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Thursday, April 8, 2010

U.S.-Mexico Economic Relations: Trends, Issues, and Implications

M. Angeles Villarreal
Specialist in International Trade and Finance

Mexico has a population of about 111 million people, making it the most populous Spanishspeaking country in the world and the third-most populous country in the Western Hemisphere. Based on a gross domestic product (GDP) of $875 billion in 2009 (about 6% of U.S. GDP), Mexico has a free market economy with a strong export sector. Economic conditions in Mexico are important to the United States because of the proximity of Mexico to the United States, the close trade and investment interactions, and other social and political issues that are affected by the economic relationship between the two countries. 

The United States and Mexico have strong economic ties through the North American Free Trade Agreement (NAFTA), which has been in effect since 1994. In terms of total trade, Mexico is the United States' third-largest trading partner, while the United States ranks first among Mexico's trading partners. In U.S. imports, Mexico ranks third among U.S. trading partners, after China and Canada, while in exports Mexico ranks second, after Canada. The United States is the largest source of foreign direct investment (FDI) in Mexico. These links are critical to many U.S. industries and border communities. 

In 2009, 12% of total U.S. merchandise exports were destined for Mexico and 11% of U.S. merchandise imports came from Mexico. After increasing 10% in 2008, U.S. exports to Mexico decreased 19.6% in 2009 as a result of the global financial crisis and the effect on the U.S. economy. Imports from Mexico decreased 18.5% in 2009, after a 3% increase in 2008. For Mexico, the United States is a much more significant trading partner. Over 80% of Mexico's exports go to the United States and 48% of Mexico's imports come from the United States. The stock of U.S. FDI in Mexico totaled $95.6 billion in 2008. The overall effect of NAFTA on the U.S. economy has been relatively small, primarily because two-way trade with Mexico amounts to less than 3% of U.S. GDP. Major trade issues between Mexico and the United States since NAFTA have involved the access of Mexican trucks to the United States; the access of Mexican sugar and tuna to the U.S. market; and the access of U.S. sweeteners to the Mexican market. 

Over the last decade, the economic relationship between the United States and Mexico has strengthened significantly. The two countries continue to cooperate on issues of mutual concern. President Barack Obama met with Mexican President Calderón and Canadian Prime Minister Harper at the North American Leaders' Summit in Guadalajara, Mexico, in August 2009 to discuss key issues that affect the three countries. They agreed to continue cooperation in North American competitiveness and security.

Date of Report: March 31, 2010
Number of Pages: 29
Order Number: RL32934
Price: $29.95

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