Why It Matters

A recent Congressional Research Service (CRS) report, published Aug. 13, on U.S.-Mexico trade relations arrives at a critical juncture. Mexico is now the top U.S. trading partner in goods and services, with $976.1 billion in total trade in 2025. Yet the relationship faces mounting strain: the U.S. goods trade deficit with Mexico hit $196 billion last year, a dramatic reversal from the $1.7 billion surplus in 1993.

The Big Picture

U.S. goods exports to Mexico grew 150% from $134.2 billion in 2006 to $337.9 billion in 2025. Imports climbed even faster, growing 170 percent from $198.2 billion to $534.8 billion over the same span. U.S. goods exports to Mexico included computer equipment, petroleum and coal products, and motor vehicle parts, while U.S. imports from Mexico included computer equipment, motor vehicles, and motor vehicle parts. A significant portion of this trade flows through integrated North American supply chains, particularly in the automotive sector.

The United States maintained a services trade surplus of $8.4 billion with Mexico in 2025. American foreign direct investment in Mexico has grown substantially, reaching $169.8 billion in 2025, up 356 percent from $37.2 billion in 1999. The U.S. was the largest source of foreign direct investment flows to Mexico in 2024, providing approximately 40 percent of the country's $36.9 billion in total inflows.

The underlying trade agreement has shifted. North American Free Trade Agreement (NAFTA) entered into force on Jan. 1, 1994. The United States-Mexico-Canada Agreement (USMCA) replaced it on July 1, 2020, retaining most of its provisions while adding new provisions on digital trade, state-owned enterprises, and currency misalignment. The agreement was set for review at a joint meeting on July 1, 2026. At that meeting, the United States declined to renew USMCA in its current form, while Mexico and Canada announced their desire to renew it. USMCA remains in effect through 2036 and is now subject to annual reviews until it is renewed or expires.

The administration launched two Section 301 investigations in February 2026, covering excess industrial capacity and enforcement of a ban on goods made with forced labor. The U.S. Trade Representative found that Mexico has failed to enforce the forced labor import ban. In response, the U.S. imposed a 10 percent tariff on imports from Mexico, effective July 24, 2026; USMCA-compliant goods are exempt from the tariff.

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