By: Dr. Alejandro Diaz-Bautista, Economist (Ph.D.) and research professor at the Northern Border College (COLEF).
Economic and commercial analysis of NAFTA and the new USMCA.
NAFTA entered into force on January 1, 1994. The first trade agreement contained provisions on tariff and non-tariff barriers, customs procedures, agriculture issues, public procurement, foreign investment, trade in services, temporary entry for business people, protection of intellectual property rights, and dispute resolution procedures. NAFTA was the first treaty with free trade provisions with labor and the environment.
On July 1, 2020, the USMCA replaced NAFTA. The new treaty retains many of the NAFTA chapters while making notable changes to others, including those related to market access, provisions for automobiles and agricultural products, investment rules, public and intellectual procurement, as well as what property rights are (IPR).
It also contains stronger workforce and environmental provisions and adds new chapters on digital commerce, state-owned enterprises, and currency misalignment. In 2020, Mexico was the second most important country in trade terms for the United States, after China.
In terms of merchandise exports from the United States, Mexico ranks second. It also ranks second, after China, among suppliers of US imports. The United States is by far the most important country as a goods export market, with 80% of Mexican exports destined for the United States.
Merchandise trade between the two countries has increased since the entry into force of NAFTA. In 2020, the slowdown in the economy due to the COVID-19 coronavirus pandemic resulted in a 12% decrease in total bilateral merchandise trade from $614.5 billion to $538.1 billion.
The merchandise trade balance went from a surplus of $1.7 billion in 1993 (the year before NAFTA came into force) to a growing deficit that reached $112.7 billion in 2020. Merchandise exports from The United States to Mexico increased from $41.6 billion in 1993 to $265.9 billion in 2018 and then decreased to $212.7 billion in 2020, so the pandemic did have a commercial effect.
The top U.S. exports to Mexico in 2020 consisted of petroleum and coal products ($18.2 billion), motor vehicle parts ($15.8 billion), semiconductors and other electronic components ($15.3 billion), computer equipment ($11.5 billion), and basic chemicals ($8.9 billion).
U.S. merchandise imports from Mexico increased from $39.9 billion in 1993 to $358.0 billion in 2019 and then declined to $325.4 billion in 2020 due to the effects of the coronavirus pandemic. The top U.S. merchandise imports from Mexico in 2020 included vehicles ($56.4 billion), motor vehicle parts ($43.7 billion), computer equipment ($27 billion), audio and video equipment ($12.7 billion), and computer equipment ($11.8 billion).
The United States shares strong economic ties with Mexico and any interruption of the economic relationship during 2021 could have adverse effects on investment, employment, productivity, and competitiveness in the North American area.