?? The Forgotten Trade Route: Canada and Mexico's Growing Partnership
Ana Carolina Mexia Ponce
Co-Founding Partner at Nido Ventures | Stanford CS & MBA | Ex LinkedIn
?? The Forgotten Trade Route: Canada and Mexico's Growing Partnership
While headlines focus on U.S.-Mexico relations and nearshoring trends, a quieter but significant trade relationship is evolving. This week, we're exploring the often-overlooked economic ties between Canada and Mexico.
Our analysis by Johan Petersmann reveals surprising growth: bilateral trade reached $49.7 billion in 2022, up 18% from the previous year, while Canadian FDI in Mexico grew to $40.4 billion in 2023. From automotive partnerships meeting USMCA's 75% regional content rule to agricultural exchange worth $2.9 billion, we uncover how this relationship is reshaping North American trade dynamics.
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Nido Indicators ????????
Auto Exports: 332,356 units on Oct 01, 2024 (??5.27% from Sep 01, 2024)
Consumer Confidence Indicator in Mexico: 49.40 points on Oct 01, 2024 (??4.22% from Sep 01, 2024)
Consumer Confidence Indicator in United States: 73.00 points on Nov 01, 2024 (??3.55% from Oct 01, 2024)
Federal Reserve Interest Rate: 4.75% on Nov 07, 2024 (?? 5.00% from Sep 18, 2024)
Bank of Mexico Interest Rate: 10.25% on Nov 14, 2024 (?? 2.38% from Sep 26, 2024)
USD-MXN Exchange Rate: 20.07 on Nov 19, 2024 (??1.13% from Oct 18, 2024)
S&P/BMV IPC: 50,469.40 points on Nov 15, 2024 (??1,908.38 points from Oct 11, 2024)
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In the Know with Nido: What we are reading
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In-depth with Nido: What we are thinking
In the dynamic landscape of North American trade, much of the spotlight remains on the United States and its deepening ties with Mexico, particularly in the context of nearshoring. As companies increasingly relocate supply chains closer to target markets, Mexico has emerged as a key partner for U.S. manufacturers and businesses seeking logistical efficiency and cost savings. The political landscape adds further intrigue, with the incoming Trump presidency likely to reshape trade policies and intensify attention on U.S.-Mexico relations. Amid this heightened focus, the economic relationship between Canada and Mexico often receives less attention, despite containing dynamics and potential opportunities in the broader North American trade network.
While Canada is Mexico’s second-largest trade partner, the bilateral trade volume significantly lags behind the exchanges both countries have with the U.S. In 2022, merchandise trade between Canada and Mexico reached $49.7 billion, reflecting an 18% increase from the previous year (more on Parliament of Canada). However, this amount pales in comparison to the $855.1 billion in U.S.-Mexico trade during the same period (more on United States Trade Representative). Examining the evolving Canada-Mexico trade relationship could shed light on areas for growth that are often overshadowed by the dominant focus on U.S.-Mexico relations.
The implementation of the United States-Mexico-Canada Agreement (USMCA) in 2020 has opened new doors for Canada-Mexico trade. Yet, much of the attention remains focused on U.S.-centric policies and partnerships. Among the key drivers of this trade relationship, the automotive sector stands out. The USMCA’s requirement that 75% of a vehicle’s components must come from North America, an increase from NAFTA’s 62.5%, has incentivized Canadian and Mexican parts manufacturers to collaborate more closely (more on USMCA). For example, Canadian companies Linamar and Magna have capitalized on Mexican manufacturing capabilities while focusing on Canadian design and marketing expertise (more on investmentmonitor.ai). Such partnerships help both nations stay competitive in the global market while meeting USMCA standards.
Agriculture also plays a pivotal role in this relationship. Canada exports products like canola, wheat, and pork to Mexico, while importing fresh produce such as avocados, tomatoes, and berries. In 2022, Mexico imported $2.9 billion worth of Canadian agri-food products (more on Manitoba). For instance, Canadian pork exports meet Mexico’s demand for high-quality meat, while Mexican avocados provide Canadian consumers with fresh produce year-round. This seasonal complementarity underscores how agricultural trade mutually strengthens both economies.
A growing trend reshaping this relationship is nearshoring, driven by supply chain disruptions from the COVID-19 pandemic. Nearshoring involves relocating production closer to target markets, reducing logistics costs and improving supply chain resilience. Mexico’s proximity to the U.S., low labor costs, and expanding manufacturing capabilities make it an attractive destination for Canadian firms. For example, a Canadian electronics company might shift assembly operations from Asia to Mexico, allowing faster delivery to North American consumers. The Conference Board of Canada highlights this trend’s growing importance as companies prioritize logistical efficiency (more on insights.tetakawi.com).
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Co-Founding Partner at Nido Ventures | Stanford Engineering + MBA
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