NAFTA under fire
One of the first things that caught the attention of economy watchers immediately after Donald Trump’s US election victory on November 8 was that NAFTA (North American Free Trade Agreement) was under fire. The new US President has been quite critical of the treaty which has allowed for virtually free movement of goods and services between the US, Canada, and Mexico – the three signatories of NAFTA – since 1994.
Mexico is under the most pressure amongst the three nations as it has the most to lose given its economic dependence on exports to the US. Currently, 80% of Mexico’s exports head north to the US. This has been extremely beneficial to Mexico over the years, but the growing dependence could haunt the country with the recent change in US guard.
Trade with the US
The graph above shows the breakdown of trade in goods and services between the US and Mexico. ‘Exports’ implies exports from the US to Mexico, while ‘imports’ implies US imports from Mexico. A reading over 50% means the US has a trade surplus, while one below shows the US has a trade deficit.
Bilateral trade between the US (IVV) and Canada (EWC) stood at $662.7 billion for 2015 with the US carrying a deficit in trade of goods while holding a surplus in services trade. With Mexico, two way trade with the US was valued at $583.6 billion in 2015. However, the difference in US trade dynamics between Canada and Mexico is that the US has an overall trade surplus with Canada, while it has a trade deficit with Mexico (EWW).
This is what has irked President Trump according to comments throughout his campaign.
The White House view on trade and its recent actions on immigration have the potential to turn this situation into a classic Mexican standoff. Let’s explore this aspect in greater detail in the next article.