US trade deficit with Mexico hits near 10-year high

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US trade deficit with Mexico climbed to a near 10-year high in March, as the collapse in the peso triggered by Donald Trump’s presidential victory continues to fuel demand for goods made south of the border.

The trade gap in goods with Mexico stood at $7.03bn in March, a 30 per cent jump compared to the year-ago period and the highest level since October 2017.

The rise comes as the peso suffered a 17 per cent collapse in value against the greenback last year. Despite rallying more than 9 per cent since the start of the year, the peso, which is currently trading at around the 19 per dollar mark, remains some ways off from the 13 per dollar level it was trading at in 2014.

While the March trade deficit is the biggest deficit ever recorded for that month and the third worst month ever since records began in 1985, it should be noted that the data are not seasonally adjusted and do not take into account of inflation.

Still, the latest trade reading is likely to be seized upon by the Trump administration as ammunition ahead of its talks to renegotiate the two-decade-old North American Free Trade Agreement with Mexico and Canada.

Throughout his election campaign, Mr Trump has used the US’s trade deficit with Mexico and the likes of China as reason to ramp up protectionist trade policies.

True, there is no denying that the US is buying more goods from Mexico, with imports setting a record high of $28bn in March as companies took advantage of the weaker peso.

The flip side, however, is that US is also selling more stuff than ever south of the border, with exports to Mexico totalling $21.02bn in March, compared to the $18.1bn recorded in February and the $19.22bn recorded in the prior year period.

It’s easy to long for the days when the US had the upper hand in trade with Mexico. The last time the US ran a trade surplus with Mexico was in 1994, when it exported $1.3bn more to its southern neighbour than it imported.

But that argument also misses the point that trade between Mexico and the US has grown exponentially since 1994. Back then, the US exported just $50.8bn worth of goods to Mexico, compared to the $230.9bn of goods it sold to Mexico in 2016.

Is getting back a $1.3bn surplus worth jeopardising the $180bn in export gains seen over the past 23 years? That’s the question the Trump administration should consider.

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