liberalization
into force) to a widening deficit that reached $130.5 billion
of Mexico’s restrictions on foreign investment in the late
in 2022. In comparison, the U.S. trade deficit with China
1980s and early 1990s, combined with NAFTA investment
was more than double this amount at $382.3 billion.
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.
Mexico ranks second, after Canada, among markets for
Bureau of Economic Analysis, the stock of U.S. FDI
U.S. merchandise exports. The value of U.S. merchandise
increased from $15.2 billion in 1993 (the year before
exports to Mexico increased from $41.6 billion in 1993 (the
year before NAFTA’s entry into force)
NAFTA) to a high of $130.3 billion in 2022. While the
to $324.3billion in
stock of Mexican FDI in the United States is much lower, it
2022. Leading U.S. exports to Mexico in 2022 included
has increased significantly over the past 20 years, from $4.1
petroleum and coal products ($40.5 billion), motor vehicle
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U.S.-Mexico Trade Relations
billion in 1997 (the earliest data available) to $54.0 billion
regarding government contracts in oil, natural gas, power
in 2022 (by ultimate beneficial owner).
generation, infrastructure, and telecommunications sectors,
which was very important for U.S. investors in Mexico. It
U.S.-Mexico Supply Chains
also maintains U.S.-Mexico ISDS in other sectors, provided
Many economists credit NAFTA with helping U.S.
the claimant exhausts national remedies first.
manufacturing industries, especially the U.S. auto industry,
become more competitive through the development of
Many economists state that USMCA will not have a
North American supply chains. A significant portion of
measurable effect on U.S. trade and investment with
merchandise trade between the United States and Mexico
Mexico, jobs, wages, or overall economic growth as most
occurs in the context of production sharing, as
of the bilateral trade liberalization took place under
manufacturers in each country work together to create
NAFTA. The U.S. business community contends that
goods. The flow of intermediate inputs produced in the
USMCA will strengthen North American supply chains,
United States and exported to Mexico and the return flow of
especially after the COVID-19 pandemic. Some analysts
finished products greatly increased the importance of the
contend that the United States and Mexico could strengthen
U.S.-Mexico border region as a production site. U.S.
North American supply chains by bringing the two
manufacturing industries, including motor vehicles and
countries into better alignment in regulatory areas, tax
electronics, all rely on the assistance of Mexican
incentives, collaboration with the private sector, and
manufacturers. In the auto sector, for example, there are
investment in human capital.
multilayered connections between U.S. and Mexican
suppliers and assembly points. An automobile produced in
Issues for Congress
the United States, for example, can have thousands of parts
Given the size of U.S.-Mexico trade and investment, many
that come from different U.S. states and various Mexican
U.S. policymakers follow trade policy issues. Some
locations. The place of final assembly may have little
policymakers view NAFTA/USMCA as vital for U.S.
bearing on where its components are made. Most
firms, workers and farmers, and beneficial to U.S.
economists suggest that these linkages offer important trade
economic interests. Others are concerned over issues such
and welfare gains from free trade agreements.
as worker rights and the scaling back of ISDS provisions,
which could adversely affect U.S. investors in Mexico.
NAFTA and the USMCA
NAFTA, which entered into force on January 1, 1994,
Numerous policymakers and industry representatives have
contained provisions on tariff and nontariff barrier
expressed serious concerns about the Mexican
elimination, customs procedures, technical barriers to trade,
government’s actions to strengthen the state’s role in the
government procurement, foreign investment, services
energy sector. The U.S. government argues that these
trade, temporary entry for business persons, intellectual
actions violate USMCA and has filed a USMCA trade
property rights (IPR) protection, and dispute resolution.
dispute against Mexico. On worker rights issues, some
Members are concerned about Mexico’s ability to
On July 1, 2020, USMCA replaced NAFTA. Composed of
implement labor reforms required by USMCA.
34 chapters and 12 side letters, USMCA retains most of
Stakeholders contend that the agreement could strengthen
NAFTA’s provisions, while making notable changes to
North American supply chains and provide a mechanism by
market access provisions for motor vehicles and agriculture
which the United States and Mexico could cooperate on
products, rules on investment, government procurement,
regulatory areas critical to strengthening supply chains,
IPR, and on worker rights and the environment. New
aligning tax incentives, collaborating with the private
provisions on digital trade, state-owned enterprises, and
sector, and investing in human capital. Mexican officials
currency misalignment are part of the new agreement.
have pointed to a USMCA-established “Competitiveness
Committee” as another important framework to advance
Some USMCA provisions that most affect the U.S.-Mexico
shared interests.
trade relationship arguably include changes to the rules of
origin for motor vehicles, the new chapter on digital trade,
In its oversight capacity, Congress may be interested in
and more enforceable provisions on worker rights. For
ongoing collaboration with Mexico. In 2021, President
example, USMCA modified NAFTA rules of origin for
Joseph Biden and Mexican President Andrés Manuel López
motor vehicles by raising the minimum level of regional
Obrador relaunched the U.S.-Mexico High-Level Economic
value content from 62.5% to 75%, adding a wage
Dialogue. Efforts include collaboration on semiconductor
requirement that 40%-45% of motor vehicle content be
and information technology supply chains, production of
made by workers earning at least $16 per hour, and
electric vehicles, border infrastructure and modernization
requiring 70% of a vehicle’s steel and aluminum originate
projects, economic development in southern Mexico and
in North America. On labor issues, USMCA added a new
Central America, regulatory cooperation, information
“rapid response” mechanism to provide a faster
technology and security, and workforce development.
independent panel investigation of labor disputes.
Alexa Apodaca, CRS Research Assistant, contributed to
USMCA maintains the NAFTA state-to-state mechanism
this report.
for dispute settlement, as well as the binational dispute
settlement mechanism to review trade remedy disputes. It
M. Angeles Villarreal, Specialist in International Trade
maintains investor-state dispute settlement (ISDS) only
and Finance
between the United States and Mexico, without Canada,
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U.S.-Mexico Trade Relations

IF11175


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https://crsreports.congress.gov | IF11175 · VERSION 5 · UPDATED

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