While most people have been distracted by news headlines about Venezuela, immigration and party politics, México quietly became America’s number one importer of American products and exporters of Mexican goods to American consumers. In August, México overtook Canada as the number one importer of U.S. exports for the first, making México the number one country globally to import U.S. products. This follows México overtaking China in 2023 as the leading source of U.S. imports to American consumers.
Behind this economic reality lies several notable key points that are important to point out.
The first is the scale and the integration of trade between the two countries in that both countries now belong to one of the largest economic blocks in the world. Any disruption in any country will affect both country’s populations significantly. This is especially important to understand as the Trump administration vacillates back-and-forth between deploying U.S. troops on Mexican soil to fight the drug cartels.
Mexican President Claudia Sheinbaum has been clear that the unilateral deployment of U.S. troops violating Mexican sovereignty is unacceptable under any scenario. The first casualty of any U.S. strike or troop deployment on Mexican soil will be the disruption of trade with the United States, affecting both Americans and Mexicans alike.
Making things worse is that any disruption of trade across the borders not only affects consumers but it will also disrupt each country’s exports to third countries because many products are co-produced on both sides of the border. The automotive sector is the prime example. Automotive U.S. manufacturers are competitive because of their co-dependence in manufacturing that makes American companies reliant on México.
U.S.-México trade helps to keep prices low for consumers on both sides of the border, but more so, for American consumers. In the agricultural sector, the U.S. exports diary, corn and pork to Mexican consumers, while American consumers depend on fruits and vegetables imported from México. On Super Bowl Sunday, Americans will be consuming beer imported from south of the border.
Although cross-border trade has been beneficial for both countries, friction points remain on immigration, tariffs and illicit drug trafficking for both governments. One friction point frequently discussed is wages. However, the North American Free Trade Agreement (NAFTA), now the updated United States-Mexico-Canada Agreement (USMCA) has not eroded America’s middle class as some argue.
It is true that Mexican wages have not grown under free trade and, in fact, have decreased pre-NAFTA. But there are key differences in labor laws and how they apply to workers and wages making an apple-to-apple comparison difficult. Rather than argue if stagnant wages mean that free trade failed México, it is more useful to speculate what México without NAFTA would look like today.
What Would México Without NAFTA Look Like Today?
Without NAFTA, the Mexican economy would continue to be heavily reliant on oil like it was in the 1980’s. Petróleos Mexicanos (PEMEX) would be the dominant economic driver along with its inherent inefficiencies, corruption and continue to be a monopoly that discourages innovation and competition.
The dependency on the oil economy would tie México’s economy directly to the global oil pricing manipulations. The economic crisis of 1982 and 1994 would likely have been much worse. México would be much less industrialized today and wages would be lower and poverty higher.
How do we know how México would be like without NAFTA? The blueprint is Venezuela today.
The Venezuelan Example
Venezuela’s economic collapse starting in 2014 provides us a blueprint to what México would be like today without NAFTA. There are several factors that led to the collapse of the Venezuelan economy and many of them mirror the Mexican economy and governance model prior to NAFTA.
Like Venezuela, México’s economy was heavily dependent on oil revenues when NAFTA took effect. The state-owned oil company, PEMEX, lacked investment and was inefficient. Like PEMEX, the inefficiency of Venezuela’s Petróleos de Venezuela SA (PDVSA), and graft reduced oil revenues that could no longer sustain government spending. NAFTA, for México picked up the revenue slack from declining oil revenues and forced structural changes in México.
Today, PEMEX continues to face financial problems but remains operational and is a major source of the Mexican economy. PDVSA, on the other hand, has largely collapsed.
If México had kept its inward-looking economy and continued to depend heavily on oil revenues, its economy would likely be around 50% smaller today while still dependent on dwindling oil revenues with an inefficient agricultural economy geared towards domestic consumption.
More important is that the Mexican manufacturing sector would likely not exist as there would not have been the necessary foreign investments made to build it.
Venezuela’s economic collapse has led to an erosion in the quality of life for the people in Venezuela, an exodus of Venezuelans leaving for lack of opportunity and an economy that is dependent on an inefficient monopoly that is affected by oil price politics thousands of miles from its borders.
Venezuela today is what México could have been absent NAFTA.
México Today
Today, México has a relatively stable labor market with unemployment at 2.6% that is historically low. The economy faces sluggish growth, but growth nonetheless with a recent trade surplus and a stable Mexican Peso. Faced against U.S. tariffs and political rhetoric of military intervention, however small, the economy of México today shows that free trade has worked for the country and continues to work for it today.
Becoming America’s number one importer and exporter of consumables is proof that the alternative could have easily been a Venezuela-like scenario on America’s southern doorstep and detrimental to the Mexican people.
