BUSINESS

Mexico Leapfrogs Canada As U.S. Trading Partner (What Must Trump Think?)

12/07/2016 12:18 EST

It’s potentially bad news for the Great White North, but probably worse news for Donald Trump: Mexico has become a larger trading partner of the U.S. than Canada.

This year is shaping up to be the first time on record that Mexico’s trade relationship with the U.S. is larger than the U.S.-Canada relationship.

According to data from the U.S. Commerce Department, trade in goods between the U.S. and Mexico amounted to US$245.3 billion this year through October, while U.S.-Canada trade totalled $230.4 billion.

donald trump grimaces

Donald Trump, then the Republican candidate for president, grimaces as he makes remarks Tuesday, Aug. 9, at the University of North Carolina at Wilmington in Wilmington, N.C. (Photo: Chuck Liddy/Raleigh News & Observer/TNS via Getty Images)

President-elect Donald Trump has threatened to scrap the North American Free Trade Deal, singling out Mexico as a trading partner he says has unfairly taken jobs from the U.S.

Trump launched his presidential campaign in 2015 with a rhetorical attack on Mexican migrants.

They’re bringing drugs, they’re bringing crime, they’re rapists, and some I assume are good people but I speak to border guards and they tell us what we are getting,” Trump said in June, 2015.

us mexico border trucks

Trucks wait in a long queue for border customs control to cross into U.S. at the World Trade Bridge in Nuevo Laredo, Mexico, November 2, 2016. (Photo: Reuters/Daniel Becerril)

But now comes word that Mexico has become a larger and more important part of the U.S. than ever.

“Integration with Mexico has become more solid than with Canada,” Marco Oviedo, chief Mexico economist for Barclays, told Bloomberg. “Manufacturing continues to be very competitive in terms of wages and location to other U.S. producers and suppliers.”

Though both Canadian and Mexican officials have said they would be willing to renegotiate NAFTA, the Trump team has been largely quiet on the issue since the Nov. 8 election.

Canada ‘a trading nation that’s forgotten how to trade’

Canada was the U.S.’s largest trading partner for decades until China overtook it in 2015.

The country’s loss of status can be chalked up mainly to two things: Lower oil prices, which have reduced the value of Canadian exports; and the long, slow decline of Canadian manufacturing, made worse by many years of a strong Canadian dollar, which allowed Mexico to overtake Canada as an auto exporter to the U.S.

According to an analysis at Bloomberg, Canada has experienced the worst export slump of any G-20 country since the turn of the century. Virtually all of the gains in trade made under NAFTA have now been wiped out.

trade share of gdp

Canada's reliance on trade peaked around 2000, and fell for years afterwards, wiping out most of the gains made under NAFTA. Things have stabilized in recent years, but trade growth is very slow. (Chart: Doug Porter/Bank of Montreal)

Canada’s reliance on trade has fallen sharply in recent years. In 2000, foreign trade equalled 84 per cent of Canada’s economic output, but by 2015 that had fallen to around 65 per cent.

“Data right now show a trading nation that’s forgotten how to trade,” the Bloomberg analysis concluded.

But Bank of Montreal chief economist Doug Porter says it was that peak in trade in 2000 that was unusual, and this is a return to normal for Canada.

port vancouver

Cargo loaders at the port of Vancouver. Canada's reliance on trade has shrunk since the start of the century, data shows. (Photo: Hisham Ibrahim/Getty Images)

“While this is a massive decline, note that the latest result happens to be right on the 30-year average for trade,” he wrote in a client note.

Porter noted that around 2000, Canadian exports were being boosted by a very low loonie. That low loonie shot up to record highs between 2002 and 2008, thanks to surging oil prices, hammering non-energy exporters.

But now that the loonie is low again, exports aren’t picking up as fast as experts expected. Many economists say that’s because Canada has a lot less to export these days.

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