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

Mexico has a population of about 110 million people making it the most populous Spanish- speaking country in the world and the third most populous country in the Western Hemisphere. Based on a gross domestic product (GDP) of $1.0 trillion in 2008 (about 7% 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. An important feature of the relationship is 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 2008, about 11% of total U.S. merchandise exports were destined for Mexico and 10% of U.S. merchandise imports came from Mexico. In the same year U.S. exports to Mexico increased almost 10%, while imports from Mexico increased about 3%. For Mexico, the United States is a much more significant trading partner. About 82% of Mexico's exports go to the United States and 50% of Mexico's imports come from the United States. FDI forms another part of the economic relationship between the United States and Mexico. The United States is the largest source of FDI in Mexico. U.S. FDI in Mexico totaled $91.7 billion in 2007. 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 three percent of U.S. GDP. Major trade issues between Mexico and the United States 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. Source: Congressional Research Service

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