Mexico now No. 2 U.S. exporter

Southern neighbor overtakes Canada

Mexico is overtaking Canada as the No. 2 exporter of goods to the U.S. this year, in a sign of how economic ties have deepened between the two countries even as the relationship is being questioned by President-elect Donald Trump.

Shipments from Mexico totaled $245 billion in the first 10 months of the year, according to Commerce Department figures released Tuesday, ahead of Canada’s $230 billion. If the trend continues, it would be the first time ever the U.S. bought more imports from its neighbor to the south. The two countries ended 2015 tied in exports to the U.S.

The trend of catching up to Canada puts China and Mexico as the top two exporters to the U.S. just as Trump prepares to take office in January, reflecting the strong pull of lower cost jurisdictions for the U.S. economy. Canada, which has one of the highest cost bases in the Americas, has seen its share of U.S. imports fall to about 13 percent from around 20 percent two decades ago.

“Integration with Mexico has become more solid than with Canada,” said Marco Oviedo, chief Mexico economist for Barclays. “Manufacturing continues to be very competitive in terms of wages and location to other U.S. producers and suppliers.”

The growing links between Mexico and U.S. hinge on motor vehicles. Mexico has won new factories over the past six years from Toyota, Volkswagen’s luxury Audi unit, Kia Motors and BMW — up to $25.9 billion in new auto investments since 2010, according to the Center for Automotive Research in Ann Arbor, Mich. — fueling car shipments totaling $90 billion in the first 10 months. That’s versus $54 billion from Canada.

Canada’s cost base is also a big part of the story. Canada’s labor bill has swelled with unit labor costs in U.S. dollars, a key index of competitiveness, increasing by 64 percent since 2002 even with Canada’s currency weakening in recent years.

Mexico’s average salaries meanwhile rose 0.5 percent a year in the decade through 2014, the least among the 11 largest Latin American nations after Venezuela, International Labor Organization data show.

“Our competitiveness hasn’t been what it could be,” Bank of Canada Governor Stephen Poloz, who grew up in General Motors’s Canadian production hub of Oshawa east of Toronto, told lawmakers in October. Auto manufacturers “can just as easily do it in Mexico, and get a fine dedicated workforce, they get the advantage of lower costs.”