The state of U.S. trade with Mexico is on the front page as policy makers attempt to stem the outflow of firms, jobs and goods production from the United States. To put the issues in perspective, it is first helpful to have some facts on U.S. trade in general and trade with Mexico in particular. By comparison with many countries, the U.S. economy is still dominated by domestic production and consumption. In the euro area, for example, trade amounts to about 69 percent of GDP, and in the U.K. it is about 38 percent. In the U.S. economy, by contrast, exports amounts to less than 16 percent of GDP, and imports are only about 12.5 percent as of yearend 2015. Figure 1 shows the evolution of U.S. trade since 1983. Our trade deficit in goods and services is slightly less than 3 percent of GDP in total, down from a peak in 2005 of slightly more than 5 percent.
Against this background, Mexico is the U.S.’s third-largest trading partner (the other two are China and Canada), but trade with Mexico still accounts for only a small and steadily declining share of total U.S. trade. In terms of jobs, in 2014 (the latest year for which estimates are currently available), the U.S. Trade Representative estimated that goods traded accounted for about 953K U.S. jobs and services for about 193K jobs. Figure 2 shows the sharp and continuing drop in U.S. trade with Mexico; and, interestingly, there was no noticeable impact on that trend from NAFTA.
The chart also highlights the falloff in our trade deficit with Mexico, both as a percentage of GDP and as a percentage of our total trade. Figure 3 shows that our deficit with Mexico declined from a peak of slightly over 1.2 percent of GDP in 1986 to less than 0.2 percent in 2015. Again, there is no noticeable impact of NAFTA on either the size of the deficit or its downward trend.
While the quantitative importance of trade with Mexico may be small relative to the size of the U.S. economy, it is clearly more significant to Mexico. Its trade with the U.S. account for half of its GDP, and its surplus with us accounts for about 5 percent of GDP.