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Wednesday, August 22, 2012

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

M. Angeles Villarreal
Specialist in International Trade and Finance

In the remainder of the 112th Congress, policymakers will likely maintain an active interest in Mexico on issues related to cross-border trade between the two countries, Mexico’s participation in the Trans-Pacific Partnership (TPP) agreement negotiations, economic conditions in Mexico, migration, and border issues. Congress also will likely take an interest in the economic policies of Mexican President-elect Enrique Peña Nieto who is expected to enter into office for a six-year term on December 1, 2012. During his campaign, Peña Nieto advocated a 10-point economic plan that includes, among other measures, implementing recently passed legislation to counter monopolistic practices, passing fiscal reform, opening up the oil sector to private investment, making farmers more productive, and doubling infrastructure investments.

The bilateral economic and trade relationship with Mexico is of interest to U.S. policymakers because of Mexico’s proximity to the United States, the high level of bilateral trade, and the strong cultural and economic ties that connect the two countries. Also, it is of national interest for the United States to have a prosperous and democratic Mexico as a neighboring country. Mexico is the United States’ third-largest trading partner, while the United States is, by far, Mexico’s largest trading partner. Mexico ranks third as a source of U.S. imports, after China and Canada, and second, after Canada, as an export market for U.S. goods and services. The United States is the largest source of foreign direct investment (FDI) in Mexico.

The United States and Mexico have strong economic ties through the North American Free Trade Agreement (NAFTA), which has been in effect since 1994. Prior to NAFTA, Mexico had followed a strong protectionist policy for decades until it began to unilaterally liberalize its trade regime in the late 1980s. Not all trade-related job gains and losses since NAFTA can be entirely attributed to the agreement because of the numerous factors that affect trade, such as Mexico’s trade liberalization efforts, economic conditions, and currency fluctuations. NAFTA may have accelerated the ongoing trade and investment trends that were already taking place at the time. Most studies show that the net economic effects of NAFTA on both countries have been small but positive, though there have been adjustment costs to some sectors within both countries.

In June 2012, President Barack Obama announced that the nine countries involved in the TPP negotiations had extended an invitation to Mexico and Canada to join negotiations for the proposed multilateral free trade agreement. The proposed TPP would likely enhance the economic links Mexico already has with the United States and Canada under NAFTA. This could include further reduction of barriers to trade and the negotiation of key issues in areas such as agriculture, intellectual property rights protection, government procurement, regulatory cohesion, and others.

The United States, Mexico, and Canada have made efforts since 2005 to increase cooperation on economic and security issues through various endeavors, most notably by participating the North American Leaders Summits. The most recent Summit was hosted by President Obama on April 2, 2012 in Washington DC. The three leaders discussed issues on the economic well-being, safety, and security of North America and issued a joint statement renewing their commitment to regulatory cooperation in key areas or interest.

Date of Report: August 9, 2012
Number of Pages: 33
Order Number: RL32934
Price: $29.95

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