Mexico: Trade deficit narrows in 2016
January 27, 2017
The latest trade report brought positive news again. The trade balance was virtually flat in December, which followed a USD 200 million surplus in November. This led the 12-month trailing trade deficit to narrow further to USD 13.1 billion in December (November: USD 13.9 billion) after having hit a multi-year deficit high of USD 18.5 billion in April 2016. The improvement in the overall trade deficit is mainly the result of a sharp narrowing in the oil trade balance.
On top of an 11.1% year-on-year increase in November, exports increased 6.6% in December, pushing overseas sales to USD 33.2 billion. In the full year 2016, exports totaled USD 374 billion, which was 1.8% lower than in 2015, marking a second year in contraction. The weakness of the Mexican peso appears finally to be buttressing exports, in particular shipments of manufacturing goods, which are holding up well. Meanwhile, imports increased 4.1% annually in December (November: +5.1% yoy), pushing their value to USD 33.2 billion as well. In 2016, imports totaled USD 387 billion, which represented a 2.1% decrease from the previous year.
Under the North American Free Trade Agreement (NAFTA), Mexico and the U.S. have traded half a trillion dollars worth of goods each year and several U.S. firms have become an important source of employment in Mexico. President Trump has vowed to move quickly to renegotiate NAFTA and is pushing U.S. manufacturers to relocate jobs north of Mexico’s border.
The U.S.’s exact goals for renegotiating NAFTA remain unclear as different industries are pressing for their own interests. Although Mexico has the weakest hand at the negotiating table, it will welcome win-win proposals to enhance NAFTA and there is room to improve trade relations with the U.S. in ways that are advantageous for both countries. However, should negotiations collapse, Mexican authorities have warned that this would mean reverting to World Trade Organization (WTO) rules and would have serious consequences for Mexican trade.
Author: Ricardo Aceves, Senior Economist