Commentary:
The situations in Mexico and Japan could be described as a tale of two countries moving in opposite directions. For the first time since 2002, Mexico is now the number one supplier of imports for the U.S. In 2023, our southern neighbor exported approximately $475 billion to the U.S., surpassing China, whose U.S. exports went down 20 percent to $427 billion. According to the Bureau of the Census’ statistics, total U.S.-Mexico trade last year was $798.8 billion, with the U.S. running a $152.3 billion trade deficit with Mexico. Put in perspective, the U.S. and Mexico trade approximately $2.2 billion every day of the year.
Mexico’s exports to the U.S. are a hodge-podge of products that run the gamut of industrial and consumer products. Last year, Mexico’s biggest exports to the U.S. were machinery, industrial products, petroleum, medical equipment, furniture, building materials, and agricultural products. They contributed to Mexico experiencing a 3.2 percent growth in GDP to move this economic indicator to more than $1.8 trillion in 2023.
Mexico’s new position generates some interesting observations and considerations.
Many of us take for granted that the trusses in our roofs, the components in our automobiles, the tomatoes and avocados that we eat, and the tequila in the margaritas we drink are supplied by Mexico. Indeed, I would hazard a guess that many Americans do not comprehend how big a role Mexico plays in the everyday lives of Americans in terms of trade.
It is common for many politicians and American citizens to call for the U.S. to shut down the country’s border with Mexico because of immigration or perceived security issues. To some people this simply means closing the border to any more northbound migration. Unfortunately, other people actually advocate for shutting down the border completely, which demonstrates a lack of understanding of the symbiotic relationship the U.S. and Mexico have in their trade relationship.
Mexico’s rise and China’s decline as an export source to the U.S. is being supported by the continuing U.S.-China trade war, and the slapping of tariffs on each of the other country’s exports. Many Chinese products are facing up to 25 percent tariffs on exports to the U.S., which can make them non-competitive compared to Mexican products. Mexico has taken advantage of this trade war by welcoming the companies from China that are getting around the U.S. tariffs by establishing production operations in Mexico, where they would be subject to the more favorable terms of the U.S.-Mexico-Canada Agreement (USMCA).
Mexico also is considered to be one of the most open economies in the world when it comes to trade. It has trade agreements that provide it with access to 50 countries throughout the world. It reciprocates and counts with the presence of companies operating within its borders from Asia, Europe, North America, and South America. Per the USMCA, the three North American countries mutually work to promote trade and to resolve disputes. These factors have made Mexico the world’s twelfth largest economy.
Japan’s situation is a different story. After WWII, the rapid reconstruction of West Germany’s economy put this country only behind the U.S. and the Soviet Union, before Japan, with its own rapid reconstruction, overtook it by 1970. By 1990, Japan had surpassed the crumbling Soviet Empire to capture second place. Japan remained in this spot until 2010, eventually to be overtaken by China.
In 2023, Japan’s economy grew by 1.9 percent, but contracted by 2.9 percent in the third quarter and 0.4 percent in the last quarter of the year, indicating that the country is in a recession. Several factors are hindering Japan’s growth. First, it has one of the oldest populations on earth, which is shrinking. This is affecting its productivity. Japan has never been a strong advocate for immigration to neutralize its aging population, and the effects are starting to show.
Japan’s stagnant economic growth also was exacerbated by the decline in consumer spending for three quarters in a row in 2023. Many economists are predicting that Japan’s GDP will grow below one percent next year, possibly as low as one-half percent. Finally, the stubbornly weak yen against the dollar has caused Japan’s economy to lose value on paper, because GDP is calculated in dollar terms.
Because of Japan’s economic woes, in 2023 it slipped one spot on the list of world’s largest economies to fourth place, and was supplanted by Germany, which had not been the case for these two countries for 53 years. Ironically, Germany’s economy is nothing to write home about, also seeing contraction in 2023, however, not as severely as Japan’s. Germany, at $4.4 trillion GDP, and Japan at $4.2 trillion GDP, still lag far behind number two China ($17.7 trillion GDP) and the U.S. ($26.9 trillion). However, for Japan, a proud, industrious nation that prides itself in being an economic powerhouse, the switch in ranking with Germany has to sting.
Jerry Pacheco is the President of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.