Mexico is now exporting more to the US than Canada.
Exports from Mexico to the United States totaled $245 billion for the first 10 months of 2016, while exports from Canada to the US came in at $230 billion, according to figures released by the Commerce Department on Tuesday, which we spotted first via Bloomberg’s Gerg Quinn and Nacha Cattan.
If these trajectories continue, 2016 will be the first time the US bought more from Mexico than from Canada. China remains the number one exporter to the US, while Canada and Mexico finished 2015 tied for second.
Since the implementation of the North American Free Trade Agreement, Mexico’s economy has become more focused on manufacturing; over 80% of its exports went to the US in 2015. At least part of the country’s attractiveness can be attributed to its lower wage costs relative to Canada (and the US).
Notably, the data from the Commerce Department suggests increased economic integration between the US and Mexico at a time when President-elect Donald Trump has repeatedly advocated a more protectionist agenda. During his campaign, he criticised Mexico (along with China and Japan), proposed taxing imports from Mexico, and called the North American Free Trade Agreement (NAFTA) “the worst trade deal in the history of our country.”
And since his election in early November, there have been questions about whether Mexico could get economically whacked once Trump steps into office come January. Several forecasts have predicted a recession if the President-elect follows through with his proposals, while a team at Capital Economics forecasts that “growth is set to be softer than we had previously expected due to weaker investment and tighter monetary policy” — although they stopped short of predicting an outright recession.
For what it’s worth, Mexico’s GDP rose by 1.0% in the third quarter, following an upwardly revised 0.1% in the second quarter. And somewhat notably, the uptick was driven partially by Mexico’s services sector, which you can see in the adjacent chart from Capital Economics.
Another interesting thing to note is that the Mexican peso has weakened significantly against the US dollar over the last two years. This makes goods coming from Mexico cheaper for Americans which then, taking that a step forward, allows Americans to buy more for the same dollar amount relative to before.
While the Mexican peso ended up being one of the big market casualties of the US presidential election as it became something of a gauge of Trump’s prospects, it’s crucial to note that the currency started weakening before Trump started campaigning.
Neil Shearing, Capital Economics’ chief emerging-markets economist, previously argued that this could be explained by a structural deterioration in the country’s economic position amid long-run issues at Pemex, the state-owned oil company, and chronically weak productivity growth.
The Mexican peso is up by 0.9% at 20.4018 per dollar as of 2:20 p.m. ET.