They say that love and war follow their own rules, but what about trade wars? The ongoing trade conflict between the United States and China kicked into high gear in 2018 when President Trump initiated a series of tariffs and protective measures aimed at curbing the growing trade deficit.
The trade relationship had been under scrutiny for years, with concerns dating back to 2011 when officials from the Obama administration and U.S. companies raised complaints about China’s trade practices, which did not align with the liberal mercantilism principles the U.S. had hoped China would uphold after joining the World Trade Organization (WTO) in 2000. By 2018, with President Trump two years into his term and fueled by hawkish rhetoric on China, reports of the U.S. losing around six million manufacturing jobs to China became the tipping point, leading to what is now commonly referred to as the “Trade War.”
The trade war has persisted into President Biden’s tenure, with many of the protective tariffs implemented during the Trump era still in place, along with some new ones. These new tariffs aim to safeguard sensitive U.S. intellectual property and proprietary processes related to chip manufacturing. As a result of these ongoing tensions, the United States has quietly been diversifying its sources for imports. Recent reports suggest that the U.S. is strengthening its trade ties with a close neighbor: Mexico. Mexico Surpasses China in U.S. Exports According to a report by Bloomberg, as well as similar findings by Market Watch, Mexico has overtaken China as the largest exporter of goods to the United States. The report from Bloomberg notes that “US-China tensions are rewiring global trade, as the US seeks to reduce supply-chain reliance on geopolitical rivals and also source imports from closer to home.
Mexico appeals on both counts — which is one reason it’s just overtaken China as the biggest supplier of goods to the giant customer next door.” Market Watch concurs, stating, “But really, America’s southern neighbor has held the title for all of 2023. Here at MarketWatch, we like simpler calculations. Drawing on a quarterly series measuring trade on a balance of payments basis, Mexico took the lead in the third quarter of 2022.” Analysts and economic data increasingly suggest that Mexico is becoming a key trading partner for the United States. Notably, Mexico’s major exports align well with what the U.S. demands: Cars Motor vehicle parts and accessories Computers Delivery trucks Crude petroleum Given the ongoing car shortage in the United States, Mexico’s efficient production of these goods is a significant advantage. On the flip side, the United States’ largest imports also correspond to Mexico’s strengths: Cars Crude petroleum Computers Broadcasting equipment Packaged medicaments Bloomberg reports that Mexico narrowly edged out China, accounting for 15% of U.S. imports in July, compared to China’s 14.6% in the same month.
Mexico’s Growing Role in U.S. Trade This shift in trade dynamics comes shortly after Mexican President Andrés Manuel López Obrador announced that Tesla would build and operate a new factory in Mexico by 2026. During a speech to the 78th Session of the United Nations General Assembly, President Biden acknowledged the need to manage competition between China and the United States.
He emphasized the importance of maintaining responsible competition rather than allowing it to escalate into conflict. President Biden stated, “We are for de-risking, not decoupling with China,” indicating a desire to work together with China on various issues while also defending U.S. interests and international rules. In conclusion, the trade landscape between the United States and China has undergone significant changes in recent years. Mexico has emerged as a notable trading partner for the U.S., reflecting a shift in global trade dynamics driven by geopolitical tensions and economic considerations. How the U.S. manages these trade relationships will continue to have far-reaching implications for the global economy.