Can’t We All Just Trade Along?
The recent elections saw a great focus on the need to spur domestic job growth. Much has been said about this country’s trade relations with Mexico, in particular. With the elections now behind us, we would be well served to look beyond the sound bites. The fact is that trading with Mexico and other foreign partners is essential to promote economic development and job growth in the U.S.
By continuing to work together, both the U.S. and Mexico could strengthen their economies and create new jobs for their people. This must be viewed as an opportunity, one that carries with it a hefty cost if not pursued: If the U.S. fails to take advantage of international markets and work with existing trading partners like Mexico, others will be quick to step in and reap the benefits.
The U.S. is already, arguably, behind the curve. Mexico is currently a signatory to 10 free trade agreements with 45 different countries. In contrast, the U.S. only has free trade agreements with 20 countries. Moreover, seven of the participating countries of the Trans-Pacific Partnership (which may be dead on arrival), are also negotiating the Regional Comprehensive Economic Partnership, which is a free trade agreement involving 15 countries, but not the U.S. If the U.S. does not encourage trade with its partners, and specifically Mexico, they will surely find other markets. The impact on the U.S. and the region could be substantial.
Net Importer, Near Parity
Mexico is our third largest overall trading partner, behind Canada and China. But consider that the U.S. imports from China four times what it exports, whereas it enjoys near parity in trade with Mexico: in 2015 U.S. exports to Mexico totaled about $236 billion and imports reached $295 billion.
So while there may be a trade deficit with Mexico, it should be viewed in the context of the large amounts of exports to Mexico. After Canada, Mexico is by far the largest export destination for U.S. goods, and U.S. exports to Mexico are over double those to China.
Role of Oil & Gas
Mexico has also opened its oil and gas markets to foreign development, and partnerships between Mexico’s Petroleos Mexicanos (Pemex) and foreign companies. The market changes were enacted in December 2013 through constitutional amendment, and implemented in August 2014 through additional laws. Unfortunately, the changes came about as oil prices declined, so there have not been significant U.S. service exports or development to date. If and when oil prices rise, there should be additional opportunities for U.S. developers and service providers who have the expertise to develop new fields and extract oil and gas from non-traditional wells.
Mexico is also a growing market for U.S. natural gas. The U.S. has an abundant supply, but transportation is a barrier for exports. Exporting to most countries requires the use of liquefied natural gas (LNG), but the U.S. has pipelines to Mexico (and Canada) that can carry natural gas without the cost of LNG. According to U.S. Energy Information Administration (EIA) statistics, exports of natural gas to Mexico have tripled since 2010, and in 2015 they exceeded exports of natural gas to Canada, making Mexico the number one destination for U.S. natural gas.
The Boon of Bilateral Trade
Overall, bilateral trade has a substantial and positive impact on both nations. Exports to and imports from Mexico accounted for over 14 percent of all U.S. foreign trade in 2015. The U.S. and Mexican economies are deeply intertwined, and it makes sense to strengthen trade relations with a geographically close and significant partner that is making moves to open its markets. If the U.S. fails to encourage international trade, it risks being left behind in a growing international market.
Virgil Ochoa is an associate in the international trade practice of Gardere Wynne Sewell LLP, an Am Law 200 firm with offices in Austin, Dallas, Denver, Houston and Mexico City. Partners Elsa Manzanares and Michelle Schulz also contributed to this article.