Recent data reveals a notable shift in global trade dynamics as Mexico has surpassed China to become the United States' top source of official imports, according to a new report by The New York Times.
In 2023, the U.S. trade deficit with China narrowed, with imports dropping 20% to $427.2 billion. In turn, American businesses and consumers turned to Mexico, Europe, South Korea, India, Canada, and Vietnam for various goods they were previously getting from the Asian giant. Despite the overall reduction in imports, Mexican exports to the United States remained stable at $323.2 billion.
Economists point to the impact of long-standing tensions between the U.S. and China, particularly driven by tariffs imposed by the Trump administration and maintained by the Biden administration.
Trade data suggests a significant decline in the U.S.-China trading relationship, with quarterly imports from China in 2023 similar to levels a decade ago. This decline is more pronounced for products with high tariffs, indicating the tangible impact of trade policies.
Economists highlight that the reduction in trade with China might not be fully captured by official statistics. However, geopolitical factors are driving companies to seek alternative markets. Multinationals, including French electrical equipment giant Schneider Electric, are expanding their presence in Mexico due to low costs and stable trading relationships.
Foreign direct investment in Mexico surged 21% in 2023, despite a 9% overall decline in developing countries. The Biden administration's climate law and geopolitical concerns stemming from the war in Ukraine are identified as factors influencing companies to expand their presence in Mexico.
South Korea is also experiencing a surge in foreign direct investment, benefiting from a free trade deal with the U.S. and President Biden's climate legislation. Korean companies, including SK On, have invested billions in U.S. facilities, taking advantage of tax credits for electric vehicles and constraints on sourcing certain parts from China. Korean exports to the U.S. surpassed exports to China in December 2023, driven by shipments of vehicles, electric batteries, and other parts.
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