How Real is the US Trade Deficit with Mexico?

By GIANLUCA SALPIETRO

Whether the US benefits from integration with Mexico has been particularly questioned over the past year or so. To be fair, perhaps most commentators point to their enhancement through further integration than to any lack thereof. When speaking of economic ties however, what are the issues?

A 2011 report by Cristopher E. Wilson and published by the Mexico Institute of the Woodrow Wilson International Center for Scholars, aimed to shed some light on what makes US economic integration with Mexico special.

In this report we see for example, that the oft-claimed US trade deficit with Mexico, which in 2016 stood at US$ 64 billion, should be placed in its proper context. President Trump claims it is too large and damaging to the US economy.

But considering that the Mexico Institute report, citing a 2010 NBER working paper, highlights that the value of US content in Mexican imports was actually 40%, and this figure is unlikely to have diminished since 2011, the effective size and importance of the US trade deficit with Mexico should be properly assessed.

This 40% US content in US imports from Mexico means that the US$ 64 billion trade deficit should probably be corrected, as a substantial proportion of it consists of products previously sold by the US to Mexico and then imported back into the US most likely further processed.

Precisely how this correction for US content of the US trade deficit with Mexico should be made is a matter for economic analysts and advisors, but certainly a correction should be due to gain a deeper understanding of true US trade relations with Mexico. Any correction moreover, would most certainly reduce what is considered as the effective burden for the US of this trade deficit and probably quite considerably so. The question is therefore, considering the above, what is the true effective US trade deficit with Mexico?

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