Tossing It Over The Fence

Mexico Is Now The US's Largest Trading Partner

As I mentioned in my previous article, there were two dominate news stories coming out of Mexico (well, at least as of 2 weeks ago, when I wrote that last article; there's been a bit of a hiatus - don't ask, life comes at you hard): the one that previous article was about (tl;dr aliens among us), and the one I'm writing about today: the fact that Mexico has now become the largest trading partner to the world's largest economy.

Since China became a member or the World Trade Organization in 2001, it had steadily grown to become the top trading partner to the world's largest economy - the United States. In 2014, China surpassed Canada to become the U.S.'s top trading partner - a position it has held onto for nearly 14 years.

But U.S.-China trade has been on a steady decline since the Trump administration imposed heavy tariffs on China imports. That decline was further accelerated by the Covid pandemic and the subsequent chilling effect on global supply chains.

Meanwhile, the U.S. has been looking closer to home for much of the manufacturing and trade that it had previously been off-shoring to China, with Mexico rising to the top as the preferred "near-shore" nation to pick up where China left off. Beyond the political winds of change, there are some real benefits to the U.S.-Mexico trade relationship - primarily that the supply chain in such a geographically close relationship is far less brittle, and there is less impact on the climate, since goods are moved a much smaller distance, and there are more options for transportation - namely, overland as well as air and sea.

On the other hand, near shoring also means higher prices: Mexico's labor force is better educated and higher paid than that of China - and those higher salaries mean higher prices the consumers end up paying for manufactured goods. Honestly, though, this is a good thing. Labor should be higher paid, and the world should gladly say goodbye to the often horrific labor practices that China has employed in their role as manufacturer to the world. The U.S. can also say goodbye to the fairly unbalanced trade relationship with China: the U.S. has always imported far more from China than it exported to China. The trade relationship with Mexico is much more balanced.

But it's not all arcoiris and unicornios (translation: 🌈 and 🦄). With all the new manufacturing and foreign investment in Mexico, Mexico is still struggling to deal with infrastructural demands and with spreading the wealth. Although Mexico's middle-class is growing, there is still an unacceptably disproportionate amount of poverty in the country. And Mexico is dealing with issues with their electrical grid - the grid that manufacturing plants rely upon to keep running. And more crucial still is water. Especially in the arid, draught-prone north - where a lot of manufacturing is located due to proximity to the U.S.; thousands of residents face water service disruption as the region struggles to meet the demands of residents and manufacturing. New aqueducts around the large manufacturing centers have been promised, but those promises need to become realities unless Mexico wants to find itself in an emergency situation.

Ultimately, the real winner in this new world order just might be the Mexican peso. Mexico's peso is currently enjoying a run as the strongest, best performing currency in the world, thanks to extremely conservative fiscal policies of Mexico's central bank, and the increased demand for labor and material that the massive U.S.-Mexico trade relationship entails.

The peso as the best performing currency in the world - who would have predicted that two years ago?