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In 2023, Mexico overtook China as the United States’ largest goods exporter, based on recent trade figures.
The Bureau of Economic Analysis, an agency of the US government, reported that imports from China to the US fell by approximately 20% to $427.2 billion last year. In contrast, Mexican exports to the US increased by 5% to $475.6 billion, marking the first occasion in two decades that Mexico has been the top supplier of goods to the US
The shift comes as American firms seek to diversify their supply chains amidst fluctuating relations between the US and China. The strategy, endorsed by the Biden administration and dubbed “friendshoring,” aims to minimise geopolitical threats by enhancing supply networks among allied nations and reducing reliance on geopolitical adversaries.
The tense dynamics between the US and China have brought national security worries to the fore, particularly concerning technology trades.
To diversify, Southeast Asia has emerged as an attractive region due to its stability and proximity to China, a key production centre. In September, US President Joe Biden identified Vietnam as a key ally in establishing a semiconductor supply chain, with Singapore and Malaysia also gaining interest from American businesses.
To counter geopolitical tensions, Chinese firms are also diversifying their supply chains, with many establishing operations in Southeast Asia, Africa, and even the US, as reported by Nikkei.
Data from the US Commerce Department shows that America’s trade deficit with Mexico rose by 17% to $152.4 billion in 2023, while the deficit with China shrank by 27% to $279.4 billion, the smallest since 2010.
The overall trade imbalance of the US for 2023 was reduced by 18.7% to $773.4 billion from $951.2 billion, with a decrease in imports and a rise in exports to the global market, despite a strong dollar and a slowing world economy.
As diversification efforts continue, efforts to stabilise US-China relations are underway, with senior officials from both nations meeting in Beijing to discuss trade and economic issues, following a series of high-level engagements since the previous September.
US trade deficit
Last year saw the most significant reduction in the US trade deficit since 2009, driven by a decrease in the value of imported goods and an increase in the services surplus. Data from the Commerce Department revealed a nearly 19% contraction in the annual trade gap to $773.4 billion from the previous record in 2022.
The trade deficit in goods and services for December widened marginally from the previous month to $62.2 billion, with these figures not adjusted for inflation.
This reduction marks the first decrease in the US trade deficit in four years, illustrating company efforts to curb inventory accumulation and subsequently lower import demand.
Post-pandemic shifts in American consumer spending towards services and experiences, away from merchandise, also played a role.
A smaller trade deficit has been beneficial for economic expansion, with net exports contributing positively to the gross domestic product for seven consecutive quarters, despite trade detracting from GDP from the third quarter of 2020 until early 2022.
In terms of inflation-adjusted figures, the merchandise trade deficit contracted to $82.8 billion in December from the preceding month.
Key Points for the Year (not adjusted for inflation):
- Imports saw a 3.6% decrease, while exports of goods and services rose by 1.2% to an unprecedented high.
- The US petroleum surplus reached a new peak of $30.1 billion.
- Records were set for exports in capital goods, consumer goods, and motor vehicles.
- Exports of foods and feeds were at their lowest since 2020.
- Imports of consumer goods fell to their lowest level since 2020.
