An U.S. flag flies as cranes for unloading shipping containers stand at the Port of Los Angeles in San Pedro, Calif.Patrick T. Fallon/Bloomberg
Mexico is on track to overtake Canada as the No. 2 exporter of goods to the United States in 2016, in a sign of how economic ties have deepened between the two countries even as the relationship is being questioned by president-elect Donald Trump.
Shipments from Mexico totalled $245-billion (U.S.) in the first 10 months of the year, according to Commerce Department figures released Tuesday, ahead of Canada's $230-billion. If the trend continues, it would be the first time the United States bought more imports from its neighbour to the south. The two countries ended 2015 tied in exports to the United States.
The trend of catching up to Canada puts China and Mexico as the top two exporters to the United States just as Mr. Trump prepares to take office in January, reflecting the strong pull of lower cost jurisdictions for the U.S. economy. Canada, which has one of the highest cost bases in the Americas, has seen its share of U.S. imports fall to about 13 per cent from around 20 per cent two decades ago.
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"Integration with Mexico has become more solid than with Canada," said Marco Oviedo, chief Mexico economist for Barclays PLC. "Manufacturing continues to be very competitive in terms of wages and location to other U.S. producers and suppliers."
The growing links between Mexico and the United States hinge on motor vehicles. Mexico has won new factories over the past six years from Toyota Motor Corp., Volkswagen AG's luxury Audi unit, Kia Motors Corp. and BMW AG – up to $25.9-billion in new auto investments since 2010, according to the Center for Automotive Research in Ann Arbor, Mich. – fuelling car shipments totalling $90-billion in the first 10 months. That's versus $54-billion from Canada.
Canada's cost base is also a big part of the story. Canada's labour bill has swelled with unit labour costs in U.S. dollars, a key index of competitiveness, increasing by 64 per cent since 2002 even with Canada's currency weakening in recent years.