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Mexico replaced China as America’s top trade buddy — and it shows how the global economy is rapidly transforming

According to a new post from Luis Torres, a senior business economist at the Federal Reserve Bank of Dallas, Mexico has once again cemented its place as America’s top trading partner, with $263 billion worth of goods passing between the two countries in the first four months of this year. Trade with Mexico accounted for 15.4% of goods exported and imported by the US, just ahead of America’s trade totals with Canada and China, which were 15.2% and 12% respectively.

Even as the world moves on from the height of the pandemic, Mexico’s ability to take the top spot away from China — which had spent the last two decades integrating itself further into the US economy — is a clear sign of how the economic chaos of 2020 is set to continue to define the world economy for years to come.

Torres said the seeds for this shift were sown before the pandemic — with former President Donald Trump’s tariffs on some Chinese goods and the signing of the US-Canada-Mexico trade deal, a slight update of the nearly three-decades-old NAFTA deal. But Torres said the changes also suggested an accelerated shift toward “nearshoring,” a practice in which countries bring supply chains for crucial goods to countries that are close physically and politically.

“While data on recent nearshoring is thin and evidence of it is largely anecdotal, increased protectionism and related industrial policy are consistent with less global trade, more regional trade, and nearshoring and reshoring (returning production to the home country),” Torres wrote.

Nearshoring increased during the pandemic because of the increased cost of shipping products across the Pacific and the consumer demand for faster delivery times — we’ll call the latter “The Amazon Prime Effect.” The New York Times’ Peter S. Goodman also wrote earlier this year that companies like Walmart were increasingly looking closer to home for ways to fill their needs as political tensions between the US and China heated up.

“It’s not about deglobalization,” Michael Burns, a managing partner at Murray Hill Group, an investment firm focused on the supply chain, told Goodman. “It’s the next stage of globalization that is focused on regional networks.”

In Shannon O’Neil’s new book, “The Globalization Myth: Why Regions Matter,” she made the case for regionalization over globalization and said that keeping production closer to home would help American workers. In his review of O’Neil’s book, Greg Rosalsky of NPR summed up the argument:

“O’Neil writes that the average import from Mexico is ‘40% US made,’ meaning that 40% of the parts that go into the end product are still produced in the US. The average Canadian import, meanwhile, is 25% made in the US. ‘As for a product coming in from China? Just 4% of it was made in the USA,’ she writes.”

Still, in recent months, President Joe Biden has sought to improve the relationship between the US and China after seeing the fracturing grow in recent years, including the shooting down of a Chinese spy balloon in February. Secretary of State Antony Blinken met with China’s leader, Xi Jinping, in June, and Treasury Secretary Janet Yellen recently made a four-day trip to China.

Blinken and Xi pledged to stabilize the relationship between China and the US. Meanwhile, Yellen voiced concerns about “unfair economic practices” but said she hoped the two sides could work closer because “the world is big enough for both of our countries to thrive.”

With pieces in constant motion, especially with China, one thing is clear for now: trade between Mexico and the US appears to be as strong as ever and should continue to grow.

– businessinsider.com

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