As NAFTA Talks Continue, Trade Deficit With Mexico Has Grown at Fastest Pace Since 2008

By Mark Browne | November 9, 2017 | 9:48pm EST
(Photo: Gary Hannes/Intermodal Container webpage)

Mexico City ( –  Americans are buying more Mexican goods and services, increasing the U.S. trade deficit with Mexico at the fastest pace seen in at least nine years, according to federal census data.

During President Trump’s first nine months office, the trade deficit with Mexico grew at the fastest pace seen since 2008, according to the bureau’s foreign trade data.

As of September, Americans had purchased $53 billion more in imports from Mexico this year than the U.S. exported to Mexico – a 10.9 percent increase in the trade deficit compared to the same period a year earlier.

For all of 2016, the U.S. purchased $64.3 billion more in imports from Mexico than it exported to Mexico, and that gap has been growing annually since 2013.

Deficits in trade with China and Canada are also increasing.

The U.S. imported $237 billion more in goods than it exported to China during the first nine months of this year – a rate 6.3 percent higher than the same period in 2016. The trade deficit with Canada stood at $12.4 billion for the first nine months of this year.

Mexico, Canada and the U.S. are currently renegotiating the North American Free Trade Agreement (NAFTA) and the Trump administration insists that a revamped treaty reduce U.S. trade deficits.

Trump has even threatened to terminate the 23-year-old pact that established a tri-lateral trade bloc between Canada, Mexico and the U.S., eliminating many import and export tariffs.

According to Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, ending U.S. participation in NAFTA would likely increase America’s trade deficit with Mexico, not reduce it.

Cutting the trade deficit with Mexico, she told, “doesn’t come from ending NAFTA.”

“If Trump does terminate NAFTA, the trade deficit with Mexico will grow even more because the value of the peso will drop,” de Bolle said.

A drop in the value of the peso, she said, would make Mexican goods even cheaper for U.S. buyers, resulting in even more Mexican imports to the U.S.

Ending NAFTA would strike a significant blow to Mexico’s economy, however.

Mexico’s GDP would shrink by as much as 1.9 percent if NAFTA were ended, according to a recent U.N. assessment of Latin American and Caribbean international trade.

It found that the U.S. share of what Mexico imports would drop by as much as 70 percent, opening big opportunities for Brazil, Colombia and Argentina.

“In the agro-industrial sector alone, the United States’ market share of  total Mexican imports would contract from 70% to 49%.”

The U.S., Canada and Mexico are expected to start a fifth round of NAFTA talks in Mexico next week.

De Bolle said expert observers she’s talked to in the U.S. and Canada “are very pessimistic” about a successful conclusion to the negotiations, saying Mexico and Canada cannot accept the demands being made by the U.S. negotiating team.

They include a requirement that 50 percent of the parts in all automobiles imported to the U.S. from Mexico or Canada be made in North America.

U.S. negotiators also want to insert a five-year sunset clause into a renegotiated NAFTA, requiring the pact to be reopened every five years unless the three countries all agree to continue it as is.

A sunset clause would create a lot of uncertainty for businesses, de Bolle said.

“We will have to wait and see what happens in the fifth round, if there is a standoff or if the U.S. backs off the demands.”

The positions taken by the three countries in the talks are hardening, creating a lot of unease in Mexico, according to Luis Enrique Zavala, director of Mexico’s national association of importers and exporters, ANIERM.

He said a loss of NAFTA would be “grave” for the value of Mexico’s currency and the country’s industries.

“We are at a critical point in the negotiations. There’s a lot of emphasis on the auto and agricultural and chemical industries.”

Zavala doubted the fifth round of talks would produce a resolution and predicted a sixth round would be “just as complex.”

MRC Store